Employers will have to pay all the wages and dues within two days after an employee’s last working day, according to the Code on Wages, 2019, that has been passed by the Parliament. At present, it takes about a month to get the final payment after an employee leaves her or his job. 

Every remuneration from salaries to allowances including basic pay, dearness allowance, and retaining allowance, are considered to be a part of the wages under the code. It excludes other items such as value of housing accommodation, conveyance allowance, leave travel allowance, etc. According to the code, if the exclusions apart from gratuity payable, retrenchment compensation, ex-gratia paid on termination, other retirement benefits, is more than 50 percent of the total remuneration, the entire amount will be included in the wages. 

As far as the ESOP (Employee Stock Option plan) is concerned, the value of up to 15 percent of the total wages will be included in the wages. 

Here are the stipulations under the Code on Wages, 2019: 

“Where an employee has been: 

i) Removed or dismissed from service; or 

ii) Retrenched or had resigned from service; or

iii) Became unemployed due to closure of establishment; 

The wages payable to him shall be made within two days of his removal, dismissal, retrenchment or, as the case may be, his resignation.” 

Current scenario

At present, the Payment of Wages Act is in place which is vague to the point of almost being silent on issues like the settlement of the full and final amount in case of resignation of the employee. Moreover, when an employee is dismissed or retrenched, the current act covers those employees whose earning wages are below Rs. 24,000 per month, as per the Payment of Wages Act 1936. 

Key takeaway

The Code of Wages, 2019, will provide better clarity and strategy for full and final payment in various scenarios when an employee ceases to work for a particular organization. However, it is important for both employees and employers to keep an eye out on the different steps in the implementation of this particular code so as to stay on track from the perspective of being compliant to the new rules. Even though this code has been passed by the Parliament, the actual date from which this code is to be implemented remains unannounced.