An employee resigns, serves the notice period and hands over the laptop on the last working day. HR says the full and final settlement will be processed in 45 to 60 days, once IT, finance and the reporting manager have given exit clearance. When the statement arrives, it shows a deduction for the part of the notice period that was not served, a recovery of the joining bonus and nothing against leave encashment. The employee is asked to sign a no-dues declaration before anything is paid.
For most salaried employees in India, this is simply part of how a job ends, and for most of them the only recourse was a lengthy civil suit. That changed on 21 November 2025, when the Code on Wages, 2019 came into force. Section 17(2) of the Code requires that where an employee has been removed, dismissed or retrenched, has resigned, or has become unemployed because the establishment closed, the wages payable shall be paid within two working days.
What has changed
A two-day rule is not new. Section 5(2) of the Payment of Wages Act, 1936 required wages to be paid before the expiry of the second working day where employment was terminated by or on behalf of the employer. The new Code has changed that position in two major ways.
The first is resignation. The old provision applied only when the employer ended the employment. Section 17(2) expressly covers an employee who has resigned, which is how most salaried employees leave.
The second, and more significant, is coverage. The 1936 Act applied only to employees earning up to ₹24,000 a month, which left out most professionals and managers. The new Code has no wage ceiling. Section 2(k) defines “employee” to include a person employed to do “supervisory, managerial, administrative, technical or clerical work”.
Having said that, this sits oddly with the Industrial Relations Code, 2020. Section 2(zr) of that Code excludes persons employed mainly in a managerial or administrative capacity, and supervisors drawing more than ₹18,000 a month, from the definition of “worker”. A manager therefore cannot raise an industrial dispute over a termination, but can bring a claim for unpaid wages before the authority under the Code on Wages. For many managers, this is the first forum outside the civil courts that is open to them for a salary claim.
What counts as “wages”
The two-day rule applies to wages as defined in Section 2(y), and not to every figure on a settlement statement. The definition includes basic pay, dearness allowance and retaining allowance. For the purpose of payment of wages, the second proviso to Section 2(y) also brings in conveyance allowance, house rent allowance, overtime and amounts payable under an award or settlement. Salary up to the last working day, with its allowances, is therefore within the rule.
Commission, gratuity, retrenchment compensation, ex gratia payments, the employer's provident fund and pension contributions, and reimbursement of special expenses are excluded. Gratuity has its own thirty-day timeline under the Code on Social Security, 2020. The exclusion for bonus covers only bonus payable under a statute that does not form part of the contractual remuneration, so a contractual bonus that has already fallen due is not excluded. Leave encashment is not in the list of exclusions either, though whether it is “wages” for this purpose is likely to be contested.
The practical consequence is that a settlement statement should be split. The wages component carries a two-day deadline. The rest carries its own timelines and remedies, and it should not be allowed to hold up the part that the Code says is already due.
When the two days begin on resignation
Section 17(2) requires payment within two working days of the employee's resignation. Read literally, that could mean the date on which the resignation letter is submitted. However, that cannot be right where the employee serves a notice period, since the wages for that period have not yet been earned. The sensible reading, thus, is that the two days run from the date on which the resignation takes effect, which is the last working day. Unless the appropriate Government has provided a different time limit under Section 17(3), a policy that allows the employer more than two working days from that date is not consistent with the Code.
Deductions and exit clearance
The settlement is also where employers usually make their recoveries. Section 18(1) provides that, notwithstanding anything in any other law, no deductions shall be made from wages except those authorised by the Code. The deductions permitted by Section 18(2) are limited to those listed, which include fines, absence from duty, damage to or loss of goods expressly entrusted to the employee, housing and amenities, advances and loans, income tax and social security contributions. Furthermore, the total deductions in any wage period cannot exceed fifty per cent of wages.
Recovery of pay for an unserved notice period, a joining bonus or a training bond is not on that list. The employer may have a claim for these amounts and may pursue it, but deducting them from final wages is difficult to reconcile with Section 18. The Code also does not make payment of wages conditional on exit clearance or a no-dues declaration. Where company property has not been returned, the Code allows a deduction for loss of goods entrusted to the employee, subject to its conditions. However, it still does not permit the employer to withhold the entire payment until clearance is complete.
Who enforces it
Section 45 requires the appropriate Government to appoint authorities, not below the rank of a Gazetted Officer, to hear and determine claims arising under the Code. The application may be filed by the employee, by a registered trade union of which the employee is a member, or by the Inspector-cum-Facilitator, within three years of the date on which the claim arises. The authority may condone delay beyond that period.
The most important leverage comes from the authority's power to order compensation of up to ten times the claim determined, in addition to the claim itself. This makes it an effective remedy for an aggrieved employee, particularly as the authority is to endeavour to decide claims within three months. An unpaid order is recovered through the Collector as arrears of land revenue, avoiding the need for lengthy execution proceedings. An appeal lies under Section 49 within ninety days to an officer at least one rank higher, and the Central Rules, where they apply, require an employer to deposit the amount before its appeal is heard. The Inspector-cum-Facilitator can also call for registers and records under Section 51, which helps an employee who left without payslips or attendance records.
Before the Code, a manager with two months' unpaid salary had little option other than a civil suit, with the court fee, cost and delay that come with it. A claim before the Section 45 authority, with the possibility of compensation, is a much stronger position to negotiate from.
What stands in the way
The machinery is still uneven. Authorities and rules are notified by each appropriate Government, and States are at different stages, so the notification for the district should be checked before filing. Labour offices used to claims from workmen may question whether they can entertain a claim from a manager. The answer is in Section 2(k), which draws no line by designation or salary. Disputed contractual entitlements, such as stock options, deferred bonus plans or damages for wrongful termination, will still belong in the civil courts. The Section 45 authority is best suited to salary that is clearly due and has not been paid, which describes most settlement disputes.
For employers, exit policies that allow 45 days, make payment subject to clearance, or set off notice pay against wages need to be revised, since each of these now carries exposure to compensation. For employees, the first step is to separate the wages component, ask for it with reference to Section 17(2), and approach the authority if it is not paid. The Code has, on paper, given salaried managers a very effective forum for recovery of unpaid salary. Whether it proves useful will depend on employees using it, and on labour departments accepting these claims as part of their work.
Author is an Advocate practicing at Supreme Court of India and the Delhi High Court. Views are personal.