Leaving a job

In short

• Whenever an employee is removed, dismissed, retrenched, resigns or loses their job because the establishment closes, pay the wages due within two working days s. 17(2).
• Pay wages for the annual leave the worker had earned but not taken: before the second working day if they are discharged, dismissed or quit, and within two months on superannuation or death s. 32(1)(vi).
• Pay gratuity if they have at least five years of continuous service, or less in the cases the Code allows; see the gratuity guide s. 53(1).
• To retrench a worker with at least a year of continuous service, give one month’s written notice or wages instead, and pay compensation of fifteen days’ average pay for every completed year s. 70.

Does this apply to you?

• The final-wages deadline applies to every employer under the Code on Wages s. 17(2).
• The retrenchment conditions apply to any worker employed in any industry who has been in continuous service for not less than one year s. 70.
• Retrenchment means ending a worker’s service for any reason other than as a disciplinary punishment s. 2(zh).
• It does not include voluntary retirement, superannuation, non-renewal or expiry of a contract, the end of a fixed-term employment, or termination for continued ill-health s. 2(zh).
• A factory, mine or plantation with not less than three hundred workers on average per working day in the preceding twelve months (or a higher number if notified) also needs Government permission to retrench or close s. 77(1), (3).

What the law requires

Final wages and leave wages

• Pay the wages due within two working days of the removal, dismissal, retrenchment or resignation s. 17(2).
• Pay wages in lieu of the leave the worker was entitled to, even if they had not yet worked long enough to take it s. 32(1)(vi).
• That payment is due before the second working day after discharge, dismissal or quitting, and within two months after superannuation or death s. 32(1)(vi)(a)–(b).

Retrenchment

• Give one month’s notice in writing stating the reasons, or pay wages for the notice period instead s. 70(a).
• At the time of retrenchment, pay compensation of fifteen days’ average pay (or the number of days the appropriate Government notifies) for every completed year of continuous service, counting a part year of more than six months s. 70(b).
• Average pay is the average wages payable in three complete calendar months for a monthly-paid worker, four complete weeks for a weekly-paid worker, and twelve full working days for a daily-paid worker s. 2(d).
• Serve notice on the appropriate Government or the authority it specifies s. 70(c).
• Unless you have an agreement with the worker, retrench the last person employed in the category, unless you record reasons for choosing someone else s. 71.
• If you hire within a year of retrenching, give the retrenched workers who are citizens of India the chance to come back, with preference over others s. 72.

Example Average monthly pay ₹26,000 and 9 years 7 months of service: the part year is more than six months, so 10 years count. Using a day’s pay of ₹26,000 ÷ 26 = ₹1,000 (the Code does not fix the divisor), compensation is 15 × ₹1,000 × 10 = ₹1,50,000, plus ₹26,000 if no notice was given. Use the retrenchment calculator for your own figures.

Worker re-skilling fund

• For every retrenched worker, contribute fifteen days’ wages last drawn (or the number of days the Central Government notifies) to the worker re-skilling fund s. 83(2)(a).
• The fund credits that amount to the worker within forty-five days of the retrenchment s. 83(3).

Larger factories, mines and plantations

• Give three months’ notice in writing, or wages instead, and obtain the prior permission of the appropriate Government s. 79(1).
• If the Government does not communicate its decision within sixty days of the application, permission is deemed granted s. 79(4).
• Retrenchment without applying, or after permission is refused, is illegal from the date of notice, and the workers keep all their benefits s. 79(7).
• Compensation is fifteen days’ average pay for every completed year of continuous service, counting a part year of more than six months s. 79(9).

Closing down

• Give the appropriate Government at least sixty days’ notice of an intended closure, with reasons s. 74(1).
• That notice is not needed for an establishment with less than fifty workers on every day of the preceding twelve months, or an establishment set up for construction work s. 74(1), proviso.
• On closure, each worker with at least a year of continuous service is entitled to notice and compensation as if retrenched s. 75(1).
• If the closure is due to unavoidable circumstances beyond your control, compensation is capped at three months’ average pay; financial losses, unsold stock, or the end of a lease or licence do not count as such circumstances s. 75(1), proviso and Explanation.
• The larger factories, mines and plantations must apply for permission at least ninety days before closing s. 80(1).

Transfer of the business

• If ownership or management changes, workers with at least a year of continuous service are entitled to notice and compensation as if retrenched s. 73.
• That does not apply if their service is not interrupted, their terms are no less favourable, and the new employer is liable for compensation based on their full service s. 73, proviso.

Standing orders

• Standing orders apply to industrial establishments with three hundred or more workers on any day of the preceding twelve months s. 28(1).
• Until your own standing orders are certified, the model standing orders are deemed adopted s. 29(2).
• The model standing orders for manufacturing require a month’s notice, or wages instead, to end a permanent worker’s employment order 22(1)(i). The mining and service sector models say the same.
• Temporary workers, probationers, substitutes, fixed-term and casual workers whose contracts expire or are not renewed get no notice or pay in lieu order 22(2).
• Issue a service certificate showing the work, designation and period of employment within ten days of the worker leaving order 13(1)(ii).

Numbers at a glance

What	Figure	Where
Final wages	within two working days	s. 17(2)
Leave wages on quitting or dismissal	before the second working day	s. 32(1)(vi)(a)
Service needed for retrenchment rules	not less than one year	s. 70
Retrenchment notice	one month	s. 70(a)
Retrenchment compensation	fifteen days’ average pay per completed year	s. 70(b)
Part year that counts	more than six months	s. 70(b)
Re-skilling fund	fifteen days’ wages last drawn	s. 83(2)(a)
Permission needed above	three hundred workers	s. 77(1)
Notice in those establishments	three months	s. 79(1)(a)
Closure notice	sixty days	s. 74(1)

Records and deadlines

• Send notice of retrenchment in Form-XIII to the Central Government and the Deputy Chief Labour Commissioner (Central) by e-mail or speed post, within three days of serving notice on the worker or paying wages in lieu rule 27(a)–(b).
• For retrenchment under an agreement that fixes a date, the notice must reach them at least a month before that date rule 27(c).
• Post a seniority list of the workers in the category on the notice board at least seven days before the retrenchment rule 28(1).
• Transfer the re-skilling fund amount electronically within ten days of the retrenchment, and send the list of retrenched workers with their bank details rule 37(1), (3).
• Display vacancies at least fifteen days before filling them and inform the retrenched workers eligible to be considered rule 28(3).

Not covered here

• Lay-off, dismissal for misconduct and the disciplinary procedure.
• Provident fund withdrawal.
• Rules made by State Governments, where the State is the appropriate Government. The deadlines above follow the Central Rules.

In short

• Whether you resign, are dismissed, are retrenched or lose your job because the workplace closes, your employer must pay your wages within two working days s. 17(2).
• You are paid for the annual leave you had earned but not taken s. 32(1)(vi).
• If you have worked there for at least five years, you also get gratuity; see the gratuity guide s. 53(1).
• If you are retrenched after at least a year of continuous service, you get one month’s notice or a month’s wages, and compensation of fifteen days’ average pay for every completed year s. 70.

Does this apply to you?

• The wage deadline applies to everyone who leaves, for any reason listed in the Code s. 17(2).
• You are retrenched if your employer ends your job for any reason other than as a punishment s. 2(zh).
• It is not retrenchment if you take voluntary retirement, reach retirement age, your contract or fixed term ends or is not renewed, or your job ends because of continued ill-health s. 2(zh).

What the law requires

Your last pay

• Your wages must be paid within two working days of your resignation, dismissal or retrenchment s. 17(2).
• Leave wages must be paid before the second working day after you leave, or within two months if you retire s. 32(1)(vi)(a)–(b).
• If you die while in service, your heir or nominee is paid your leave wages within two months s. 32(1)(vi)(b).

If you are retrenched

• You must get one month’s written notice giving the reasons, or wages for that month instead s. 70(a).
• You must be paid compensation of fifteen days’ average pay for every completed year, and a part year of more than six months counts s. 70(b).
• If you are paid monthly, your average pay is the average of your wages in the last three complete calendar months s. 2(d).
• Your employer must pay fifteen days of your last wages into the worker re-skilling fund s. 83(2)(a), which credits it to you within forty-five days s. 83(3).
• Normally the last person hired in your category goes before others, unless there is an agreement or your employer records reasons s. 71.
• If your employer hires again within a year, you must be offered the chance to come back, ahead of others s. 72.

Example Your average pay is ₹26,000 a month and you worked 9 years 7 months, so 10 years count. Taking a day’s pay as ₹1,000 (₹26,000 ÷ 26), compensation is ₹1,50,000, plus ₹26,000 if you got no notice. Try the retrenchment calculator.

In a large factory, mine or plantation

• If it has not less than three hundred workers, your employer needs the Government’s prior permission to retrench you and must give three months’ notice or wages instead s. 77(1), s. 79(1).
• A retrenchment without that permission is illegal, and you keep all your benefits as if no notice had been given s. 79(7).

If the workplace closes or is sold

• If you have at least a year of continuous service, you get notice and compensation as if you had been retrenched s. 75(1).
• The same applies if the business is transferred to a new owner, unless your service continues unbroken on terms at least as good s. 73.

Notice and service certificate

• Under the model standing orders, a permanent worker gets a month’s notice or wages instead order 22(1)(i).
• You are entitled to a service certificate showing your work, designation and period of employment within ten days of leaving order 13(1)(ii).

Numbers at a glance

What	Figure	Where
Final wages	within two working days	s. 17(2)
Retrenchment notice	one month	s. 70(a)
Compensation	fifteen days’ average pay per year	s. 70(b)
Re-skilling fund	fifteen days’ wages, within forty-five days	s. 83
Service certificate	within ten days	order 13(1)(ii)

What to do if it isn’t followed

• For unpaid wages, leave wages or bonus, you, your registered trade union or an Inspector-cum-Facilitator can file a claim with the authority under the Code on Wages within three years s. 45(4), (6).
• The authority can order compensation of up to ten times the amount of the claim s. 45(2).

Not covered here

• Dismissal for misconduct, lay-off, and raising an industrial dispute.
• Provident fund withdrawal and State rules.