New Labour Code: Are 2-day full & final settlement and leave encashment rules already in force?

Even though many states have not yet notified detailed labour code rules, several important employee-related provisions are already active from November 21, 2025. These include rules linked to wages, gratuity, leave encashments, and full & final settlements. Employees and employers should know that some benefits and compliance obligations can begin even without state-level notifications.

The new Labour Code 2025 requires employers to clear full and final settlement dues within two working days after an employee exits. This includes unpaid salary, leave encashment, bonuses, and other pending payments. The faster timeline applies to resignations, retirements, and terminations, making employee settlements quicker and more transparent than under previous labour laws.

The revised definition of “wages” under the new labour code can directly affect gratuity, overtime pay, notice pay, and leave encashment calculations. Companies may need to increase the basic salary portion in salary structures to meet compliance requirements. This change could improve employee benefits while also increasing long-term payroll and statutory costs for employers.

Under the updated wage structure rules, employer gratuity expenses may rise sharply. Deloitte India estimates that for a Rs 15 lakh annual CTC, gratuity costs could increase by nearly 44% under the New Labour Code. While employee take- home salary may remain largely stable, businesses may need to budget for significantly higher employee benefit liabilities.

The central labour code rules mainly apply to central government establishments, PSUs, railways, mines, ports, telecom companies, oil fields, and aviation businesses. However, companies operating across multiple states may also need to follow Central Rules for social security compliance, including EPF and ESI matters, even if they are private sector employers

Most private businesses, including IT firms, startups, factories, and commercial establishments, fall under the jurisdiction of the state governments for labour law implementation. These companies may need to wait for individual state notifications before complete labour code compliance becomes mandatory. However, employers must still comply with provisions that are already legally enforceable nationwide.

Existing EPF, ESI, and statutory bonus thresholds remain valid during the labour code transition period. The EPF wage ceiling continues at Rs 15,000, while the ESI and bonus eligibility threshold remains at Rs 21,000. Existing provident fund, pension, insurance, and ESI schemes will continue until revised frameworks are officially introduced under the new labour codes.

Some labour code provisions still require detailed rules before they can become operational. These include worker re-skilling funds, registration procedures, compliance forms, statutory registers, returns, and several workplace safety requirements. Since many states are yet to issue final rules, implementation of these provisions remains incomplete for employers across sectors.

The government has not announced any official transition period for companies to restructure salaries or update HR systems under the New Labour Codes. Experts advise employers to use this time to modify payroll software, compensation structures, and labour policies. Employees should also review salary components carefully because wage restructuring could impact gratuity and future benefits.