Two things happen when someone leaves a job, and people constantly confuse them. The first is the notice period — the weeks you serve after resigning, set by your contract. The second is termination by the employer — retrenchment, with its own statutory notice, compensation, and now a brand-new re-skilling payment. The New Labour Codes changed the second sharply and left the first largely to your appointment letter. Mixing them up is where employees lose money and employers invite disputes.
Here's how exits actually work under the Industrial Relations Code, 2020, in force since 21 November 2025.
Quick answer: Your notice period for resigning is still whatever your appointment letter or standing orders say — the Codes don't fix a universal figure. When an employer retrenches a worker (Section 70), they owe one month's notice (or wages in lieu) plus 15 days' average pay for every completed year of service, plus a separate 15 days' wages into a Re-skilling Fund (Section 83), credited within 45 days. And every employee's full-and-final settlement must be paid within two working days of their last day.
Notice period vs retrenchment — don't confuse them
Notice period is contractual. When you resign, you serve the notice your appointment letter specifies (commonly 30–90 days), or pay in lieu. The Labour Codes do not impose a single statutory resignation notice — they make the appointment letter mandatory, but the period inside it is negotiated.
Retrenchment is statutory. When the employer ends your service for reasons other than disciplinary action — a division shuts, a role is cut — the Industrial Relations Code dictates exactly what you're owed. This is where the real money sits.
The new full-and-final settlement rule
This one applies to everyone, however they leave. All wages and dues on exit — resignation, termination, or retrenchment — must now be settled within two working days of the last working day. That replaces the old, informal habit of clearing dues in the next payroll cycle, often 30 to 45 days later.
⚠️ For employers: two working days is fast. It requires payroll that can calculate leave encashment, notice adjustments, and statutory dues on demand — not at month-end.
What must employers pay on retrenchment?
Under Section 70, a worker with at least one year of continuous service who is retrenched is entitled to:
- One month's written notice stating the reason, or wages in lieu of that notice;
- Retrenchment compensation of 15 days' average pay for every completed year of continuous service (any part beyond six months counts as a full year); and
- Notice to the appropriate Government in the prescribed form.
Note "average pay," not basic alone — it's built on the components that make up wages.
The Re-skilling Fund — money that didn't exist before
This is genuinely new, with no equivalent in the old Industrial Disputes Act. Under Section 83, on every retrenchment the employer must contribute 15 days' last-drawn wages to a Worker Re-skilling Fund, credited to the retrenched worker's account within 45 days. It is in addition to the Section 70 compensation, and it applies regardless of how many workers the establishment has.
💡 If you're retrenched, ask for it in writing. The 15-day re-skilling credit is extra money, and it's the entitlement most workers don't know to claim.
When does the government's permission matter?
The threshold for needing prior government permission to lay off, retrench, or close moved from 100 to 300 workers (Section 77).
- Under 300 workers: no prior permission needed — only the Section 70 dues and notice to the Government.
- 300 or more workers: the employer must obtain prior government permission, and notice rises to three months. A closure needs an application 90 days in advance (Section 80).
States can notify a lower threshold for their jurisdiction, so check yours. Also note: the lay-off and retrenchment provisions generally don't apply to establishments with fewer than 50 workers on average, or to seasonal ones.
Fixed-term employees and natural contract expiry
Fixed-term employment is now formally recognised across all sectors, with wage and benefit parity with permanent staff. When a fixed-term contract simply runs to its natural end, that's not retrenchment — no separate retrenchment notice or compensation is triggered. But a fixed-term employee whose contract lasts a year or more earns pro-rata gratuity without the usual five-year wait.
What if the termination is illegal?
If an employer with 300+ workers retrenches without the required permission, the retrenchment is illegal, and the worker can be treated as in continuous service with a claim to reinstatement. Any individual termination dispute is an industrial dispute: the worker can approach the Industrial Tribunal, typically 45 days after raising it in conciliation, and within three years of the termination. Keep your appointment letter, salary slips, the termination letter, and your bank statement showing what was actually paid — they prove length of service and average pay.
Worked example: a retrenchment payout
A worker earns ₹24,000 a month (about ₹1,200 a day in average pay) and has served 6 years and 8 months when their division closes. The firm has 120 workers.
- Completed years: the extra 8 months counts as a full year → 7 years.
- Retrenchment compensation: 15 × 7 × ₹1,200 = ₹1,26,000.
- Notice: one month's wages in lieu (≈ ₹24,000) if notice isn't served.
- Re-skilling Fund: 15 days' wages (≈ ₹18,000), credited within 45 days.
- Because the firm has under 300 workers, no prior government permission is needed — only notice to the Government.
Total cash to the worker, beyond regular dues: roughly ₹1,68,000.
Common mistakes
- Confusing resignation notice with retrenchment notice. They're different rules with different money attached.
- Forgetting the Re-skilling Fund. It's separate from compensation and easy to miss.
- Counting basic pay only. Compensation is 15 days' average pay, not basic alone.
- Assuming the old 100-worker permission rule. It's 300 now (unless your state says lower).
- Missing the two-working-day settlement window. Late full-and-final is now a compliance failure, not just bad practice.
Checklist
- Put a clear notice period in every appointment letter.
- Build payroll that can settle full-and-final within two working days.
- For any retrenchment, calculate Section 70 compensation on average pay.
- Credit the 15-day Re-skilling Fund amount within 45 days.
- If you have 300+ workers, get prior government permission before retrenching.
- Confirm your state's threshold and rules.
Frequently asked questions
Do the Labour Codes fix a standard notice period for resignation? No. Your resignation notice is whatever your appointment letter or standing orders specify. The Code makes the appointment letter mandatory but leaves the period to the contract.
How fast must my final settlement be paid? Within two working days of your last working day.
What is retrenchment compensation under the new code? 15 days' average pay for every completed year of continuous service, plus one month's notice (or wages in lieu), for workers with at least a year of service.
What is the Re-skilling Fund? A new statutory payment of 15 days' wages the employer must credit to a retrenched worker within 45 days, on top of retrenchment compensation.
When does an employer need government permission to retrench? When the establishment has 300 or more workers (states may notify a lower figure).
This article is for legal awareness and education only and is not legal advice. Thresholds and procedures vary by state and by establishment type; confirm the current position for your state and consult a qualified professional before acting.