Two different things happen when someone leaves a job, and they get confused constantly. Serving out weeks after you resign is one. Being let go because a division shut down is the other. The first is governed by your appointment letter. The second is governed by statute, and it is worth considerably more money.
Under the Industrial Relations Code, 2020, in force since 21 November 2025, resignation notice remains whatever your contract says, while retrenchment carries one month's notice plus 15 days' average pay per completed year plus a separate 15 days' wages into a Re-skilling Fund — and every exit must be settled within two working days.
The bottom line
If you resign: your notice period is whatever the appointment letter or standing orders say. The Codes fix no universal figure.
If you are retrenched: Section 70 gives you one month's notice or wages in lieu, plus 15 days' average pay for every completed year. Section 83 adds 15 days' wages into a Re-skilling Fund, credited within 45 days.
Either way: full-and-final settlement is due within two working days of your last day.
Notice period and retrenchment are not the same thing
Notice period is contractual. When you resign, you serve whatever the appointment letter specifies, commonly 30–90 days, or you pay in lieu. The Labour Codes make the appointment letter mandatory but leave the period inside it to negotiation.
Retrenchment is statutory. When the employer ends your service for a reason other than discipline — a division closes, a role goes — the Industrial Relations Code decides what you are owed, and your contract cannot cut below it.
The two-working-day settlement rule
This applies to everyone, however they leave. All wages and dues on exit — resignation, termination or retrenchment — must be settled within two working days of the last working day. It replaces the informal habit of clearing dues in the next payroll cycle, which often meant 30 to 45 days later.
For employers that is a genuine systems problem. Two working days means payroll has to calculate leave encashment, notice adjustments and statutory dues on demand rather than at month end, and the finance team has to be able to release the payment outside the usual run.
What retrenchment costs the employer
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, with any part beyond six months counting as a full year; and
- notice to the appropriate Government in the prescribed form.
Read "average pay" carefully. It is built on the components making up wages, not on basic alone, and the difference between those two readings is most of the payout.
The Re-skilling Fund
Section 83 has no equivalent in the old Industrial Disputes Act. 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 sits on top of the Section 70 compensation rather than inside it, and it applies whatever the size of the establishment. It is also the entitlement retrenched workers most often fail to claim, simply because nobody tells them it exists. Ask for it in writing.
When the government has to approve
The threshold for needing prior government permission to lay off, retrench or close moved from 100 to 300 workers under Section 77.
- Under 300 workers: no prior permission. The Section 70 dues and notice to the Government are the whole obligation.
- 300 or more workers: prior government permission is required, and notice rises to three months. A closure needs an application 90 days in advance under Section 80.
States can notify a lower threshold for their own jurisdiction, so check yours before relying on the central figure. The lay-off and retrenchment provisions also generally do not reach establishments averaging fewer than 50 workers, or seasonal ones.
Fixed-term contracts running to their end
Fixed-term employment is now formally recognised across all sectors, with wage and benefit parity with permanent staff.
When a fixed-term contract reaches its natural end, that is not retrenchment. No separate retrenchment notice or compensation is triggered. A fixed-term employee whose contract lasted a year or more does earn pro-rata gratuity, without the usual five-year wait.
If the termination was illegal
Where an employer with 300 or more workers retrenches without the required permission, the retrenchment is illegal and the worker can be treated as remaining 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 the appointment letter, the salary slips, the termination letter and the bank statement showing what was actually paid. Those four documents prove length of service and average pay, which are the two numbers the whole claim turns on.
A worked example
A worker earning ₹24,000 a month, roughly ₹1,200 a day in average pay, has served 6 years and 8 months when their division closes. The firm employs 120 workers.
- Completed years: the extra 8 months counts as a full year, so 7 years.
- Retrenchment compensation: 15 × 7 × ₹1,200 = ₹1,26,000.
- Notice: one month's wages in lieu, about ₹24,000, if notice is not served.
- Re-skilling Fund: 15 days' wages, roughly ₹18,000, to be credited within 45 days.
- With fewer than 300 workers, no prior government permission is needed — only notice to the Government.
Beyond regular dues, that is roughly ₹1,68,000 to the worker.
Common mistakes
- Treating resignation notice and retrenchment notice as the same rule. They are different obligations with different money attached.
- Overlooking the Re-skilling Fund. It is separate from compensation and easy to leave out of the calculation.
- Computing compensation on basic pay. It is 15 days' average pay.
- Working to the old 100-worker permission threshold. It is 300 now, unless your state has notified lower.
- Settling dues in the next payroll cycle. Missing the two-working-day window is a compliance failure rather than a delay.
Frequently asked questions
Do the Labour Codes fix a standard notice period for resignation? No. Your resignation notice is whatever the appointment letter or standing orders specify. The Code makes the letter mandatory and 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 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? At 300 or more workers, though states may notify a lower figure.
Does a fixed-term contract ending count as retrenchment? No. A contract running to its natural end triggers no retrenchment notice or compensation, though pro-rata gratuity is still due where the contract lasted a year or more.