Delayed or unpaid salaries are more than an HR issue - they represent a serious legal and compliance failure. For employees, non-payment directly affects financial stability. For organisations, it raises red flags around governance, labour law compliance, and reputational risk.
This guide explains the legal remedies available in India, the step-by-step course of action for employees, and how organisations can prevent such situations through better compliance frameworks - updated to reflect the four Labour Codes now fully in force since 21 November 2025, as notified by the Government of India.
Why Non-Payment of Salary Is a Serious Legal Issue in India
In India, timely payment of wages is not discretionary - it is a statutory obligation. The Code on Wages, 2019 (in force since 21 November 2025) specifically mandates that employers pay wages within fixed timelines and settle all dues within two working days upon separation. Failure to comply is a punishable offence.
Employers who fail to pay salaries on time may face:
• Legal penalties and fines under the Code on Wages, 2019
• Proceedings before Labour Courts, Industrial Tribunals, or the Inspector-cum-Facilitator
• Regulatory scrutiny and inspection under the new single-window compliance system
• Damage to employer brand, investor confidence, and talent retention
From a compliance standpoint, unpaid wages indicate deeper governance issues such as cash flow mismanagement, weak internal controls, or intentional misconduct. Under the new Labour Codes, even first-time offences are recorded and repeat violations attract stricter action.
Updated Legal Framework: The Four Labour Codes (In Force Since 21 November 2025)
India's labour law landscape has undergone its most comprehensive reform since Independence. The Government of India has consolidated 29 Central Labour Acts into four Labour Codes, effective 21 November 2025. During the transition period, old rules remain in force until final Central and State rules are notified, as per Section 6 of the General Clauses Act, 1897 (confirmed in Ministry of Labour & Employment FAQs, December 2025).
1. Code on Wages, 2019 - The Primary Law Governing Salary Disputes
The Code on Wages, 2019 consolidates four earlier laws: the Payment of Wages Act 1936, the Minimum Wages Act 1948, the Payment of Bonus Act 1965, and the Equal Remuneration Act 1976. It is the single most important statute for any salary dispute in India.
Wage Payment Timelines (Section 6, Code on Wages, 2019)
As per the official Compliance Handbook for Employers issued by the Ministry of Labour & Employment, wages must be paid within the following timelines:
Wage Period and Payment Deadline (Source: Section 6, Code on Wages, 2019)
Daily: At the end of the working day
Weekly: On the last working day of the week
Fortnightly: Before the end of the second day after the fortnight ends
Monthly: Before the expiry of the 7th day of the succeeding month
2-Working-Day Exit Settlement Rule (Section 17, Code on Wages, 2019)
This is one of the most significant new obligations. As per Section 17 of the Code on Wages, 2019 and confirmed in the official MoLE Compliance Handbook:
"When an employee leaves an establishment, whether by resignation, dismissal, or termination,
the employer is required to pay all due wages within two working days."
This replaces the earlier industry norm of processing final payments in the next payroll cycle (often 30–45 days). It applies to resignation, dismissal, retrenchment, and all other forms of separation.
The 50% Wage Rule - Standardised Definition of 'Wages' (Section 2(y), Code on Wages, 2019)
The Code on Wages introduces a uniform, cross-code definition of 'wages' which has direct implications for salary disputes. As per the official MoLE FAQs (December 2025 and March 2026):
• Wages include: Basic pay, Dearness allowance, and Retaining allowance
• All other allowances and benefits together (except gratuity and retrenchment compensation) must NOT exceed 50% of total remuneration
• If they do exceed 50%, the excess amount is added back to wages for all statutory calculations
• Annual performance-based incentives and ESOPs are NOT part of wages (MoLE FAQ, March 2026)
• Leave encashment is NOT part of allowances under Section 2(y) of the Code
ILLUSTRATION :
Total remuneration: ₹76,000/month
Basic Pay + Dearness Allowance: ₹20,000
Allowances: ₹40,000
Other components (Gratuity + retrench. comp): ₹16,000
Total allowances paid: ₹56,000
Max. allowances allowed (50% of ₹76,000): ₹38,000
Excess over 50% limit: ₹2,000
₹2,000 is added back to wages (Basic + DA = ₹22,000 for statutory purposes)
Authorised Deductions - What Employers CAN and CANNOT Deduct (Section 18)
Employers may only make deductions that are specifically authorised under the Code. As per the official Compliance Handbook:
• Permitted: Absence from duty, damage/loss recovery, advance/loan recovery, fines (after opportunity to be heard), house accommodation
• Total deductions in any wage period must NOT exceed 50% of wages
• Salary cannot be withheld for performance issues unless contractually linked to variable incentive components
Penalties and Enforcement (Chapter VIII, Code on Wages, 2019)
The Code replaces the old 'Inspector' role with a new Inspector-cum-Facilitator under Section 51. As per the official government documents:
• First-time offenders are given an opportunity to rectify non-compliance before action is initiated
• If the same offence is repeated within five years of the first offence, no such rectification opportunity is available
• The maximum penalty is imprisonment for up to three months and/or a fine of up to ₹1,00,000
• Offences not punishable by imprisonment may be compounded (settled) for first-time violations
2. Industrial Relations Code, 2020 - Dispute Resolution Framework
The Industrial Relations Code, 2020 consolidates the Trade Unions Act 1926, the Industrial Employment (Standing Orders) Act 1946, and the Industrial Disputes Act 1947. For salary disputes, its key provisions are:
Grievance Redressal Committee (Section 4)
Every industrial establishment employing 20 or more workers must constitute a Grievance Redressal Committee (GRC) as per the official Compliance Handbook:
• Equal representation from employer and workers
• Maximum 10 members total
• Chairperson rotates alternately between employer and worker representatives every year
• Any aggrieved worker may file an application within one year from the date the cause of action arises
• GRC must complete proceedings within 30 days of receiving the application
Layoff and Retrenchment Compensation (Chapter IX & X)
Where salary non-payment is linked to business closure or retrenchment:
• For establishments with 50–299 workers: Prior notice to the appropriate government is required before layoff, retrenchment, or closure
• For establishments with 300+ workers: Prior permission from the appropriate government is required
• Laid-off workers are entitled to 50% of Basic Wages + Dearness Allowance for the period of layoff
• Retrenchment compensation: 15 days' average pay for each completed year of continuous service
• Workers' Re-Skilling Fund: Employer must contribute 15 days' wages per retrenched employee
3. Code on Social Security, 2020 - Extended Coverage
The Code on Social Security, 2020 subsumes nine earlier laws covering EPFO, ESIC, Gratuity, Maternity Benefit, and Employee Compensation. Key updates affecting salary disputes:
Gratuity Provisions (Effective 21 November 2025)
As confirmed in the official MoLE FAQs:
• Gratuity becomes payable on: termination, superannuation, resignation, death or disablement, expiry of fixed-term contract, or any other event notified by the Central Government
• Gratuity = 15 days' wages for every completed year of service (or part thereof exceeding 6 months)
• For Fixed-Term Employees (FTE): Gratuity is payable after completion of exactly ONE year of service (reduced from five years - confirmed in MoLE FAQ, March 2026)
• Maximum gratuity: ₹20 lakhs (as currently notified by the Central Government)
• Calculation is based on the revised definition of 'wages' under Section 2(y) of the Code on Wages, effective 21 November 2025
Important Clarification (MoLE FAQ, March 2026 - labour.gov.in):
Gratuity for service prior to 21 November 2025 is calculated under the Payment of Gratuity Act 1972.
Service on or after 21 November 2025 falls under the Code on Social Security, 2020.
Retrospective recalculation of PF contributions is NOT required.
Gig and Platform Workers
For the first time, gig and platform workers are brought within the social security framework. Aggregator companies are required to contribute to a Central Government Social Security Fund for the welfare of gig and platform workers, at rates to be notified by the Central Government (Section 114(4), Code on Social Security, 2020).
4. OSH & WC Code, 2020 - Working Conditions and Appointment Letters
The Occupational Safety, Health and Working Conditions Code, 2020 introduces mandatory appointment letters for all workers. This is directly relevant to salary disputes:
• An appointment letter is now a statutory requirement for all workers
• Its absence can be grounds for a separate complaint and also serves as evidence in wage non-payment cases
• Overtime wages: Workers are entitled to twice the normal rate for hours worked beyond 8 hours per day or 48 hours per week (confirmed in MoLE Additional FAQs, March 2026)
• Workers can carry forward up to 30 days of leave to the succeeding year; leave applied for but not granted can be carried forward without limit
What to Do If Salary Is Not Paid by Employer: Step-by-Step Action Plan
If you are facing non-payment of salary, taking structured and documented action is essential. The new Labour Codes give you stronger, more specific legal grounds than before.
Step 1 - Review Your Employment Contract and Appointment Letter
Before escalating, check:
• Salary payment terms and the contractual due date
• Whether you have received a mandatory appointment letter (now a statutory requirement under the OSH & WC Code, 2020)
• Notice period clauses and dispute resolution mechanisms
• Whether any salary components are tied to performance incentives (these are excluded from 'wages' under Section 2(y) of the Code on Wages)
Step 2 - Identify the Exact Statutory Violation
Under the new Labour Codes, you can now cite a specific provision. This significantly strengthens your complaint:
Situation Applicable Provision
Monthly salary not paid by 7th of next month- Section 6, Code on Wages, 2019
Full & final not settled within 2 working days of exit- Section 17, Code on Wages, 2019
Gratuity not paid within 30 days of exit Code on Social Security, 2020
Employer making unauthorised deductions from salary- Section 18, Code on Wages, 2019
No appointment letter issued- OSH & WC Code, 2020
Salary withheld as 'disciplinary' measure without process- Section 18, Code on Wages, 2019
Step 3 - Communicate Formally with the Employer
Send a written communication via email:
• Clearly state the unpaid amount and due dates
• Reference the specific Code provision being violated (e.g., 'This is a violation of Section 17 of the Code on Wages, 2019')
• Request payment within a reasonable timeframe (5–7 working days is standard)
Maintain records of all communications - these are crucial evidence before the Grievance Redressal Committee or Labour Court.
Step 4 - Escalate to the Grievance Redressal Committee (GRC)
If your employer has 20 or more workers, they are legally required to have a GRC under Section 4 of the Industrial Relations Code, 2020. File a formal application with the GRC:
• Application must be filed within one year of the cause of action arising
• GRC must complete its proceedings within 30 days of receiving your application
• This is an important step before approaching external authorities, and keeps the matter formal and documented
Step 5 - Send a Legal Notice
If internal escalation fails:
• Engage a lawyer to issue a formal legal notice citing the specific Code provisions violated
• Specify the claim amount, statutory interest due, and provide a final deadline for payment
Employers frequently respond at this stage to avoid formal proceedings before the Inspector-cum-Facilitator or Labour Court.
Step 6 - Approach the Inspector-cum-Facilitator
Under Section 51 of the Code on Wages, 2019, the appropriate government appoints an Inspector-cum-Facilitator. This official has a dual advisory and enforcement role:
• File a complaint for non-payment or delayed payment of wages
• The Inspector-cum-Facilitator will first advise the employer to comply if it is a first-time violation
• If the violation is repeated within five years, direct enforcement action is initiated without this advisory step
You can also file complaints on government portals such as Shram Suvidha or CPGRAMS.
Step 7 - Approach the Labour Court or Appropriate Legal Forum
Depending on your role and salary level:
• Labour Court - for workers as defined under the Industrial Relations Code, 2020
• Civil Court - for managerial or senior employees not covered under the 'worker' definition
Claims may include unpaid salary, statutory interest, and compensation. The authority under Section 45 of the Code on Wages, 2019 can also recover dues on your behalf from the employer.
Step 8 - Consider Insolvency Proceedings (For Severe Cases)
If the employer is financially distressed and unable to pay, employees may initiate proceedings under the Insolvency and Bankruptcy Code, 2016, subject to applicable thresholds. This is typically a last resort in extreme cases.
Key Documentation You Must Maintain
Strong documentation significantly improves your chances of recovery. Ensure you retain:
• Employment offer letter and mandatory appointment letter (now a statutory document)
• Salary slips (wage slips, which employers must issue before or on payment of wages - Section 21, Code on Wages, 2019)
• Bank statements showing payment history and any gaps
• All email communications regarding salary disputes
• Attendance records and work logs
• Any communication relating to your exit, including resignation letter or termination notice (relevant to the 2-working-day settlement rule)
For compliance teams: employers are required to maintain wage registers, attendance registers, overtime registers, and registers of fines and deductions under Section 19 of the Code on Wages, 2019. These records must be preserved for 5 years.
Common Employer Defences - and How to Respond
'We are facing financial difficulties'
This is not a valid legal defence. Salary payment is an unconditional statutory obligation under Section 6 of the Code on Wages, 2019. Financial constraints do not suspend the employer's obligation to pay wages on time. The Inspector-cum-Facilitator and Labour Court will not accept this as a justification.
'Your salary was withheld due to performance issues'
Salary cannot be withheld for performance reasons unless the specific component is contractually classified as a variable performance incentive. Under the 50% wage rule, the basic wages component - which forms at least 50% of remuneration - cannot be withheld on performance grounds. Annual performance-based incentives are explicitly excluded from 'wages' under the official MoLE FAQs (March 2026).
'You were absent / there was misconduct'
A formal disciplinary process is required before any salary deduction for absence or misconduct. Under Section 18 of the Code on Wages, fines may only be imposed after giving the employee an opportunity to be heard. Total deductions in any wage period cannot exceed 50% of wages.
'You did not serve your full notice period'
Notice pay recovery is permissible only if clearly stated in the appointment letter, and the deduction must not exceed the legally prescribed limits under Section 18. Even in such cases, the employer must pay the remaining salary components within the 2-working-day settlement window under Section 17.
Compliance Perspective: Heightened Employer Obligations in 2026
The four Labour Codes have significantly raised the bar for employer compliance. Key obligations for payroll compliance now include:
Compliance Obligation & Source / Provision
Pay monthly wages by 7th of next month- Section 6, Code on Wages, 2019
Settle all dues within 2 working days of exit- Section 17, Code on Wages, 2019
Ensure allowances do not exceed 50% of total remuneration- Section 2(y), Code on Wages, 2019
Issue wage slips before or on payment of wages- Section 21, Code on Wages, 2019
Display wage rates, payment dates, ICF details on notice board- Section 50, Code on Wages, 2019
Maintain wage, attendance, overtime, fines registers for 5 years- Section 19, Code on Wages, 2019
Pay overtime at twice the normal wage rate- Section 14, Code on Wages, 2019
Constitute GRC if 20+ workers employed- Section 4, Industrial Relations Code, 2020
Issue mandatory appointment letter to all workers- OSH & WC Code, 2020
Pay gratuity to FTEs after 1 year of service- Code on Social Security, 2020
For startups, fintech companies, and SMEs: non-compliance with these provisions can directly impact funding due diligence, valuations, and regulatory standing - particularly as labour compliance is now part of standard investor and audit scrutiny.
The Role of KP RegTech in Payroll Compliance Under the New Labour Codes
Salary disputes often arise due to poor systems rather than intentional wrongdoing. The new Labour Codes have created a more complex, real-time compliance environment that manual payroll processes can no longer sustainably manage.
KP RegTech solutions can help organisations meet their obligations under the new codes by:
• Automating monthly payroll processing to meet the 7th-day payment deadline (Section 6)
• Configuring automated 2-working-day full & final settlement workflows (Section 17)
• Restructuring salary components to comply with the 50% wage rule (Section 2(y))
• Recalculating PF, ESI, and gratuity contributions on the revised definition of wages
• Maintaining audit-ready wage registers, attendance registers, and overtime registers for 5 years (Section 19)
• Monitoring state-specific rule notifications as they are issued
• Generating digital wage slips and notice board compliance data automatically
• Integrating HR, finance, and compliance workflows into a unified system
As the official MoLE Compliance Handbook notes, the new Labour Codes have reduced the number of forms from 181 to 73, registers from 84 to just 8, and consolidated all returns into a single electronic return - making digital compliance systems not only beneficial but essential.
Conclusion:
India's new Labour Codes represent the most comprehensive overhaul of employment law since Independence. For employees, the 2-working-day exit settlement rule, the 7th-day monthly payment deadline, and the mandatory appointment letter requirement provide concrete, enforceable rights that did not exist with such clarity before.
For employers, the Code on Wages, 2019 creates specific, section-level obligations backed by a new enforcement mechanism. Timely salary payment is no longer just a moral or reputational matter - it is a precisely defined statutory requirement with penalties for non-compliance.
Whether you are an employee seeking remedies for unpaid wages or an organisation building a compliant payroll framework, understanding and acting on these provisions is now a business-critical priority.
At KP Regtech, we help businesses strengthen payroll compliance, documentation, and audit
readiness through technology-driven solutions - including full alignment with the Code on
Wages 2019, the 2-working-day settlement rule, and the 50% wage structure requirement.
Connect with KP Regtech to build transparent, compliant, and future-ready payroll systems.
Visit: www.kpregtech.com
Sources & References
• Ministry of Labour & Employment - FAQs on Labour Codes (December 2025): labour.gov.in
• Ministry of Labour & Employment - Additional FAQs on Labour Codes (March 2026): labour.gov.in
• Ministry of Labour & Employment - Compliance Handbook for Employers Under the Four Labour Codes (February 2026): labour.gov.in
• Code on Wages, 2019 (Act No. 29 of 2019) - As on 21 November 2025: indiacode.nic.in
• Industrial Relations Code, 2020
• Code on Social Security, 2020
• Occupational Safety, Health and Working Conditions Code, 2020
• PIB Press Release on Labour Codes Implementation (November 2025): pib.gov.in