Employee Termination: Compliance Checklist

Employee Termination in India: A Compliance Checklist

Ending employment requires a fact-specific review. The procedure can depend on whether the employee is a “worker” under the applicable law, the reason for separation, the type and size of establishment, standing orders, the employment contract and current Central or State rules. A job title alone does not settle legal coverage.

The Industrial Relations Code, 2020 and the other labour codes took effect on 21 November 2025. Before acting, identify the governing provisions and the notifications or rules applicable to the establishment. The Code distinguishes misconduct, retrenchment, closure and other separation situations; they do not all follow the same procedure.

Before issuing a termination decision

1. Write down the reason and gather the relevant records. Check for protected leave, discrimination, retaliation, whistleblowing or other facts that could make the decision unlawful.
2. Determine the employee’s statutory category and whether standing orders or a collective agreement apply.
3. For alleged misconduct, follow the applicable service rules and a fair process. Give the employee a meaningful chance to respond, preserve evidence and have an impartial decision-maker.
4. For redundancy or retrenchment, check the Code’s definition, employee coverage, notice, compensation, selection and any prior-permission or government-notice requirements that apply to the establishment.
5. Review the employment contract and applicable State law for notice or pay in lieu. Do not assume a 30–90 day statutory notice period applies to everyone.
6. Document the decision, effective date, reasons where required, calculation of amounts due and return of company property.

Amounts and records to review at separation

• Final wages: Reconcile work through the last day and apply the wage-payment deadline that governs the employee. Section 17 of the Code on Wages includes a two-working-day rule for specified separation events, subject to the statutory qualifications in that section.
• Gratuity: If Chapter V of the Code on Social Security applies, use the Code’s wage definition and service rules. The general five-year condition has exceptions, and a directly engaged fixed-term employee has the special one-year rule explained in the Ministry FAQ. Determine and pay gratuity within 30 days after it becomes payable; delayed payment can attract interest at the notified rate under the Code.
• Leave, bonus and variable pay: Review the applicable law, policy, contract, eligibility conditions and payroll records. Do not assume a universal encashment formula or automatic pro-rata bonus.
• EPF and ESIC records: Update employment and exit information through the current official process where required. A member’s transfer or withdrawal claim is a separate process from payroll settlement.
• Tax and certificates: Apply the current tax-year law, forms and deadlines. Check current portal instructions for tax certificates and any other records due.

Keep a defensible record

Retain the contract and amendments, attendance and wage records, notices, employee response, enquiry material where relevant, approval documents, the itemised settlement calculation and proof of payment. Give the employee a written breakdown and a way to query a discrepancy. Apply the same documented process consistently while accounting for the legal differences between cases.

Official references

• Ministry of Labour FAQ on the Labour Codes (16 March 2026)
• Code on Wages, 2019
• Code on Social Security, 2020
• Ministry of Labour: Labour Codes and draft rules

For payroll and compliance assistance, see our payroll services or contact GHR Consultancy.