‘Full and final settlement’ in India – what are the changes and how will they affect background screening?

 

Does your business conduct background screening in India? If so, an exciting development in the country may mean that the turnaround time for your background screening results can be sped up significantly.

What are the changes?

The Parliament of India has passed a new wage code that requires companies to “pay the full and final settlement of wages within two days of an employee’s last working day following their resignation, dismissal or removal from employment.”

The reform represents a notable reduction in time granted to companies to complete their exit formalities and process an employee’s full and final settlement of wages. The current common practice is for companies to pay the settlement of salary 45 days after an employee’s last working day. In some cases, this period can even extend up to 90 days.

The exit formalities also include the issuance of an experience letter, which provides the employee with proof of employment and is a crucial document for employment verification for their next role.

The proposed change is an encouraging development for Indian employees as it will enable workers to have increased flexibility when moving between jobs and will offer them the peace of mind of having sufficient funds to cover any transition period where they may be without employment.

When will the changes take place?

The government sought to implement the new reforms by 1 July 2022, however this has been delayed.

The changes cannot become effective until they are ratified and drafted by every state and union territory (UT) in India, of which there are 28 states and 8 UTs. As of 30 June 2022, a total of 23 states and UTs had released draft guidelines regarding the reforms. The Indian government is yet to announce a new date for full implementation by all states and UTs.

The new wage code also permits individual states to set the full and final settlement timeline based on what they see as reasonable and feasible in their jurisdiction, meaning the two-day requirement may vary across states. If the reforms are eventually ratified and implemented across the country, companies will need to ensure their payroll processes are updated to align with the given timeframe in each state.

How will the changes affect background screening?

The prospective changes to the full and final settlement rules will be beneficial for improving background screening turnaround times in India.

Many employers in India issue an experience letter to departing employees at the time of full and final settlement, which can currently take anywhere between 30 and 90 days. The experience letter acts as proof of employment and is an important document for hiring companies and screening providers to obtain before commencing employment verification processes for an employee’s next role.

For example, under the existing rules, if a candidate’s final working day with their current employer is 30 June 2022, we would not be able to commence verification of their most recent employment until at least 15 August 2022. This invariably creates a slower turnaround time for background screening results – a frustrating experience for all involved and a factor that is unfortunately not under any screening provider’s control.

The proposed shift from 45 days to two working days for issuance of an experience letter will enable verification of the candidate’s most recent employment to commence promptly, meaning employees can be onboarded more quickly and bring increased certainty to prospective employers.

What has been the reaction from industry?

Sterling RISQ has spoken to a number of industry leaders and representatives from technology and real estate multinational corporations to understand how soon their companies would be willing to conduct employment verification after an employee’s final working day and what their mandatory requirements are for successful verification.

The representatives advised that their companies would be willing to conduct employment verification immediately after an employee’s final day, without waiting the typical 45 days, as long as the employee can present an experience letter to document their prior employment history.

This insight is extremely heartening for employees, hiring companies, and background screening providers such as Sterling RISQ, as it means background screening and employment verification for new roles can occur quickly and new talent can commence work sooner – especially pertinent during the current high demand for talent in India.

Learn more

If you want to learn more about the proposed changes to the full and final settlement rules or understand how the changes will affect the background screening you conduct in India, contact us at info@sterlingrisq.com.