Can a Company Deduct Notice Pay if It Voluntarily Releases an Employee Early?

Dear All,

I have a query; please help me. An employee had submitted his resignation. In the resignation, he has requested to be released at the earliest. The Company accepted his resignation and released him within 15 days. There is a notice period of one month in the Standing Orders.

Now, while settling his final payment, the Accounts Department has deducted 15 days' salary because he has not served the one month's notice period as per the Certified Standing Orders.

My question is: can a company deduct notice pay if the Company accepts the resignation and releases the employee beforehand voluntarily?

Regards,
SC

Hi,

In our company, the notice period is 3 months. If an employee wants to leave early, their payment is adjusted against their earned leave (remaining).

Hello,

The procedure in the government setup is that there is a process for resigning before superannuation. As per the procedure, the resignation can be accepted, and the company can insist on the time period or deduct the salary for the notice period. Perhaps, the notice period can also be waived, and the salary need not be deducted. This power is discretionary and lies with the Head.

I hope my reply meets your target.

Best wishes,
Senthil Raj
Email: karpavi_raj@yahoo.com

Hi,

In our company, the notice period is 3 months. If an employee wants to leave early, their payment is adjusted against their earned leave (remaining). The company can deduct notice pay.

Hi,

In the instant case, the employee has asked for an early release. This can be taken to mean that he is willing to compensate for the unexpired period of the notice (i.e. from the date of release to the day when the notice, if given, would have expired) and that he is willing to abide by the decision of the company in this matter. He has NOT asked for a waiver formally or explicitly. The company did its best and relieved him in 15 days. This act of the company may or may not be taken as the waiver of the remainder of the notice period, and that would be decided by the company policy. Frankly, it could be interpreted either way. In the absence of the company specifically waiving the remainder of the notice period, it would be reasonable to presume that it has not! And that's what the Accounts Dept seems to have interpreted.

If it was the intention of the company to not recover the pay for the remainder of the notice period, HR should have specifically instructed the Accounts Dept accordingly.

This is as far as the situation is concerned. But generally speaking, the employer should and generally does specifically reserve the right to waive the notice period and according to the exigencies of the situation.

I feel that the Accounts Dept has acted in the best possible way by strictly interpreting the rules as they existed at the given time.

Regards,

Samvedan

August 30, 2006

Hi Swastik,

If an employee leaves without serving the notice period in mutual consultation with the management, then whether the 15 days' salary can be deducted or not is at the sole discretion of the company. I don't know of any laws that state if the management agrees to relieve the employee as per his request, no amount should be deducted. However, if the company chooses to deduct the salary for fifteen days, it may influence all employees to serve the complete notice period, which could be either an advantage or a disadvantage.

Cheers,
Archna

Dear All,

Thank you for the response. What I would like to stress is that the employee did not ask for a specified date. He has just mentioned "at the earliest," so the Company had the option to release him after serving his notice period.

The concept of notice pay is when the employee leaves the organization to join another, but when the company releases an employee early, the employee can also claim notice pay. It is the Company that is releasing. When the Company has released the employee itself, where does the question of notice pay come into play?

Regards,
SC

Hi Swastik,

In our company, the notice period is 3 months. If an employee wants to leave early, his payment is adjusted against his earned leave (remaining). The company can deduct notice pay.

Dear Swastik,

It may be true that the employee who resigned did not want to be relieved early with a deduction of salary in lieu of the unserved notice period.

However, the fact that he has in writing asked for relieving 'at the earliest', the company has used its discretion, relieved him early, and deducted the salary for the remaining part of the notice period, which is strictly correct from a legal or system point of view. The employee cannot find fault with the company for doing this. He should have clearly written in his resignation that he might be relieved as per the terms of the employment contract and that he would be serving during the entire period of notice. Many employees write their resignation letters asking to be relieved 'at the earliest' without knowing the salary implications of such writing.

Nevertheless, if the company, assuming it has some values, should have asked the employee whether he wanted early relief at the cost of salary deduction and then decided the date of relief. However, when the company does not do so, one can only curse but not blame.

Govardhan

Hi Swastik,

It's not compulsory to deduct salary. It depends on the circumstances, such as how well the employee has worked and other factors. The company can also choose to release them early and still provide their salary.

Thanks and Regards,
Wricha

Hi,

First of all, if management made the decision to relieve the employee within 15 days (as per your email, the employee only requested to be relieved at the earliest without specifying a period), then you have to pay the full amount, and you cannot deduct anything.

Secondly, the decision on payment issues falls under HR's jurisdiction and does not belong to the Accounts Department; therefore, the Accounts Department cannot be involved in this matter.

The HR department provides clear instructions on how much amount can be given to the employee at the time of relieving, and the Accounts Department will implement these instructions accordingly.

Regards,
Manjunath

Dear All,

Thank you for your valuable responses.

What I am stressing is the concept of Notice Pay and not the legality of the action. I understand and agree that what the employer has done is correct.

I would like to bring to the notice of all that the liability to make Notice Pay is there in the Industrial Disputes Act, 1947 (Chapters on Retrenchment and Closure). It was enacted from a socialistic angle to protect workers, giving them time to find new jobs and meet their needs in the meantime.

The Act also considered the capacity of employers to pay by setting the Notice period at one month for small organizations and three months for large organizations.

The system of making employees pay was introduced in the Private Sector with the view to allow the company space and time in finding replacements, settling dues, recovering if any, and handing over charges and responsibility to the new recruit by the resigning employee.

In the absence of the above, it is really a question of why an employer would want to deduct Notice Pay as the very basis on which it was inserted is absent.

I am trying to emphasize this point only.

Regards,

SC

Hi Swastik,

Normally, the notice pay is given on either side, both by the employee and the employer. The employee must provide advance notice so that, depending on the position's importance, management can seek alternatives for handing over responsibilities before the departing employee leaves the organization. Similarly, the employer must give one month's notice to allow the employee to search for another job (this is applicable to non-workmen cadre only). It is entirely at the discretion of the management and the employee to give notice or not, and to pay the notice pay or not. There are instances where settlements are reached within an hour after an employee submits their resignation, and whatever is stipulated in the appointment order or service rules will be followed without deviation. This process depends on how the department and management perceive the employee's resignation.

Furthermore, the Accounts department cannot deduct the notice period amount unless instructed to do so by the HR/Personnel department. They must adhere to what was specified and approved in the full and final settlement statement.

Regards,

PRADEEP

Dear Swastik,

"Earliest possible" means *before* "Notice period" as per the terms and conditions of service/standing order. So, there is no question of confusion. Hence, management can deduct. If management's attitude towards the employee is not positive, then it happens; otherwise, THEY SHOULD NOT DEDUCT ANY MONEY because THE EMPLOYEE ONLY REQUESTED to be relieved AS EARLY AS POSSIBLE. The employee was willing to work till the notice period if management would not accept his request, as per the resignation letter.

Based on humanitarian grounds, management should not deduct any such sum.

Regards,
Sidheshwar

Dear All,

If an employee has mentioned in his resignation that he wants to serve a notice period of one month and the company decides to relieve him early, the company cannot deduct the notice period pay. However, if the employee has requested early relieving himself, then the due notice period pay needs to be adjusted against the earned leaves.

Aneesh

Swastik, do you mean to say that the vacancy caused by this employee's resignation will not be filled up, so therefore there is no question of needing time to find a replacement and handing over charge to him? If yes, then I do not think the notice pay should have been deducted because the company does not need any time to find a suitable replacement. The recovery of dues and outstandings must have been done within the 15 days itself. However, the HR department or Department Head should explicitly inform Accounts not to deduct Notice pay, considering this is a rare situation. If no, if a replacement is needed, then the Accounts Department has done the right thing by deducting notice pay, as you have acknowledged. Regards, Devjit

Dear All,

Thank you for the responses. Sid, you are right in your interpretation but what I want to say is, should a company's policy depend on the relationship it has with an individual employee? Policy should be the same for all. The decision of the release date was left with the company and not the employee.

My point is that once you accept someone's resignation and release them, it signifies that they have cleared all dues and proper charge handover has been done. At no point did the employee leave the organization; they waited for the company to find a suitable replacement, handed over charges, and settled all dues payable.

Regards,
SC

Dear Swastik,

Your query is correct. The policy is for all, not for any individual. However, I would like to highlight that our company has made provisions to consider the gravity of the case/situation. In our company, we are supposed to give 3 months' notice, but there is a clause included in favor of the employee stating that management has the right to make decisions on whether to deduct or not. Therefore, everything depends upon the management's decision under applicable laws.

Regards,
Sidheshwar

Swastik:

Siddhu is correct. In the case presented by you, the employee prefers to leave early. Hence, the notice period clause is effective. The company can deduct payment for the shortfall of the notice period. Despite the common rule on notice period and recovery clause, management can decide on waiving the clause.

Regards,
Venkat

My opinion:

Having accepted the resignation, the company has effectively waived the notice period. Since the requirement for the notice period has been waived, the question of deducting 15 days' wages does not arise. Of course, it would be advisable to check the exact wordings of the correspondence exchanged between the management and employee.

Thanks,

Sincerely, S.D. Lahkar.

Hi,

Since the employee knew about the one-month notice period, he should have confirmed his salary at the time he got permission. I believe the Accounts department would have received the information that the notice period is only half served and there has been a pay cut.

Regards

A mere acceptance of resignation does not guarantee waiver of the notice period. The appointment terms being clear and conditional, that is what would be binding. For a waiver of the notice period, the employee needs to get clear approval from the company.

Regards,
Venkat

Hi Swastik,

Yes, the company can deduct the notice period amount from the final settlement. Usually, it is clearly mentioned in the appointment letter. Acceptance of resignation does not mean you can leave anytime. When accepting the resignation, the notice period is also discussed with the employee, and the relieving date is mutually agreed upon.

Additionally, if the company wishes, they can waive off the notice period deduction.

Thanks,
R. Sandhu

Dear All,

These are my views -

1. First of all, an employee should know how to write a resignation letter. He should not feel as if he is going to some heaven escaping from the hell while resigning. Such attitude will have an impact on how he handles his personal departure, and the organization will also react accordingly. Employees, while resigning, usually write, "I may please be relieved at the earliest," and enjoy writing so at the heart of their hearts—obviously because, under normal circumstances, they go for a better job and are happy to get rid of their current organization, mainly the boss, towards whom they have accumulated some amount of bitterness. There is no need to mention "at the earliest" if the employee does not really know the meaning of these words written in his resignation, which has a reference to the employment contract.

2. The resigning employee, before giving his resignation in writing, must always seek a personal meeting with his immediate superior to formally inform about his decision to quit. He should not publicize his departure plan among his peers and make his boss the last person to come to know of his resignation. He should first inform the boss and then others. While talking to the boss, he should discuss the notice period and write his resignation accordingly. And, no loose talks after or at the time of resigning with anyone. If the resigning employee does not follow all these, then he will face the problem that Swastik has brought up for this discussion. There is no point in discussing what is legal or illegal if the employee is not gracefully resigning, showing the best of his courtesy to his boss and the organization that has shaped his career.

3. The organization, regardless of the department handling the full and final settlement, should not be so ritualistic that it forgets the minimum organizational courtesy it should extend to any employee, whether on the rolls or departing. A person leaving as provided in the employment contract should not be viewed as disloyal. Sometimes some departments are vindictive towards departing employees and enjoy stripping them to the fullest extent possible by refusing them some leave encashment due, refusing medical reimbursement during the notice period when he/she is still serving, etc.

4. Sometimes the HR Manager or Accounts Manager wants to showcase their professional brilliance to the management by making all possible and half-possible deductions from the departing employee, taking refuge under the law for doing the bad rather than the good. "You are no longer with us, so we need not care for you" is their attitude. "We will count every penny that we pay you or don't pay you as you have terminated the relationship with us. We are smarter than you" is how they sometimes think. Maybe it is the top management that insists on such an attitude from their HR or Accounts Managers, and these people simply reflect what is expected of them. However, many times it is their own creation, though the top management does not expect such an attitude or approach.

5. So, the fault generally lies on both sides. We need to know really what happened in the process of resignation before taking sides.

Regards,

Govardhan

Hi Swastik,

The situation at your organization is similar to my experience in the previous company. I was willing to serve the notice period of 01 month, but since my seniors had gone abroad, there was not much of handing-over to be done. I interacted with my seniors through email and was relieved well before time.

In that case, if the company relieves the employee well before the notice period mentioned in the Standing Orders or the Company Policy, it is the company's lookout. In general cases, the company should not and does not deduct the salary in lieu of notice period due. The company can adjust his salary against the leave balance, but as a matter of fact for employee welfare, it cannot deduct the amount for not serving the notice period if the company is relieving the employee. You need to check with the provisions of the company policy.

Hi,

According to your employer, it is accepted that a person is relieved within 15 days of his resignation. That means he will have to serve the company for 15 days only, not for one month. If he doesn't serve the company for 15 days, then the accounting department has the right to deduct for the same, otherwise not. According to the standing order, they can deduct if the company authority doesn't accept his relieving earlier.

Thank you

Hi,

I think Govardhan has summed up the entire discussion in a beautifully balanced manner. If at any time in the future I have to resign from somewhere or relieve another employee, then this discussion and Govardhan's post will be what I remember. Thanks, Govardhan, and everybody else. This shows the learning potential available at citeHR.

Regards,
Devjit

Dear Swastik,

The notice period, as per policy, should be deducted unless special discretion is used to waive it off. In this case, however, I feel the employee should have been informed that the company is releasing him because of his request. However, the recoverable notice period will occur, either in terms of leave adjusted or salary deductions as per the company policy.

Regards,
APD

Hi,

The idea behind having notice periods is to ensure a sufficient time period for the employee to complete a handover and also to ensure that the work he was handling is delegated in a proper manner. Since the functional head has decided to relieve him, I am presuming that there is not much serious handover left. If the company does not suffer from the person leaving without completing the notice period and as it is in this case, it does not make sense to penalize the employee. Just my way of looking at it; open to debate.

Regards,
Aljo

Legally, the company can deduct the salary according to the Employment Agreement (Offer and Acceptance).

Hi Swastik,

It depends from organization to organization on what its policy is for notice periods. Well, it is legally acceptable for a company to deduct the salary if an employee doesn't serve the notice period. However, I have also seen that sometimes, even though the policy allows for it, the company doesn't deduct the salary.

Dips

Hi Swatik,

Yes, the company can adjust or deduct the notice pay period from an employee's salary who has not served their notice period despite their resignation being accepted by their boss. The notice period can also be waived, but that depends on the discretion of the Head of Department.

Regards,
Sweta

Hi Swastik,

It is simple, yaar. The company will go only by the agreement, i.e., the notice period.
1. Only at the request of the employee, the company has released him.
2. This act would have been done by the company based on ethical and moral values.
3. If an employee receives a very good offer and if the current company cannot match the offer, then there is no point in holding back the employee.
4. This is only a consideration given by the company and does not imply that his notice pay will not be deducted.

Regards,
Sakthivel