Understanding Salary Deductions: How Is Loss of Pay Calculated for Incomplete Notice Periods?

Hi all,

I would like to know how the loss of pay is calculated for a person who has not served their notice period. For example, if the notice period is one month and the person has only served a week, how should the deduction from their salary be calculated?

Thank you,
Roopa

Hi,

I know that, but do you have any software for calculating? Are you updating your register monthly?

Rishee

No, there is no software for this. It's calculated on a monthly basis. Ours is a small IT company with 35 people.

Dear Roopa,

Please refer to the employment letter being given to the ex-employee to determine whether deductions would be made on the basic or gross salary for the loss of days. Let's assume an employee has served a 7-day notice period when they were meant to serve a 30-day notice period. You need to calculate the number of days they have not put in, i.e., 30 - 7 = 23 days. Therefore, you would deduct the salary for 23 days either from their basic salary or gross salary as agreed upon during their recruitment.

These calculations will be part of their Full & Final settlement. If the amount can be deducted from their dues, that would be ideal. Otherwise, you can also send a notification to their next employer.

Please let me know if you need further information.

Regards,
Sunaina

Hey, you missed out on one point regarding the full and final settlement. Please also take the PL leave into consideration.

Regards,
Derek

Just a point for you to note:

LOP or 'Loss Of Pay' has reference to 2 situations:

1) When an existing employee takes a long leave, e.g., an employee may go on maternity leave and could exceed the maternity leave limit. In these cases, you need to have a clear policy that states that over and above the approved leave or the limit under a category of leave (such as Maternity Leave), the LOP will be based either on basic or on the full gross.

2) When there is a shortfall in the notice period, typically, the shortfall will be adjusted in the FFS (Full and Final Settlement). In real terms, this is not LOP. It's technically called a shortfall in the notice period that may be adjusted.

Please note, many companies make an unfair mistake when it comes to the adjustment of the shortfall and LOP, namely, they calculate these on the gross. However, when it comes to leave encashment, they calculate it on basic. This is seen as an unfair practice towards employees. Please be aware of it and adopt a balanced view and best practice.

Best wishes.

SK

Dear Roopa,

Providing you an example:

Name of the staff: ABC
DOJ
Basic: 5000
H.R.A: 2500
Conveyance: 800
Special Allowance: 1000
Earnings (A): 9300

Medical: 0
LTA: 0
Earnings (B): 0
P.F: 600
P.T: 175
Total Deductions: 775
Net Payable: 8525
Date of resignation: 05/05/2007
Last Working Day: 31/05/2007
Salary pending: 8525
Leave Encashment: 7750 25 Days
Total Payable: 16275
Absence of Notice period: 1240 4 Days
Total Receivable: 1240
Net Payable: 15035

In our company, we calculate leave encashment on Earning A also deduction for notice period on the same thing. Remember one thing in mind. If the appointment letter states one month notice and you have served only say 26 days then the balance 4 days would be your shortfall, and it would be calculated like earnings A / 30 * 4 (number of days you have served your notice). Leave encashment is also calculated on the same basis. Earnings A / 30 * 25 (number of days leave balance).

Hope it is clear to you.

Regards,
AS

Please note that the notice period for resignation could be adjusted against accumulated PL/EL. If it covers the notice period dates, there is no question of deducting salary in lieu of insufficient notice period. If not, deductions for the days of short notice period should be made from the GROSS salary, not the basic salary.

Suvajit

Dear Kavita,

To calculate the loss of pay, you need to know the notice period he or she is required to serve. For example, if an employee is supposed to serve a 30-day notice and has served 7 days from the date of his resignation, the calculation would be as follows: If the basic pay is Rs. 8600, then the calculation will be as follows: Basic pay multiplied by (Notice period deduction / 30). Notice period deduction is calculated as the number of days required to serve minus the days actually served. In this case, it will be 30 - 7 = 23, hence the Loss of Pay (LOP) will be 8600 * 23 / 30 = 6593.

Assuming LOP is calculated based on the basic salary, note that some companies calculate it based on the Gross pay. I hope I have clarified your doubts. Please feel free to contact me if you have any queries.

Regards, Kavita

To add on to this, as I mentioned in another topic, in my offer letter they have mentioned a notice period of 30 days, but they haven't mentioned the consequences which the employee would face if he doesn't serve the notice period. Now, my employer wants to deduct an amount from my salary as a shortage of notice period. Can I fight back or should I just take the final settlement and walk out of the company? What should I do in this case?

Check what's your leave balance - positive or negative. That's the first step.

Second, if your appointment letter is not clear about certain aspects of your notice period, remember that there is always a 'best practice' in this world and that which the law would uphold. If you have fallen short of the notice period, as suggested by someone else earlier, please adjust the shortage with your leave balance. If you owe money, please pay, and if your company owes you money, make a request in writing and get the same approved by your Reporting Authority. Send a copy of the same to your finance department.

There are no mind games that will be played, and no assumptions will be made by your company when you are clear and straightforward. Also, they will appreciate when you are clear in your thinking. Trust that this is clear and the question has been answered.

Regards,
SK

Hi Guys,

What are the parameters to consider for LOP days? Please help me. I am working in a TELECOM infrastructure company. I have doubts about the following points:
1) If the employee doesn't have leaves, even if he is on leave, will it be treated as LOP?
2) If the employee is ABSENT without proper approval of leave, can it be treated as LOP?

HR professionals, can you clarify the difference between these two queries, please?

Regards,
Gowri Prasad.K

Dear Sunaina, I saw your below reply, which was a very clear message for the query. However, in my case, I did not serve the notice period and broke the agreement in 1.8 years as I found a better challenging opportunity (Agreement for 2 years at Rs. 25,000/-, with a shortfall of 4 months). Now, they are calculating it for Rs. 50,000/-. According to the agreement, I was not designated as mentioned, and I did not undergo the 3 weeks of training as specified in the agreement. Additionally, due to my previous performance and experience, they persuaded me to rejoin, but now they are claiming that I approached them for a second entry. So far, I have not received my experience and relieving letter from them.

How Should I Proceed?

How should I proceed in this situation? I request you to share your views on this.

As I'm receiving Basic 5700, HRA 2850, Mediclaim 1250, Conveyance 800, LTA 400, and Special Allowance 5300, my gross salary is 16300. I need to calculate the Loss of Pay (LOP) for 25 days of absence or leave. Could you provide me with the percentage calculation for all the components?