How Should We Handle Notice Period Compensation for a New Employee? Seeking Advice on Best Practices

We are in the process of appointing an employee. Since the new joiner has to give three months' notice to his previous employer, we have agreed to compensate the new joiner with the notice period and gratuity.

Payment and Accounting for New Joiner Compensation

I need to know how we pay that amount to him, i.e., a covering letter stating the purpose of payment and how to account for this transaction, whether as a signing amount or compensation towards the notice period. Should we ask for proof of recovery/non-payment by the last employer?

Kindly revert.

Hi, what document has to be submitted to the new employer to get compensated for the notice period salary of an employee?

Regards,
-veeru

It is not practically possible to account for an amount paid on behalf of an employee who has not yet joined. Any payment should be made against a valid "consideration," for example, salary is a consideration (something in return) for work done. However, an amount paid to an employee's (or rather a future employee's) employer is an amount standing without any valid consideration. Obviously, if your company policy permits, you can pay X or Y an advance, which can be written off once he joins. Since this practice is rare, a solution to this is also very remote, I presume.

Regarding Proof of Payment

Regarding proof of payment of an amount by the employee to his previous employer, we can ask the employee to furnish the receipt for the money paid, but we cannot ask another employer with whom we have no relationship to produce a certificate or document stating that he has received notice pay or has not paid gratuity. Even otherwise, this will not absolve his liability to pay gratuity under the Payment of Gratuity Act.

Regards,
Madhu.T.K

The steps for payment towards notice period buy-out/reimbursement should be initiated once the candidate is in place, or more specifically, when he joins the organization. This payment should be made under the head Notice Period Buy-out/Notice Period Reimbursement. It will be better if this payment is made to the new joinee along with his first-month salary or through salary later on. It is to be taken into consideration that this is going to be taxable income if he/she falls into the taxable income bracket.

Documentation:

1. Full & Final Settlement Worksheet
2. A copy of the cheque received/issued to the company or any receipt/payment voucher issued by the company illustrating recovery from the ex-employee.

Regards