Can a Resigning Employee Claim Service Charge if PLs Cover Their Notice Period?

Dear All,

Can you please tell me if a person who leaves the company (a restaurant chain in this case) and wishes to get his PLs (Earned leaves/privileged leaves) adjusted against his notice period is entitled to Service Charge (S.C. is the variable amount given to the staff as an incentive based on the amount of sale)? He didn't take the PLs but wanted them to be adjusted against the notice period of 30 days, and his HOD agreed to it.

However, my question now is whether his salary for the last month needs to be processed. Even though he would have only received the Basic pay for the number of PLs he had in his account in case of PL encashment, the company is willing to pay him his full (gross) salary. The employee, on the other hand, wants the complete salary along with the Service Charge!

Could you please let me know what would be the right course of action in this case? Is the company liable to pay him the S.C. amount since he didn't come to work even for a single day during that month?

Thank you.

Hi,

The adjustment should be done in monetary terms. If the Notice Period Salary he is supposed to pay is Rs. X, then the Leave Salary adjustment should be equal to this - no more, no less. Depending on this, the difference is to be paid by the employee or vice versa.

Regards,
Vasudev

Hi,

Thank you very much for your reply. Could you please elaborate on the following: He has 30 PLs in his account. Now, in case we give him PL encashment, the same will be calculated as (1 day basic * No. of PLs balance). However, since his PLs are being adjusted against the notice period of 30 days, the Company, instead of paying the basic salary, will be paying him his gross of say Rs. 8K (full pay). But will he be entitled to Service Charge (Incentive) since he hasn't worked even for a single day?

Hi Smriddhi,

This person has 30 PLs left. Let us take his Basic as Rs 200 per day. His total Leave Salary would then be Rs 6000 (200x30).

On the other side, he is supposed to pay 1 month's Notice Pay, which is Rs 8000. If he wants to adjust his PLs (Leave Salary) against the Notice Pay, then he would have to pay the company Rs 2000 more (8000-6000). He would not be eligible for any incentive. This is because, generally, the Notice Pay is the Gross Salary and not just the Basic Salary.

Hope this helps.

Regards,
Vasudev

Dear Smriddhi,

The employee is not entitled to service charge because it is an incentive based on service. Since he is no longer serving the organization and has taken the salary in advance, he is not eligible for it. Therefore, in my opinion, you have to pay him his gross salary excluding the service charge.

However, if you consider another scenario where he has taken 10 days leave during this period, how would you calculate his salary? Would you provide him with the service charge for the entire month or deduct the service charge for his leave period? If you approach it from this perspective, his request for the salary including service charge seems justified.

Additionally, according to your company policy, what is the rule regarding notice pay? If you deduct the notice pay, would you still recover the salary inclusive of the service charge? In that case, you would not be required to pay him the service charge.

I hope this provides you with some alternative options to consider.

Regards,
Sreekanth

Hi,

If he has asked to adjust his PL against the notice period, then you have to pay the Gross and not basic. If he were to resign and then go on 30 days leave, you would anyway pay him the full salary. Regarding the service incentive, since he is not working for 30 days, he will not be eligible for the incentive.

Hope it helps.

Hello,

If the employee is not working, when he is on notice period, service charge is not applicable for him. Straight away deduct his one month salary and pay him the PL.

We follow a process in this way:

If an employee resigns:

1. The individual has to serve a one-month notice period.
2. If not, deduct 1 month notice period salary and pay him PL and LTA.
3. If the individual serves the notice period of 1 month - pay his salary, PL, and LTA.
4. Service Charge: It is an incentive. The incentive is based on performance. Measure the performance for 1 month and pay him if the individual meets the measurement card as per your company's performance measurement tool. But, frankly speaking, resigned employees' performance during the notice period never meets the expectation. The individual is in the mindset to complete his unfinished or pending work and hand over the charge. He overlooks his performance.

I hope this will help you.

Regards,
Nimish Joshi