Navigating Notice Period Deductions: Can Companies Customize Policies for High Attrition Rates?

When we make Full and final settlement of a individual if the person has not given a notice period
Do we have rule that Notice period should be deducted @ of basic only or it can vary from company to company
As we are redoing the company policies can we work out Notice period on gross looking at a high rate of attrition in BPO's
Is it possible or we have stander/fix law to have notice period deducted @ of basic only

Could be either basic or gross. Remember it is payable from both sides, so don't exaggerate the amount. There are companies where take-home is 15-17k, and CTC averaged monthly is 30K. In this case, don't make it 30k. Normally, it's basic.

Surya

Hello friend,

Surya is very true as it is payable from both sides, so keep that in mind. Yes, it varies from company to company. It depends on the company policy whether it will be payable on basic or gross salary.

Regards,
Amit Seth

By normal practice, it is payable in lieu of the notice period on the basic salary. However, it could be payable on gross as well. Do stipulate this in your HR policy document and the appointment letter clearly. Terms of employment need to be equitable, and hence, both the company and the employee stand to pay in either case. The liability of the company also increases if the company stands to pay. Also, factor in uniformity in the basis for leave encashment during full and final settlements and take-home versus gross pay differentiation. Factor in the incidence of ESI, PF, Gratuity, Bonus, TDS, FBT, if any on the payables. The basic issue to brood over is the percentage of 'recoverables,' i.e. how many employees really pay and go.

Rahul Kumar

Hi Scena,

While making full and final settlements, the notice period is payable by both sides. If the employee resigns, he/she is liable to either pay the notice period to the company or serve through the notice period. If the company terminates the services of the employee, the company is liable to pay the notice pay to the employee.

Now, if the employee resigns, he pays the basic salary - this is as per the service rules framed by the Ministry of Human Resources, Govt. of India.

It is not correct on the part of the company to recover the notice period on the gross salary.

However, if the employer terminates the services of the employee, he is liable to pay the gross salary for the notice period as he is depriving the employee of his livelihood.

Many companies do not follow this rule and opt for a strategy where basic pay is considered for full and final settlement.

As an HR professional, we must be just and adhere to the lawful settlements depending on the rules adopted by your company. If your employer is not correct in approach, as a good HR professional, you must draw the attention of your seniors to this issue.

You can look for such statutory information on the website of the Ministry of HRD.

All the best

Thank you for the information.

I am from a BPO (call center) HR, and a practical problem that I am facing is people leaving their jobs within a month or two. Deducting the notice period from the basic salary is not very beneficial to the company. The idea of implementing a policy to have the notice period based on the gross salary is to reduce the outflow of people who have no commitment or work ethic.

My question is, can we proceed with implementing a policy where we set the notice period based on the gross salary within the legal framework?

If any organization clearly mentioned in their appointment letter that "X" amount will be recoverable from the employee if he/she doesn't serve the notice, the organization is also liable to pay the same to the employee when he/she is terminated without any notice.

If there is no clarity about the amount, then the recoverable amount can be calculated only based on basic salary + DA as per labor law.

Vikas Seth

Again, there is no law governing notice periods. It is defined as per Company policy, practice, and industry norms. Notice period is widely based on the basic salary. You can make that on gross salary and make suitable HR policy on the same. But appointment letters must also specify basic or gross clearly. Past appointment letters cannot be detrimentally changed to gross salary unless the employees agree in writing to the change in terms of their employment. Unilateral change by management will be illegal and legally null and void.

The points to ponder before changing from basic to gross are:

1. Is it a normal industry practice? If not, employees will be disgruntled and will relent. Attraction of talent will become difficult with detrimental terms of employment as compared to the industry/competitor practices.

2. What would be the impact? Will essentially attrition reduce with this move? May not.

3. Can a larger amount of payable be recovered from employees? They may escape without fulfilling the obligations. Piled-up legal notices, if so, will give a negative branding to the Company.

4. Will the Company's liability not increase manifold in case a downsizing/rightsizing exercise is done by the Company at any time in the future?

5. Tax liability of both employee and employer may increase in case of payables apart from computational hassles (annual components apportionment, taxation, retention pay proration, etc).

6. Even good employees' motivations may sink low.

Think about the many cons in this approach. Rather than sorting out attrition, it may land up creating a plethora of unforeseen problems.

There could be methods like legal notices, detrimental bonds, withholding of good character certificates and recommendation letters, etc., adopted by HR, per force. Other methods can also be thought through.

Rahul Kumar

09968270580

If your problem is reducing attrition, then follow COPC guidelines:

a) Raise the entry barriers/rigor of testing while hiring. If recruitment is easy, then only candidates switch jobs.

b) Ask the candidate to spend half a day/1 day "on the job" before offering employment. This will reduce attrition as people who do not appreciate the work profile will not join. But the problem is multifarious: Are you willing to have low hires/high attrition in the hiring stage rather than later at training/operation stages?

c) A small query: Have you analyzed the attrition vis-a-vis work area/supervisor? Maybe candidates are not comfortable with a particular process/manager?

If you need COPC guidelines, let me know.

Surya Vrat
9999645755

Hi,

The notice pay is often basic plus DA, and if an organization has mentioned notice pay of gross salary in the offer letter, it is admissible as per the law. Since the offer letter, once accepted, is a contract agreed upon by the employer and employee.

In the case of the BPO industry, you can try bonds for initial periods.

Regards,
Pankaj.

Unfortunately, we are confronted with a problem of having too many 'experts' in this forum! Everyone seems to think that he or she has to contribute his/her two cents' worth without bothering about the consequences, especially the adverse effect it has on the young and growing HR professionals by giving them wrong information.

May I request all to understand the difference between the law, the industry norms, and the practice in your organizations - past or present. While the law is sacrosanct and the industry norms constitute desirable practices, what your organization follows need not be the right policy - even if it was started by an expert who was or is heading your HR department. Also, except where it is legally binding due to the fact that it is laid down in an Act or Law governing your company and hence is binding (e.g., Shops and Establishments Act, Payment of Gratuity Act, Provident Fund rules, etc.), your organization is free to frame its own rules and regulations in matters like notice period and cash in lieu of notice. What is important is that the employee, while accepting the offer of employment, should be made aware of such internal rules by inclusion in the appointment letter and must accept them (by signing the letter).

As HR professionals, what we must ensure is that any such provisions also meet the principles of natural justice. Thus, if you pay your employees only the basic pay when he or she encashes the accumulated leave, it is only logical that you recover basic pay only against a deficient notice period as well. The same goes for the payment against the notice period from the employer's side if the company is terminating the services of an employee.

It would be nice if those who claim that certain provisions are given elsewhere (like on the webpage of HRD Ministry, etc.) also provide the link to it, or at least personally check and satisfy themselves that the same is true before making such a claim.

I have taken the liberty of writing such a long post only because I am shocked to see the amount of misinformation posted by the self-proclaimed experts here. Please do not take it as a personal attack against any individual(s) who contribute to this forum.

As per the legal requirements, you must pay or deduct only the salary of the employee for the notice period. For example, if he is supposed to give one month's notice, then from the date of intimation to the last day when he hands over all his responsibilities to the designated person as instructed by the management, you should deduct only the salary (basic + DA). Other allowances are to be given only if he earns the salary. Therefore, only the basic salary is to be deducted or the same has to be paid.

Hi Amit,

Can there be a case where the company takes gross salary in lieu of notice and pays basic salary in lieu of notice? Also, if a company adopts a practice of encashing leaves on basic salary, then how should the salary in lieu of notice be calculated? Is there any law pertaining to this?

Awaiting your response.

Thanks,
Ravi

Dear All, I want to ask a personal question. I left the company on 2nd July with a notice period of only 2 days. After that, the company has not communicated anything regarding the F&F Settlement and also about the relieving letter. As per the company's HR policy, it should be done in 45 days. But till date, nothing has been communicated.

In this case, what can be done from my side?

Regards, Ravikumar

"Notice Period" claim/deduction has to be made in accordance with the "letter of appointment/contract of service" entered with the employee. The mention in the said agreement prevails and binds both parties. So, you have to concentrate on the wording in the said agreement.