Notice Period Buyout Confusion: Should It Be Based on Gross or Basic Salary?

Hello All,

I am working for a small software development "private" company located in Bangalore. In my offer, it is mentioned that I should serve a two months' notice period or payment in lieu. Now, I am opting for a notice period buyout option, but my employer is calculating the payout amount as "No. days * Gross salary."

My question: Is the notice period buyout amount calculated based on "Gross salary * No. days" or "basic salary * No. days"? I am being forced to pay the money, so I would appreciate a quick response.

Understanding Salary Components for Notice Period Calculation

It depends on how the salary has been defined in your appointment order. If you have a basic salary plus allowances, reimbursements, and retirement benefits as part of your salary breakdown, then the salary refers to the basic salary only. Conversely, if your salary breakdown includes gross salary, which encompasses HRA and other allowances, then the gross salary will be considered the salary for calculating notice pay.

Legally, we have a basic salary and dearness allowance as components of the statutory salary. Additionally, court rulings have interpreted salary to mean an all-inclusive amount payable as per the employment contract. Generally, salary for any purpose comprises all fixed remuneration payable while on duty or on leave with pay, excluding reimbursements for actual expenses incurred during a specified period. It's crucial to note that this salary is what the employer will consider if termination is under consideration. Therefore, I don't believe you need to adhere strictly to the legal definition of wages or defend the company's policy.

Regards, Madhu.T.K