Leaving During Notice Period: Can Companies Withhold Basic or Gross Salary?

Dear All,

Please advise: if someone leaves during the notice period, which component of the salary can be held by the company? Is it only the basic salary or the gross salary in lieu of the balance notice period? Are there any legal notifications regarding the same?

Thanks

Dear Member, you are asking a very relevant question which relates to Full and Final Settlement. As per your post and first observation, it seems that you are working in Germany. In that case, some employment conditions may vary in respect to India.

Yet generally, when any person leaves the organization in a short span and does not serve their notice period as mentioned in the appointment conditions issued by the employer and signed by them, the Notice Pay amount may be recovered from their balance dues which are payable to them. In the appointment letter, it must be clearly mentioned which part of the salary will be recoverable by either party. If not paid or recovered, both parties may file a civil suit for not performing the specific performance of the contract.

Generally, in India, it cannot be recovered from the Gratuity payable to them by the employer.

Generally, F & F settlement includes salary and arrears, if any, for the worked/leave period, EPF, Gratuity, leave encashment, unpaid/accrued bonus, other claims like conveyance, medical reimbursement, other allowances if any. Under Indian laws, recoveries from either EPF or Gratuity are not permissible. What is left are other accruals. In the present query, it appears there is nothing left to recover. In the circumstances, it's left to the discretion of the employer as to how to handle the issue.

Please refer to the Termination Clause as mentioned in the Appointment Letter. If it is mentioned as "salary," then Gross Salary is to be deducted. If it is mentioned as "Basic Salary," then Basic Salary is to be deducted. It is important to carefully read your Company Appointment Letter with specific reference to the Termination Clause. Please do not make assumptions. Strictly adhere to the Appointment Letter clause which has been mutually agreed upon and accepted by both the Employer and Employee.

Terms of Employment and Termination

As a best practice, all terms of employment and terminations should be well prescribed in the company HR Manual. You should refer to the terms and conditions you signed off on while joining. In the absence of specific terms, the daily salary rate should be applied.

Companies follow different policies regarding the number of days in a year, total vs. working, which range between 210-365, so you will have to refer to your internal policies. In general, all components of the salary that are paid directly to an employee are considered for deduction. In other words, contributions to health insurance, subscriptions to professional institutions, etc., are not considered for recovery.

Formula for Recovery of Notice Pay

In layman's terms, the following formula should work for computing the recovery of notice pay:

\[
\text{(Basic salary + Allowances + reimbursements forming part of the gross salary)} \div \text{(Total pay days in a financial year)} \times \text{(Number of days of recovery)}
\]

I hope this helps.

Best,
Rajesh