Employee Resignation: How to Handle a Notice Period Buyout Request?

Hi all,

An employee has resigned and is serving a 30-day notice period instead of the required 90 days. He has asked to buy out the remaining notice period. Please provide a format for the full and final statement so that I can share it with him.

Please share your format so that we can make necessary changes in it.

Till date, no employee has opted for a buyout. This is the first case in our company. The reason is that we don't have any format. Also, according to our company norms, buyout is done based on the gross salary. The employee's salary is $38,000.

Dear Kanika Pramod,

Please find the Full & Final Settlement of Account format attached in Excel for your reference. I would also like to share with you the applicability of Service Tax on the shortfall of the notice period amount.

Many of us are not aware that there is a Service Tax applicability on the recovery of the shortfall of the notice period amount, which is payable by the employee themselves. I am attaching a circular in this regard for the benefit of the members.

In order to assist the departing employees, it is advisable to adjust the maximum balance of unavailed leave against the shortfall of the notice period to minimize/reduce his/her service tax liability.

Regards,
Suresh

Name of Company:
Address:

FULL & FINAL SETTLEMENT

Name of Employee: Arun Bhaskar Surya
Date of Joining: Emp. Code: 1234
Date of Leaving: 31.07.2017
Designation: Purchase Officer
Date of Resignation: 01.07.2017

Salary for the Month: Jul-17
Days Paid: 31

Earnings Amount in Rs.
Basic
Dearness Allowance
House Rent Allowance
Commuting Allowance
Other Allowance

Deductions Amount in Rs.
Prov. Fund
ESI
Prof. Tax
TDS
Others

Balance Leave Encashment: 60 days
Shortfall N.P.: 76000
Gratuity for __Years

TOTAL: 38000 76000

RECEIPT

In view of the above settlement, I hereby confirm that I owe the sum of Rs. (Rupees: ) to M/s. towards the shortfall of the notice period. I also confirm that I have no further claims of any nature against the Company, including re-employment and/or reinstatement.

I Accept

Place:
Signature
Date: Arun Bhaskar Surya

Service Tax and Employment

Service tax is not applicable to anything related to employment. Notice period payout is related to employment and is therefore outside the scope of service tax. The opinion given in your attachment is definitely incorrect. There is no need for service tax on this amount.

In any case, service tax is not applicable for a person having a business turnover of less than 10 lakhs. So even under that rule, this employee would not be covered.

Transition from Service Tax to GST

Further, please note that service tax has now been replaced with GST. Under GST, employee-related services are not covered under any tax.