Understanding the Notice Period Clause in Appointment Letters and Its Impact on Final Settlement in India

Dear Sirs, I would like some clarification on the Notice Period Clause in the appointment letter. It states that an employee needs to serve a one month notice period, without being absent or on leave, to exit from the company. Similarly, the company is also required to give a one month notice for the removal of an employee. Now, if an employee does not serve the full or part notice period, should the salary be deducted for the shortfall days of the notice period only, or should it be deducted doubly from his final settlement? This would include:
1. Deduction for notice period absenteeism for the month.
2. Deduction for absent days from his account.
We often face this situation during the final settlement. Regards, Pradeep

Dear Pradeep,

The Notice Period Clause in an employment contract typically serves to protect both the employee and the employer by providing a transition period for both parties. When an employee does not serve the full notice period, the standard practice in India, as per the Payment of Wages Act, 1936, is to deduct salary for the shortfall days from the final settlement. This is also known as 'recovery of notice pay'.

Here's how it works:

1. If an employee does not serve the full notice period, the employer has the right to deduct the salary equivalent to the shortfall days. This means if an employee leaves 10 days before the end of the notice period, the employer can deduct 10 days' salary from the final settlement.

2. The double deduction you mentioned seems to refer to the deduction for the notice period absenteeism and the deduction for absent days from the employee's account. However, these are essentially the same thing. There should not be a 'double deduction' for the same shortfall days.

3. It's important to note that any deductions should be clearly communicated to the employee and ideally, should be mentioned in the employment contract. If there are any disputes, the matter can be taken up with the local labour office.

Please ensure to consult with a legal expert or HR consultant to understand the specific laws and regulations applicable to your company's location and industry. This will help you handle such situations more effectively in the future.