How Should We Handle Notice Pay Deductions and Leave Encashment? Seeking Guidance!

Hi to all seniors of the CiteHR community!!

We have a system for calculating PL encashment based on BASIC + DA. However, when calculating the notice pay period, we deduct from the gross salary. I have frequently been asked to adjust the notice pay period against the PL balance or to deduct at BASIC + DA.

I want to know whether we should adjust the notice pay period against the leave balance or if we should pay leave encashment based on the gross salary. I am aware that, as per the law, leave encashment should be on BASIC + DA, but there is no clarification on notice pay period recovery. Please guide me on this.

Regards,
Arvind

PL/Earned Leave can be encashed on BASIC or BASIC+DA (if DA is one of the components in the Salary). Notice Pay should ideally be recovered on BASIC or BASIC+DA (if applicable) and not on Gross because Gross Salary consists of a lot of reimbursement components, perks, benefits, etc., which ideally should not be recovered.

Now, if you are computing the PL & Notice Pay on BASIC (or BASIC+DA wherever applicable), then I don't see any reason why you should not adjust the Notice period against the PL. Please remember, whatever you do, ensure that you strictly adhere to it so that the leaving employee is not aggrieved. It should be the same for everybody.

PL/Earned Leave can be encashed on BASIC or BASIC+DA (if DA is one of the components in the Salary). Notice Pay should ideally be recovered on BASIC or BASIC+DA (if applicable) and not on Gross because Gross Salary consists of a lot of reimbursement components, perks, benefits, etc., which ideally should not be recovered.

Now, if you are computing the PL & Notice Pay on BASIC (or BASIC+DA wherever applicable), then I don't see any reason why you should not adjust the Notice period against the PL. Please remember, whatever you do, ensure that you strictly adhere to it so that the leaving employee is not aggrieved. It should be the same for everybody.

Dear Arvind,

Irrespective of the policy you follow, make sure it is consistent in both directions. If PL encashment is based on Basic + DA, then the deduction/recovery should also adhere to the same principles. It is not acceptable to have two different standards for the same case. You can always adjust the notice period against the remaining PL, as it will not make any difference if the payment and recovery follow the same principles.

Thank you,
Parwez