Notice Pay Recovery in Full and Final Settlement: Gross or Basic Salary? Seeking Clarity on Legal Guidelines

Dear All,

I am working as an HRD officer and have to complete the Full and Final Settlement for four employees who have resigned. My question is regarding the Notice Pay Recovery in the settlement process. Should the Notice Pay deduction be based on the Gross salary or the Basic salary? Additionally, I would like to know under which definition or Act this Notice Pay deduction is implemented.

Thank you.

Hi,

The notice pay deduction has to be done based on your company's terms and conditions of employment. This is only the basic amount and not the gross pay. In some cases, it is a fixed part of the salary, for example, Basic + HRA. Look for a clause in the appointment letter issued to the employee at the time of joining and then follow the instructions provided there.

Regards,
Raul.

Hi Mr. Bhardwaj,

The clause must have been mentioned in the contract of the employee before going for any deduction. Generally, it is the gross salary that is being deducted from the full & final amount, but again, what is your company policy you must go through.

Thanks,
Rahul

Hi, Mr. Bhardwaj,

As far as my understanding goes, the notice period pay will be deducted from the gross salary. This is a common practice followed by the majority of companies. Nonetheless, you may verify this with the company policy and deduct in accordance with the terms and conditions outlined in the appointment letter.

Venkat

Mr. Bhardwaj,

The payment of the salary and deduction of salary toward the notice pay is solely governed by the terms and conditions of the appointment of the concerned employee and as and when modified by the company from time to time.

Generally, there is a provision for deducting the gross salary towards the notice period. You may go through the terms and conditions of the appointment and take the further action accordingly.

I hope I have clarified your query.

Thanks,
UMESH KAPOOR

Pay means basic pay, personal pay if any, officiating pay if any, and DA. So notice pay, as mentioned in the offer, is calculated on Basic plus DA only. These are applicable in the Government Sector and Semi-Government Sectors. For the definition of pay, refer to clause 19 of Swamy's compilation of FRSR, popularly known as FR rules. In the private sector, the definition of pay may be different. So recovery in lieu of notice pay will be different.

The term Notice Pay has not been defined by any Labour Act in the sense it is referred to in the present discussion. If you take the ID Act, there is mention about "notice" to be served by an employer to retrench/discharge an employee or close down an undertaking. It depends upon the size of the undertaking, whether employing 50/100 or more than 100 and applicability of chapter V B of the ID Act. Even in these cases, payment in lieu of notice means Basic Wages + Dearness Allowance (the same which is taken for Gratuity calculation, Retrenchment pay compensation, etc.). Therefore, the notice pay on the part of employees shall also mean the same, i.e., Basic + DA.

However, to be specific, it is advisable to refer to the Standing Orders of the company.

Regards,
Madhu.T.K

Hi,

T K Mahu is absolutely right. However, you do not need to look at Standing Orders. The Industrial Disputes (ID) Act defines the Notice for retrenchment. The same clause is generally included in Standing Orders as well. Notice Pay, Leave Encashment, PF, Gratuity are all calculated based on Basic plus DA. This is applicable to those who are covered under the ID Act.

Others who are not covered under the ID Act are governed by the Service Conditions and terms of employment. Some of the older companies even today provide a specific clause stating that the Notice is based on basic plus DA. It is better to provide such a clause to avoid confusion in all letters for those who are not covered under the ID Act.

Siva

Notice pay (basic plus DA) is required to be paid by the incumbent employee only when he has not given notice and is leaving the organization instantly. Suppose in the terms and conditions of his employment, he has to give one month's notice, and he asks for his release after one month from today, he need not have to pay notice pay. In case he asks for release after 20 days from today, he has to pay for ten days only. But when he asks to be released tomorrow itself, he has to pay one month's notice. The concept of notice pay came into existence with the aim to prevent the employee from leaving the company without handing over his assignments to another substitute or clearing his liabilities. It is at the discretion of management to release him even without recovering notice pay when it is in the interest of the employer.

I have a small clarification on notice pay for employees.

Notice Pay in Appointment Letters

- For probationary employees, 30 days' notice pay is provided.
- For confirmed employees, it is clearly mentioned that 60 days of basic pay is given on either side.

The question is, should deductions for probationary employees be based on gross or basic pay?

Regards,
Naren

Salary is considered as Basic + DA. Therefore, the amount to be reimbursed will be the concerned employee's BASIC+DA.

The amount paid in lieu of notice will normally be calculated by reference to the remuneration the employee would have earned if he had worked out the notice to which he was entitled. So, that means notice pay is the exact amount you will gain as a salary at the end of that month, which is gross, and deductions will be made according to your company.

My company calculates notice pay based on gross. Is this correct?

In the appointment letter, it is nowhere written that the notice period recovery would be on gross or basic. In that case, can a company say that we'll recover the amount on the gross salary? As per the standard process across the industry, if the company is adjusting the PL in basic, then the recovery amount should also be calculated on the basic part. Please clarify.