Notice period recovery

How notice period is recovered from the employee
Can anyone pls help on the formula for calculation…

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Hi,

While doing the final settlement, we compute salaries and other payables as we do regularly. Then in the deductions section, we deduct the notice pay as one single amount. Notice pay is computed as under:

Total Salary of employee (CTC) * (Notice period / 30 days)

While computing Income Tax, I understand this notice pay will not be deducted from taxable salary income

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Hello,

Notice period depends on the earlier agreement or offer letter what is mentioned during joining.
If you have clearly mentioned 3 months (industry standard) notice period if employee resigns or if he/she is retrenched will also be given 3 months notice again based on appointment letter clause.
Formula : In case empoyees resigns (Basic/30 * Number of days recovery) 90 days in above example, this becomes recovery.
In case employee is retrenched: (Gross/30 * Number of days payable) 90 days in above example, this becomes payable to the employee.

Please correct me if any other opinions.

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Welcome to @Akila @Shanthakumar @Yuvraj.Birje to the community. Congratulations on your first posts.

Thank you for contributing and helping out. Keep up the great work!

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Hi,

Notice period recovery could depend on your Appoint letter as in what an organization mentioned. It could be without straight your one month salary. In case employee served 15 days notice periond and 15 days need to recover than calculation must be " Gross/No of days in a month*No of days need to recover the NP.

I hope this information helps you.

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I am not sure but I had read in one of the acts, I think Wage Act, for notice pay recovery you cannot consider Gross pay as it includes other allowances too. You can only consider Basic + DA. Please let me know, if I am wrong. Thanks.

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Hi,

Notice Period is defined by Bombay Shops & Establishment Acts as

A. SERVICE MORE THAN A YEAR - 1MONTH NOTICE OR WAGES IN LIEU OF
B. SERVICE LESS THAN YEAR & MORE THAN 3 MONTHS - 14 DAYS NOTICE OR WAGES IN LIEU OF

Also, While Paying Leave Encashment are you processing it on Gross Salary or Basic Salary. Both goes hand in hand.

If you process Leave Encashment on Basic Salary, then Notice Period Deduction should also be on Basic Salary only.

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Hi,

I agree with you Ankit.

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The term Notice Pay has not been defined by any Labour Act. If you refer ID Act, there is mention about “notice” to be served by an employer to retrench/ discharge an employee or close down an undertaking.
Even in these cases, payment in lieu of notice means Basic Wages + Dearness Allowance. This is applicable to those who are covered under ID Act.
Others who are not covered under ID Act are 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.

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But as in the case of PF, subjectively the definition of basic wages is debatable.
It can be interpreted that the basic wages include everything as agreed upon in the employment contract payable to an employee on delivering certain duties.

The term Notice Pay has not been defined by any Labour Act. If you refer ID Act, there is mention about “notice” to be served by an employer to retrench/ discharge an employee or close down an undertaking.
Even in these cases, payment in lieu of notice means Basic Wages + Dearness Allowance. This is applicable to those who are covered under ID Act.
Others who are not covered under ID Act are 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.


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