Hi Everyone,
I need help with this issue - the company I work for equalizes the notice period pay with basic pay. This means that if someone does not have to serve the notice period, he/she must pay an amount in lieu of the notice period, which will be equal to the basic pay component of the salary breakdown, and vice versa.
Is it fixed that it should be equal to basic pay, or does it vary from company to company? I have observed some organizations deducting the amount from their gross salary or net salary/take-home pay.
What exactly constitutes the basic pay - the basic pay component of the salary breakdown or the net pay/CTC/gross considered as the basic pay of an employee?
It would be really helpful if someone could provide useful insights on this.
Thanks :)
From India, Delhi
Acknowledge(0)
Amend(0)
1I need help with this issue - the company I work for equalizes the notice period pay with basic pay. This means that if someone does not have to serve the notice period, he/she must pay an amount in lieu of the notice period, which will be equal to the basic pay component of the salary breakdown, and vice versa.
Is it fixed that it should be equal to basic pay, or does it vary from company to company? I have observed some organizations deducting the amount from their gross salary or net salary/take-home pay.
What exactly constitutes the basic pay - the basic pay component of the salary breakdown or the net pay/CTC/gross considered as the basic pay of an employee?
It would be really helpful if someone could provide useful insights on this.
Thanks :)
From India, Delhi
Acknowledge(0)Amend(0)
Dear Divya,
As notice pay refers to the amount of salary in lieu of notice payable either by the employer or by the employee when either of them unilaterally terminates the contract of employment, its calculation basically depends on the length of the notice period and the components of the salary structure included therein. If it is specifically mentioned as basic pay, then the notice pay shall be equal to the amount of basic pay only for the duration of the notice period. If it is mentioned as gross pay, it shall be the amount calculated based on the total value of only those components in the salary structure other than those payable or reimbursable to defray special expenses related to the job's performance. The determination of notice pay is typically outlined in the exit clause of the employment contract regarding unilateral termination.
Kind regards,
[Your Name]
From India, Salem
Acknowledge(3)
Amend(0)
As notice pay refers to the amount of salary in lieu of notice payable either by the employer or by the employee when either of them unilaterally terminates the contract of employment, its calculation basically depends on the length of the notice period and the components of the salary structure included therein. If it is specifically mentioned as basic pay, then the notice pay shall be equal to the amount of basic pay only for the duration of the notice period. If it is mentioned as gross pay, it shall be the amount calculated based on the total value of only those components in the salary structure other than those payable or reimbursable to defray special expenses related to the job's performance. The determination of notice pay is typically outlined in the exit clause of the employment contract regarding unilateral termination.
Kind regards,
[Your Name]
From India, Salem
Acknowledge(3)Amend(0)
Thank you, sir, for the information.
Does this mean the notice period pay calculation varies from company to company? Can it be either based on basic pay or gross pay? It is not specified in any law how it will be calculated. Is that correct?
From India, Delhi
Acknowledge(0)Amend(0)
0
0
Does this mean the notice period pay calculation varies from company to company? Can it be either based on basic pay or gross pay? It is not specified in any law how it will be calculated. Is that correct?
From India, Delhi
Acknowledge(0)Amend(0)CiteHR.AI
(Fact Check Failed/Partial)-The user's reply is partially correct. Notice period pay calculation can vary, but basic pay is typically used. The law doesn't specify, but basic pay is a common practice.
0
0
Dear Divya,
Yes, the notice period clause varies from company to company, and an employee is governed by the appointment orders that are signed during employee engagement. If the recovery of the notice period on basic pay or gross pay is not specifically mentioned in your appointment letter, the employer can recover whatever they wish. Legally, the notice period clause falls under the Standing Orders Act, which is applicable only to workers; staff are not governed by this act. Therefore, as far as the notice period is concerned, unless it is explicitly written as a salary component, the employer can recover it based on the gross salary.
From India, New Delhi
Acknowledge(1)Amend(0)
0
0
Yes, the notice period clause varies from company to company, and an employee is governed by the appointment orders that are signed during employee engagement. If the recovery of the notice period on basic pay or gross pay is not specifically mentioned in your appointment letter, the employer can recover whatever they wish. Legally, the notice period clause falls under the Standing Orders Act, which is applicable only to workers; staff are not governed by this act. Therefore, as far as the notice period is concerned, unless it is explicitly written as a salary component, the employer can recover it based on the gross salary.
From India, New Delhi
Acknowledge(1)Amend(0)CiteHR.AI
(Fact Check Failed/Partial)-The user reply contains inaccuracies. The recovery of notice period pay should be based on what is specified in the employment contract or appointment letter. The Standing Orders Act applies to both workers and staff. Recovery should be in line with the terms agreed upon and not at the discretion of the employer.
0
0
Many organizations follow the norm of Basic Pay plus DA for determining the notice pay amount. The gross pay is much more inclusive and would include allowances like incentives, conveyance/transport, telephone, education, uniform, etc., so it is not suitable for this purpose.
From India, Mumbai
Acknowledge(0)Amend(0)
0
0
From India, Mumbai
Acknowledge(0)Amend(0)CiteHR.AI
(Fact Checked)-The user reply is correct. Thank you for the insightful explanation. (1 Acknowledge point)
0
0
Notice pay is always based on gross salary. When you buy out your notice period, it means you were supposed to be paid the full salary if you have completed the notice period. Since it is not possible for either the employee or employer, the notice period buyout should be on gross pay, to the best of my belief. Some companies, especially those with more blue-collar employees, mention this practice in the appointment letter or employee handbook.
From India, Ahmadabad
Acknowledge(0)Amend(0)
0
0
From India, Ahmadabad
Acknowledge(0)Amend(0)CiteHR.AI
(Fact Check Failed/Partial)-The user reply is incorrect. Notice pay is typically calculated based on the basic salary component, not the gross salary. It is essential to refer to the employment contract or company policies for specific details.
0
0
Notice pay deduction refers to the amount deducted from an employee's final settlement when they do not serve the notice period as required by their employment contract. The basis for calculating notice pay deduction can vary, and whether it should be equal to the basic pay or gross pay depends on the terms outlined in the employment contract, company policy, and sometimes judicial interpretations. Here’s a detailed explanation:
Basic Pay vs. Gross Pay
Basic Pay: This is the core salary of an employee, excluding allowances, bonuses, and other benefits. It forms the base of the salary structure.
Gross Pay: This includes the basic pay plus all additional earnings such as allowances, bonuses, overtime, and any other forms of income before deductions like taxes and provident fund contributions.
Determination Factors
Employment Contract: The primary determinant of whether the notice pay deduction should be based on basic pay or gross pay is the employment contract. The contract should specify the terms related to notice period and the calculation of notice pay.
Company Policy: In the absence of clear contractual terms, the company’s internal policy on notice pay deductions will apply. This policy should be clearly communicated to employees and consistently applied.
Legal Interpretations and Precedents: Sometimes, legal precedents or interpretations by labor courts or relevant authorities can influence whether notice pay is based on basic or gross pay. Generally, judicial decisions lean towards a fair and reasonable interpretation, often taking the gross pay into account, especially if it reflects the true economic loss to the employer.
Practical Considerations
Standard Practice: Many organizations base notice pay deductions on the gross pay, as it represents the total earnings of the employee and thus the actual cost to the employer. This includes all the components of the salary that the employee would have earned during the notice period.
Employee Agreements: It is important for the terms regarding notice pay deduction to be clearly mentioned in the employee’s offer letter, appointment letter, or employment agreement. This clarity helps prevent disputes at the time of separation.
Legal Guidance
Payment of Wages Act: While the Payment of Wages Act, 1936, regulates the payment and permissible deductions from wages, it does not specifically address the calculation of notice pay. Therefore, the terms set by the employment contract and company policies are generally followed.
Industrial Disputes Act: This Act and other labor laws might be referenced for broader interpretations of employee rights and employer obligations, which could influence practices related to notice pay deductions.
Conclusion
Notice pay deduction should ideally be determined as per the terms of the employment contract and company policy. In the absence of specific contractual terms, gross pay is commonly used for such deductions, as it reflects the total financial impact on the employee and is considered a fair practice. Employers should ensure that their policies are clear, consistently applied, and in compliance with applicable labor laws to avoid legal disputes.
From India, Mumbai
Acknowledge(0)Amend(0)
0
0
Basic Pay vs. Gross Pay
Basic Pay: This is the core salary of an employee, excluding allowances, bonuses, and other benefits. It forms the base of the salary structure.
Gross Pay: This includes the basic pay plus all additional earnings such as allowances, bonuses, overtime, and any other forms of income before deductions like taxes and provident fund contributions.
Determination Factors
Employment Contract: The primary determinant of whether the notice pay deduction should be based on basic pay or gross pay is the employment contract. The contract should specify the terms related to notice period and the calculation of notice pay.
Company Policy: In the absence of clear contractual terms, the company’s internal policy on notice pay deductions will apply. This policy should be clearly communicated to employees and consistently applied.
Legal Interpretations and Precedents: Sometimes, legal precedents or interpretations by labor courts or relevant authorities can influence whether notice pay is based on basic or gross pay. Generally, judicial decisions lean towards a fair and reasonable interpretation, often taking the gross pay into account, especially if it reflects the true economic loss to the employer.
Practical Considerations
Standard Practice: Many organizations base notice pay deductions on the gross pay, as it represents the total earnings of the employee and thus the actual cost to the employer. This includes all the components of the salary that the employee would have earned during the notice period.
Employee Agreements: It is important for the terms regarding notice pay deduction to be clearly mentioned in the employee’s offer letter, appointment letter, or employment agreement. This clarity helps prevent disputes at the time of separation.
Legal Guidance
Payment of Wages Act: While the Payment of Wages Act, 1936, regulates the payment and permissible deductions from wages, it does not specifically address the calculation of notice pay. Therefore, the terms set by the employment contract and company policies are generally followed.
Industrial Disputes Act: This Act and other labor laws might be referenced for broader interpretations of employee rights and employer obligations, which could influence practices related to notice pay deductions.
Conclusion
Notice pay deduction should ideally be determined as per the terms of the employment contract and company policy. In the absence of specific contractual terms, gross pay is commonly used for such deductions, as it reflects the total financial impact on the employee and is considered a fair practice. Employers should ensure that their policies are clear, consistently applied, and in compliance with applicable labor laws to avoid legal disputes.
From India, Mumbai
Acknowledge(0)Amend(0)CiteHR.AI
(Fact Checked)-The user reply provides accurate information regarding notice pay deductions, covering factors like basic pay vs. gross pay, employment contracts, company policies, legal guidance, and practical considerations. The response aligns with current labor laws and practices. (1 Acknowledge point)
0
0
In simple terms, if you are calculating Loss of Pay on Gross Wages and Leave Encashment on Gross Wages, then the Notice period shall be on a Gross Wages basis. However, if you are computing the above on Basic Pay, then the Notice period shall be on Basic pay.
Any practice has to be logical in terms of Employer and Employee.
Regards,
MVK
From India, Madras
Acknowledge(0)Amend(0)
0
0
Any practice has to be logical in terms of Employer and Employee.
Regards,
MVK
From India, Madras
Acknowledge(0)Amend(0)CiteHR.AI
(Fact Check Failed/Partial)-The user reply is partly correct. Notice period pay should be calculated based on basic pay, not gross wages. This is in line with labor laws and practices.
0
0
Engage with peers to discuss and resolve work and business challenges collaboratively - share and document your knowledge. Our AI-powered platform, features real-time fact-checking, peer reviews, and an extensive historical knowledge base. - Join & Be Part Of Our Community.
Notice pay recovery certificate.doc
No GST on Notice Pay Nominal Canteen Fees (TOI - 25-Oct-2022)_1. jpg
Latest gujarat 6 pay modified.xls
CiteHR.AI
(Fact Checked)-The user's reply is mostly accurate in explaining notice pay calculations based on different components of salary structure and the exit clause in the employment contract. (1 Acknowledge point)