The resignation process is never straightforward. With the need to fill the vacant position, the employee also wishes to have a smooth offboarding with all the amounts and liabilities settled. The resignation process includes providing a well-oriented farewell to the employee, notice period allotment, recovery calculations, asset recovery, and other employer responsibilities. Among all these, the notice period attracts more attention as if to relieve both employee and employer from their duties. Here we have entailed a list of questions that may arise in mind thinking of the notice period recovery.
To start with, we will begin with the fundamental question of what the notice period is.
What is the Notice Period?
Simply putting, Notice Period is defined as the time interval an employee has to work for the company after the acceptance of his/her resignation. In other words, it is the time spent between the application of resignation and the last working day of the employee.
What is Notice Pay?
Notice Pay and Notice Period Recovery might seem to be the same at first but have entirely opposite meanings.
Notice Pay, also known as the pay in lieu of notice, is the amount paid to the employee by the company if he/she is terminated before the end of the notice period. And under this context, this amount can be regarded as an employee’s income, which is fully taxable.
What is Notice Period Recovery?
In contrast to the Notice pay, Notice period recovery is the amount the employee has to pay in case of leaving the organization before the end of the notice period. In fact, the amount is directly deducted from the earning components of the employee.
Why is Notice Period Recovery Needed?
The amount is generally recovered from the employee if he /she refuses or does not complete the notice period. It is a kind of settlement under any case of the unfulfillment of the notice period.
What Are The Calculations For The Notice Period?
The notice period is generally calculated based on the respective employment periods of the employee and the terms signed, which is mandatory for employees to serve the same.
The notice period employee has to follow according to the regulations is a minimum of 30 days and a maximum of 90 days.
Further, if the required notice period is not served, the employee has to pay the required amount as stated in terms of employment, which can be described as below.
Formula = (Monthly salary/30)*(Remaining Notice period days)
Is The Notice Period Recovery Amount Taxable?
The answer to this question is no.
As we have seen, that notice period recovery amount is what an employee pays. This amount is not included in his/her CTC or take-home salary and thus is not subjected to tax calculation.
What Are The Legal Consequences If The Employee Does Not Pay The Notice Period Recovery Amount?
As stated by the government, an employee is mandated to fulfil the notice period. If not notice period, then the employee is responsible for paying the calculated amount for not serving the notice period.
In any case, if the employee does not pay the recovery amount, he/she may have to face many legal consequences, as stated below.
The company can:
- Seize the Full and Final Settlement
- Provide negative reference
- Give respective ratings and review on the IREER – International Register of Employee and Employee Ratings
- Refuse to give the relieving letter
- Refuse to provide PF benefits
- Start legal action on the employee for the penalty of the unserved notice period and its payment.
- Considers the employee in blacklist
Is GST Applicable To Notice Period Recovery?
Schedule II of the CGST Act states that there are some activities that should be regarded as the supply of goods and services. These activities include ‘agreeing to the obligation not to tolerate an act.
If the employee does not serve the notice period according to the rules of the employer, it is certainly tolerable to act for which GST is applicable. However, if the policy does not include such an agreement, then GST may not be applicable.
Is It Mandatory To Offer A Full And Final Settlement Receipt After The Payment Of The Recovery Amount?
As the company deducts the recovery payment from the income, it is mandatory for the company to include the same in the relieving letter or the full and final settlement as a final report that the employee’s liabilities are over.
According to government regulations, processes such as hiring and resignation are complicated as some contracts bound both employee and employer. And to avoid any consequences, it is mandatory to abide by these rules to have a secure social life.