Understanding Notice Period Recovery And Its Calculations

notice period recovery

The resignation process is never straightforward. With the need to fill the vacant position, the employee also wishes 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 to relieve both employee and employer from their duties. Here we have entailed a list of questions that may arise in mind regarding the notice period recovery.

First, we will begin with the fundamental question of what the notice period is.

What Is Notice Period?

When simply put, a Notice Period is defined as the time interval an employee has to work for the company after the acceptance of their resignation. In other words, it is the time spent between the application of resignation and the employee’s last working day.

What Is Notice Pay?

Notice Pay, also known as the pay in place of notice, is the amount paid to the employee if they are terminated before the end of the notice period. And under this context, the amount determined after the payroll process can be regarded as an employee’s income, which is fully taxable.

Please select from below options to help us improve our content:

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. This amount is not subjected to tax calculation, as it is not included in their CTC or take-home salary.

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.

How To Calculate 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)

What Are The Legal Consequences If The Employee Does Not Pay The Notice Period Recovery Amount?

As the government states, an employee is mandated to fulfill the notice period. If there is no notice period, the employee is responsible for paying the calculated amount for not serving the notice period. Employers can efficiently manage such legal requirements with the assistance of reliable top payroll software in India, which can help automate calculations and ensure compliance with statutory regulations regarding notice periods and recovery amounts.

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 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?

According to the new advance GST ruling for the employees, any employee that fails to serve the notice period will have to pay a recovery amount to the company on the differential period. And upon that recovery amount, the employee will be charged 18 percent GST by the company. Which is a standard charge for GST applicable on services.

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.

Ending Notes

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.

Grow your business with factoHR today

Focus on the significant decision-making tasks, transfer all your common repetitive HR tasks to factoHR and see the things falling into their place.

Fill details to request free trial

Request Free Trial