Quick Summary
Here's what this article covers 👇
- Buy out notice period meaning and process
- How to buy out notice period and negotiate?
- Notice period buy out amount calculation
Here's what this article covers 👇
The Human Resources (HR) Department manages an employee's resignation process. An HR needs to take care of many aspects of this process, such as stay interview, full and Final (F&F) settlement process, notice period, experience certificate, etc.
These aspects of the resignation process are mandated by law and are also helpful in conducting a swift and systematic employee exit. Read this blog post to learn about buy out notice period meaning and how to buy out notice period in a company.
When an employee resigns from a company, they must serve a notice period that can last from a few weeks to a few months. Suppose the employee cannot serve the notice period (in case of urgent onboarding with another company, early joining to a university, or any other reason); in that case, they can opt for buying out the notice period.
This enables the employees to avoid working in the notice period by paying back the salary for the days they cannot work.
The employer reserves the sole authority to choose whether to accept or reject the buy out option of the notice period.
The HR department manages the entire buy out process, and the amount to buy out the notice period is generally calculated using the employee's gross salary.
Check: Gratuity calculator
You can navigate the following steps to buy out your notice period with your company:
F&F meaning
F&F stands for "Full and Final Settlement". It means the final settlement of any financial or administrative matters when an employee leaves the organization, including unpaid salary, benefits, and any other outstanding payments/reimbursements, encashment of leaves. After F&F is processed, the organization doesn't owe the employee anything.
Check: Full and final settlement calculator
There is no specific law in India that mandates or regulates notice period buyouts. However, if the terms of the buyout are mentioned in the employment contract and agreed upon by both the employer and the employee, then it becomes legally binding.
It is important for both the employer and the employee to understand the terms and conditions of the notice period buyout before agreeing to it. In case of any disputes, they can approach the labor court for resolution.
Yes, a notice period buyout in India is generally considered taxable depending on who initiates the buyout and under what circumstances.
Here's a breakdown:
Scenario 1: Employer pays for the buyout:
Scenario 2: Employee pays for the buyout:
However, there are some exceptions:
Additional factors to consider:
Remember, tax laws are complex and subject to change, so it's always best to consult a qualified tax professional for personalized advice regarding your specific situation and the tax implications of your notice period buyout.
Every organization can have a policy of its own to address notice period buyout amount calculation. It is according to the notice period/ termination policy the amount is calculated.
Check your offer letter for the clause that mentions about how much to be paid to buy out notice period. Generally there are two ways this is done✌
If an employee wants to buy out notice period, the necessary charges are cut in the salary and then the full and final settlement is done. The charges that are cut can be on the basic salary or gross salary. This will be mentioned in the offer letter.
Example: Anand's notice period is 3 months. According to the company policy when employees want to buy out it will becharged on the basic salary. However, he wants to buy out one month. Anand's basic salary is Rs. 20,000/month. He should get Rs. 60000 of basic salary + whatever other things that are mentioned in the CTC when the F&F is done. However, as he wants to buy out one month, he will get only Rs 40000 from the basic salary.
Some companies won't offer buying out some days of notice period and only allow full buying out.
Some companies, mostly enterprises, mention in the offer letter how much should an employee pay when they want to buy out notice period. It could be one month salary or a fixed amount like Rs 1 lac or anything the company decides.
If an employee pays a certain amount to buy out notice period, they can produce the F&F documents to the new joining company and get the amount reimbursed as a joining bonus.
Some other ways to leave the company without serving the notice period or shortening the length of the notice period are as follows:
The HR department should prepare themselves in advance to facilitate the exiting process of an employee from a company. Notice Period is an essential aspect of the exiting process. It can be defined as the number of days the employees must work for the company before resigning.
The notice period enables the employees to complete their pending work and provides sufficient time for the employer to find a suitable replacement for the exiting employee. Candidates are also asked to specify the notice period for job applications by future employers.
In case the employees cannot serve the notice period, they can buy out notice period by paying the equivalent amount of their salary for the days that they are not working during the notice period.
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When an employee decides to leave a company, they are typically required to fulfill a notice period, which may range from several weeks to several months. However, if circumstances arise where the employee is unable to complete this notice period due to urgent onboarding with another company, early enrollment in a university, or any other valid reason, they have the option to buy out the remainder of their notice period.