Buy out notice period - How does it work?

Learn how HRs can buy out notice period and how an employee can use it to leave a company without the notice period.

The Human Resources (HR) Department is in charge of managing many crucial processes in a company. One of the essential processes for managing a company's workforce is an employee's resignation process. An HR needs to take care of many aspects of this process, such as the 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. Hence, HR employees need to know about it. Read this blog post to learn about buy out notice period meaning and how to buy out notice period in a company.

Notice period meaning

Before moving on to the buy out notice period, let us first understand the concept of the notice period. 

When an employee of a company decides to leave their current job and submits their resignation, they are asked to serve a notice period. Employees are asked to work for a month or two (depending on company policy) before they are relieved from their duties. 

Notice periods can also be enforced in case of dismissal of an employee. The exact duration of the notice period differs from one company to another, depending on their internal policies and standards. A typical notice period ranges from a week to almost three months. 

Importance of notice period

The Notice period provides sufficient time for the existing employer to recruit/find a suitable replacement for the exiting employee. It can also help the company resolve any HR issues with the exiting employee.

The Notice period for the employees also ensures that they complete all their pending projects and engage in a complete knowledge transfer to their succeeding employees. This ensures that when the employee has finally left the company, the work is continued as expected.

But what if an employee cannot serve the notice period? Then they need to negotiate the exit strategy of their notice period with their employer. The most common way to leave a company without serving the notice period is to buy out the notice period.

Read: Guide to effective performance management

Buy out notice period meaning

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. For example, an employee must serve a notice period of 90 days. But due to unforeseen circumstances, they can only serve the notice period for 45 days. Then, the employee can pay the equivalent salary for 45 days to their company in exchange for not serving the entire notice period. This process is known as buy out 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. The employer reserves the sole authority to choose whether to accept or reject the buy out option of the notice period. 

Buy out notice period for job application

A candidate is generally asked to specify their notice period engagement with the previous company when looking for new job opportunities in the market. There is a possibility that the new company might want the candidate to join on an urgent basis, and the employee might be able to serve the notice period. 

In this case, the candidate can negotiate the notice period with his previous company. After the exact duration of the notice period has been decided, the candidate can further negotiate to buy out the notice period with the HR department.

Generally, the recruiting company reimburses the amount paid by the candidate to buy out the notice period. In this case, the candidate can also seek reimbursement for any other type of financial settlement with the previous company.

Read: Employee wellness program and retention of employees

How to buy out the notice period?

You can navigate the following steps to buy out your notice period with your company:

  1. Negotiate the exact duration of the notice period and the buy out option with the HR department. 
  2. Find out the exact amount to be paid to the company to buy out the notice period for immediate release.
  3. You can pay the amount or adjust it in the full and final (F&F) settlement to be relieved immediately. 
  4. If your future employer has agreed to buy out your notice period, you can communicate the terms of buy out to your future employer. Then, they will pay all the remaining dues and settle your account with your previous employer.
  5. Once the payment is made, and the previous company has acknowledged it, the company will provide you with the relieving letter, experience certificate, and other necessary documents to facilitate a smooth onboarding process with your future employer.

Other ways to negotiate the notice period

Some other ways to leave the company without serving the notice period or shortening the length of the notice period are as follows:

  • If you have a good working relationship with your manager and the HR department, you might be able to shorten your notice period depending on your position and the nature of your work.
  • Managers are generally hesitant to let go of an employee until a proper replacement is found and knowledge transfer is completed. You can try to be proactive in these processes and negotiate an early release.
  • In some cases, companies tend to relieve the exiting employees immediately after their resignation or dismissal. The employee will still have a notice period and be active on the payroll, but the company will relieve the exiting employee of their duties. This is known as Garden Leave and is generally done to maintain confidentiality and protect sensitive information. This is often seen in cases where a competitor recruits the exiting employee.

Conclusion

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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