Buy out notice period - The only blog you need to read.
Buy out notice period meaning, how to buy out, amount calculation and negotiation
2 mins read
February 21, 2023
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
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.
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.
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.
You can navigate the following steps to buy out your notice period with your company:
Negotiate the exact duration of the notice period and the buy out option with the HR department.
Find out the exact amount to be paid to the company to buy out the notice period for immediate release.
You can pay the amount or adjust it in the full and final (F&F) settlement to be relieved immediately.
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.
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.
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.
A candidate is generally asked to specify their notice period engagement with the previous company when looking for new job opportunities in the market. Recruiters might want the candidate to join on an urgent basis or within a certain period of time. Specifying notice period in job application helps recruiters choose applicants based on their requirement.
1. Applicants are already in their notice period
2. Will serve the notice period after securing an offer
3. Are currently not employed and can join immediately.
Knowing this will also help recruiters decide if they have to buy out notice period for the candidate.
Ways to negotiate 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 employees have unused paid leaves from their tenure, they can use it to negotiate their notice period.
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.
Notice period buy out amount calculation
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.
How is notice period buy out 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✌
Based on the no. of days employees want to cut off in notice period, an equivalent amount will be asked
A fixed amount mentioned in offer letter that employees have to pay
Based on the number of days employees want to cut off in notice period, an equivalent amount will be asked to pay
When an employee resigns and it gets approved by the HR team, from then the notice period starts. Generally, the salary of notice period is given after the employee leaves. This is called full and final settlement. So 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.
There is a fixed amount that employees have to pay if they have to buy out notice period.
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.
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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