Notice Period in India: Rules, Buyout Policy & Salary Calculation Explained

Understand notice period rules in India with clarity. Learn about buyout policies, salary calculation, employee rights, and employer recovery practices. Includes examples of 30, 60, and 90-day settlements to help you plan your career move better.

Introduction

In every job, there comes a point when an employee decides to move on or an employer decides to separate from an employee. This transition is managed through a notice period, which is the time an employee must serve in a company after resigning or before termination. The notice period acts as a buffer, giving the organization time to find a replacement and ensuring a smooth handover of responsibilities.

In Indian employment laws, the concept of notice period exists primarily to maintain fairness and balance between the employer and employee. While it protects the employer from sudden attrition, it also safeguards employees by ensuring they are not abruptly dismissed without compensation. The duration of this notice period is usually defined in the appointment letter or employment contract, and it varies from one company or industry to another.

One of the most debated aspects of notice period in India is the buyout policy—the option that allows employees to shorten their notice period by paying for the remaining days. Understanding these buyout rules, as well as how notice pay and salary are calculated, is crucial for both employees planning their exit and employers handling transitions.

Adding to the confusion, different companies follow different norms—some have a 30-day notice period, others enforce 60 days, and many large corporates mandate a 90-day notice. This lack of uniformity often leaves professionals uncertain about their rights, obligations, and financial implications when leaving a job.

In this article, we’ll break down the legal rules, buyout policies, salary calculations, and real-life examples of 30-, 60-, and 90-day notice period settlements, so that every working professional in India can gain clarity and make informed decisions.

What is a Notice Period?

A notice period is the time an employee is required to serve in a company after officially resigning or being asked to leave by the employer. It begins from the date of resignation (or termination) and usually ends on the employee’s last working day, as mentioned in the employment contract or appointment letter.

In simple terms, it’s a transition window that allows both the employer and the employee to prepare for a smooth exit.

• For the employer, the notice period ensures there is enough time to reallocate tasks, transfer knowledge, or hire a replacement. This helps minimize disruption in business operations.
• For the employee, it provides job security until the final date of relieving and ensures they receive their full and final settlement, salary, and other benefits as per company policy.

Typical Duration in India

The length of the notice period varies across companies and industries in India. Some common practices include:

• 30 Days → Common in startups, small firms, and some mid-level organizations.
• 60 Days → Widely followed in IT services, consulting, and mid-to-large corporates.
• 90 Days → Standard in many large IT/ITES companies, banking, and multinational firms.

While 30–90 days is the usual range, some companies may have shorter periods during probation (7–15 days) and longer periods for senior management roles. Ultimately, the exact duration depends on company policy, industry norms, and mutual agreement between employer and employee.

Legal Framework of Notice Period in India

Unlike many countries where employment laws are centrally standardized, notice period rules in India are governed by a mix of labour legislations, state laws, and individual employment contracts. This often leads to variations across industries and organizations.

1. Relevant Labour Laws

• Shops and Establishments Act (State-specific):
  Most Indian states have their own Shops & Establishments Acts, which regulate working conditions, termination, and notice requirements for employees in commercial establishments. Generally, these laws mandate a minimum notice period of 30 days for confirmed employees, but the exact duration may differ by state.
• Industrial Disputes Act, 1947:
  For “workmen” (a category defined under the Act), employers are required to provide 30 to 90 days’ notice before retrenchment, depending on the length of service. The Act also mandates compensation in certain cases of termination.
• Factories Act, 1948 and Standing Orders Act, 1946:
  In large industrial establishments, the standing orders certified under these Acts often prescribe specific notice periods for termination or resignation.

In short, while laws provide a minimum safeguard, most modern corporate setups in India rely on employment contracts to specify exact notice period rules.

Employee Termination Laws in India: Rights, Compensation & Calculation of Severance Pay

2. Role of Appointment Letter/Employment Contract

The appointment letter or employment agreement is the most critical document in determining the notice period.

• It typically specifies the length of the notice period (30, 60, or 90 days).
• It defines whether a buyout option (payment in lieu of serving notice) is allowed.
• It outlines the company’s right to recover notice pay from the employee’s full & final settlement if the employee leaves early.

Since the contract is mutually agreed upon at the time of joining, Indian courts generally uphold its terms—unless they are found to be unreasonable, one-sided, or unlawful.

3. Probation Period vs Confirmed Employment

• Probationary Employees: During probation, notice periods are usually shorter—ranging from 7 days to 30 days. Some employers even allow termination without notice during probation.
• Confirmed Employees: Once confirmed, the standard 30–90 days’ notice period becomes applicable, as per the contract.

This distinction is important because employees in probation often assume the same notice rules as confirmed staff, which is not always the case.

4. Judicial Stance

Indian courts have consistently maintained that:

• If a valid contract specifies a notice period, both employer and employee are bound to honor it.
• Employers cannot enforce unreasonable notice periods (e.g., excessively long beyond industry practice).
• In cases of disputes, courts generally side with written agreements, unless they violate statutory protections under labour laws.

For example, in several High Court judgments, it has been clarified that while companies can recover notice pay, they cannot restrain an employee from joining another organization after resignation (enforcement of notice is financial, not restrictive).

Key takeaway: In India, the notice period framework is a combination of labour laws, company policies, and contract terms—with courts usually upholding the terms mutually agreed between employer and employee.

Notice Period Buyout Policy

One of the most common questions professionals in India have is – “Can I shorten my notice period?” The answer lies in the buyout policy, a widely used mechanism in Indian workplaces.

1. What “Buyout” Means

A notice period buyout simply means that instead of serving the full notice period, an employee can pay the employer for the remaining unserved days and get an early release. This amount is often referred to as “notice pay” or “notice period recovery.”

In practice, the buyout amount is usually deducted from the employee’s full and final (F&F) settlement, although in some cases the new employer reimburses the buyout cost to help the candidate join earlier.

2. When Buyout is Allowed

• Buyout is always subject to mutual agreement between the employer and the employee.
• It is generally permitted if clearly mentioned in the appointment letter or company policy.
• Many organizations allow buyout when there is no critical dependency on the employee or when the handover can be completed quickly.
• In cases where projects are time-sensitive or replacements are not available, employers may refuse buyout and insist on serving the full notice.

3. Standard Calculation of Buyout Amount

The formula to calculate notice pay is usually:

Notice Pay = Remaining Notice Days × (Gross Monthly Salary ÷ 30)\textbf{Notice Pay = Remaining Notice Days × (Gross Monthly Salary ÷ 30)}Notice Pay = Remaining Notice Days × (Gross Monthly Salary ÷ 30)

Example:
If an employee has a 60-day notice period but serves only 30 days, then:

• Remaining days = 30
• Monthly Gross Salary = ₹90,000
• Per day salary = ₹90,000 ÷ 30 = ₹3,000
• Notice Pay = 30 × ₹3,000 = ₹90,000 (deducted from F&F).

4. Conditions When Employer May Refuse Buyout

Even if the contract allows it, companies may decline a buyout request in certain situations:

• If the employee is working on a critical project or handling sensitive client deliverables.
• If there is no immediate replacement available.
• If the employer needs adequate time for knowledge transfer and handover.
• If the employment agreement explicitly states “buyout not permitted.”

This means that while the buyout option exists, it is not an absolute right of the employee—it depends on employer discretion.

5. Industry Practices in India

Different industries follow different norms regarding notice period buyout:

• IT & ITES Sector:
  Notice periods of 60–90 days are common. Buyouts are often allowed, but many IT service giants (e.g., Infosys, TCS, Wipro) have strict policies and may not always approve early release.
• Banking & Financial Services (BFSI):
  Typically follow 60-day periods. Buyout is more flexible here, especially when client dependency is low.
• Healthcare Sector:
  Doctors, nurses, and healthcare professionals often have strict 90-day clauses, but buyout is less common due to critical patient responsibilities.
• Startups & Mid-sized Firms:
  Generally 30 days. Buyout is usually allowed, as lean teams prefer quick transitions.

Key Insight: A buyout can save employees time and help them join a new role sooner, but it always depends on mutual consent and company policy. Knowing how the calculation works helps professionals plan financially and negotiate smartly with both current and future employers.

Salary Calculation During Notice Period

When an employee resigns, one of the most critical aspects to understand is how the salary is calculated during the notice period. Since every rupee counts in the final settlement, it’s important to know what is included, what may be deducted, and how notice pay recovery or buyout is handled.

1. How Earned Salary is Calculated

During the notice period, the employee is entitled to receive salary for the number of days actually worked. The calculation is usually done on a per-day basis:

Daily Salary = (Monthly Gross Salary ÷ 30)

Example:
If your gross monthly salary is ₹60,000 and you serve 20 days in the notice period:

• Daily salary = ₹60,000 ÷ 30 = ₹2,000
• Earned salary = 20 × ₹2,000 = ₹40,000

This earned salary will be included in the Full & Final (F&F) settlement.

2. Leave Encashment, Variable Pay & Bonus Considerations

Apart from earned salary, the following components may also be settled:

• Leave Encashment:
  Any unused earned/privilege leave is usually encashed. For example, if you have 10 unused leaves and your per-day salary is ₹2,000, then you receive ₹20,000 as leave encashment.
• Variable Pay:
  Some companies include performance-linked incentives (like quarterly or annual variable pay) in the F&F, while others may forfeit it if the employee exits before the payout cycle. Always check your company policy.
• Bonus & Gratuity:
  • Bonus (as per Payment of Bonus Act, 1965): If eligible and not yet paid, it must be included in the settlement.
  • Gratuity: Payable only if you have completed 5 years of continuous service.

3. Tax Treatment of Notice Pay Recovery / Buyout

Tax implications of notice pay recovery often create confusion. Here’s how it works in India:

• If Employer Recovers Notice Pay (Employee Buyout):
  The notice pay amount deducted from your F&F is considered an adjustment. It reduces your final payout, but the gross salary shown in Form 16 may still include it.
• If New Employer Pays Buyout on Your Behalf:
  This is usually treated as a perquisite/benefit, and the amount may be taxable in your hands unless structured differently.
• If Employer Waives Notice Period:
  No recovery is made, and the entire earned salary is paid as usual.

Always review your Form 16 and payslips carefully to check how notice pay has been reported for tax purposes.

4. Formula Recap

The basic formula used across companies is:

Salary for Notice Period = (Days Worked × (Monthly Gross ÷ 30)) + Leave Encashment + Other Eligible Dues – Notice Pay Recovery (if any)

This ensures employees are paid fairly for the time served, with adjustments for unserved notice days and pending benefits.

Key Insight: Employees should always cross-check F&F statements to ensure correct notice pay deduction, leave encashment, and bonus inclusion. Even a small miscalculation can lead to significant financial loss.

Employer Rights: Forfeiture & Notice Pay Recovery

Just as employees have rights during the notice period, employers also enjoy certain legal and contractual rights. These rights help protect the organization from sudden attrition and ensure smooth transitions. However, such rights must always be exercised within the framework of labour laws and employment contracts.

1. Deduction of Notice Pay from Full & Final (F&F) Settlement

If an employee leaves the organization without serving the complete notice period, the employer has the right to recover the unserved portion of salary. This is usually done by deducting the notice pay directly from the employee’s Full & Final (F&F) settlement.

Example:

• Notice period: 60 days
• Employee serves: 30 days
• Gross monthly salary: ₹60,000
• Per day salary = ₹60,000 ÷ 30 = ₹2,000
• Recovery = 30 × ₹2,000 = ₹60,000 (deducted from F&F).

This right stems from the mutual agreement signed in the employment contract and is legally enforceable.

2. Forfeiture of Gratuity or Bonus

In some cases, employers may also forfeit additional benefits if the employee exits abruptly or violates company policy.

• Gratuity:
  Under the Payment of Gratuity Act, 1972, gratuity can only be forfeited if the employee’s termination is due to misconduct, fraud, or acts of moral turpitude. Leaving without serving notice, on its own, is not sufficient ground to deny gratuity if the employee has completed 5+ years of service.
• Bonus/Incentives:
  Companies sometimes withhold performance bonuses or variable pay if an employee resigns before the payout cycle. While this is allowed if clearly stated in the policy, arbitrary forfeiture without contractual basis can be challenged.

3. Instances When Recovery Cannot Be Made

Employers cannot enforce recovery of notice pay in the following scenarios:

• If the appointment letter/contract does not mention any notice period or buyout clause.
• If the recovery terms are unreasonable (e.g., demanding 6–12 months’ salary as penalty).
• If the employee is terminated by the employer without notice—then the employer must either allow immediate release or pay notice compensation.
• If recovery is done in a manner that violates statutory rights such as minimum wages, gratuity, or earned leave encashment.

4. Real-Life Examples

• Case 1 – IT Services Company:
  An employee with a 90-day notice period left after 45 days. The company deducted the remaining 45 days’ salary from F&F, which was valid since the contract allowed notice recovery.
• Case 2 – Manufacturing Unit:
  A worker with 7 years of service was denied gratuity because he resigned without serving the 60-day notice. The Labour Court ruled in the employee’s favor, stating gratuity cannot be forfeited unless misconduct is proven.
• Case 3 – Banking Sector:
  An employee challenged a company’s attempt to recover 3 months’ salary as notice pay, even though his contract specified only 1 month. The court struck down the employer’s action as unlawful.

Key Insight: Employers in India have the right to deduct notice pay and sometimes withhold certain variable benefits, but they cannot deny statutory entitlements like gratuity or enforce unreasonable penalties. Employees should carefully review their contract to understand the extent of an employer’s rights.

Employee Rights During Notice Period

While employers have the right to protect their business interests during an employee’s exit, employees too have clear rights during the notice period. These rights ensure that professionals are not unfairly burdened, exploited, or financially penalized beyond what is legally or contractually allowed.

1. Right to Serve or Buyout

Employees generally have the right to either serve the full notice period or request a buyout option (paying for unserved days).

• If the appointment letter mentions buyout, the employer must respect that clause unless there are exceptional business needs.
• Even if buyout is not explicitly stated, many companies allow it as a mutual arrangement to facilitate smooth exits.
• Employees can also negotiate with the new employer to reimburse the buyout cost, making the transition easier.

2. Can Employer Force Full Notice Period?

Employers can insist that the employee serve the entire notice period if:

• The employment contract requires it, and
• The employee’s role is critical for ongoing projects or client deliverables.

However, an employer cannot legally “restrain” an employee from joining a new organization by holding back resignation approval. Courts in India have clarified that notice periods can be enforced only financially (through recovery of notice pay), not by restricting someone’s right to work elsewhere.

3. What if Company Terminates the Employee?

If the employer initiates termination (without misconduct), then:

• The company must either allow the employee to serve the notice period, or
• Pay notice pay compensation equivalent to the unserved notice days.

For example, if the contract specifies a 60-day notice and the company asks the employee to leave immediately, the employer must pay 2 months’ salary in lieu of notice.

4. Cases of Harassment or Unreasonable Hold

Unfortunately, many employees face harassment during notice period, such as:

• Employers delaying or refusing to issue a relieving letter or experience certificate.
• Unreasonable insistence on serving the full notice even when a buyout clause exists.
• Withholding Full & Final settlement for months.

In such cases, employees can:

• Escalate the issue internally (HR, higher management).
• Send a written request citing the employment contract.
• Approach the Labour Commissioner or file a complaint under the Shops & Establishments Act if harassment continues.

Courts in India have repeatedly ruled that employees cannot be subjected to bonded employment practices. If an employer acts unreasonably, the employee has legal remedies to protect their rights.

Key Insight: Employees in India have the right to resign, buy out their notice period, and receive timely settlement. Employers may demand financial compensation for unserved notice but cannot forcibly detain or harass an employee beyond contractual and legal limits.

Examples of Notice Period Settlements

Notice period settlements in India often vary depending on company policy, employee negotiations, and industry norms. To make the concept easier to understand, let’s look at realistic scenarios for 30-day, 60-day, and 90-day notice periods with calculations.

Case 1: 30-Day Notice Period

• Scenario: An employee resigns with a 30-day notice requirement but serves only 15 days.
• Remaining days: 15 days.
• Monthly Gross Salary: ₹60,000.
• Per-day salary calculation: ₹60,000 ÷ 30 = ₹2,000.
• Buyout amount: 15 × ₹2,000 = ₹30,000.

Outcome: The employer deducts ₹30,000 from the employee’s Full & Final (F&F) settlement. The employee is relieved after 15 days and free to join the new company.

Case 2: 60-Day Notice Period

• Scenario: An employee resigns from a company that requires 60 days’ notice. He serves 30 days, but the employer decides to waive the balance 30 days considering project completion and smooth handover.
• Remaining days: 30 days (waived by employer).
• Buyout amount: Nil (since the employer waived it).

Outcome: The employee is released after 30 days without paying notice pay. The F&F settlement includes salary for 30 days worked plus leave encashment and other eligible benefits.

Case 3: 90-Day Notice Period

• Scenario: An employee in the IT sector resigns with a 90-day notice requirement. After discussions, the company agrees to release him in 45 days, provided he pays for the unserved 45 days.
• Remaining days: 45 days.
• Monthly Gross Salary: ₹90,000.
• Per-day salary calculation: ₹90,000 ÷ 30 = ₹3,000.
• Buyout amount: 45 × ₹3,000 = ₹1,35,000.

Outcome: The employee either pays ₹1,35,000 directly or the company deducts it from his F&F settlement. In many cases, the new employer reimburses this buyout cost to enable the employee to join earlier.

Key Insight:

• 30-day notice periods are easier to manage with partial buyouts.
• 60-day notice often involves negotiation and employer waivers.
• 90-day notice periods are the toughest but can be shortened if employees are willing to pay buyout or negotiate with HR.

Negotiation Tips for Employees

For most professionals, serving a long notice period can be challenging, especially when the new employer expects an early joining. While notice period terms are legally binding, employees can still use smart negotiation strategies to shorten or manage their exit smoothly.

1. How to Request a Buyout Professionally

When requesting a buyout, communication style matters.

• Be polite and transparent: Explain why you need an early release (e.g., new project commitments, relocation, family reasons).
• Offer support: Assure the employer that you will complete knowledge transfer, train team members, or hand over all critical tasks before leaving.
• Highlight mutual benefits: Emphasize how an early exit will still leave the team prepared, avoiding disruption.

Example: “I understand the 60-day notice policy, but I kindly request to be released in 30 days. I am willing to buy out the remaining period and ensure smooth handover of responsibilities before my exit.”

2. Use Joining Bonus from New Employer to Offset Buyout

Many companies, especially in IT and BFSI, offer joining bonuses to candidates joining earlier than expected.

• Negotiate with your new employer to cover the notice buyout cost as part of your compensation package.
• Even if not offered upfront, you can request a relocation allowance or sign-on incentive and use it to offset the deduction.
• This approach ensures you don’t lose financially while moving to your new role quickly.

3. Document Everything in Writing

One of the most important rules of exit negotiation is to keep all agreements in writing.

• Always send a formal email to HR and reporting manager confirming your notice period, buyout terms, and last working day.
• Request a written acknowledgment if the employer agrees to reduce or waive part of the notice.
• Keep copies of emails, settlement letters, and payslips—these serve as proof in case of disputes.

Written documentation protects employees from last-minute policy changes and ensures a smooth Full & Final (F&F) settlement.

Industry Practices in India

Notice period policies in India are not uniform—each industry has its own standards based on talent availability, project dependency, and business needs. Understanding these industry-specific practices helps employees set the right expectations before joining or resigning from a company.

1. IT / ITES Sector – 60 to 90 Days

In the Information Technology (IT) and IT-enabled services (ITES) industry, notice periods are among the longest.

• Large IT service providers and MNCs (e.g., Infosys, TCS, Wipro, Cognizant) usually enforce 90-day notice periods.
• Mid-sized IT firms may follow a 60-day standard.
• Buyout requests are often restricted due to critical client projects, although some companies allow early exit if handover is complete.

This makes IT one of the toughest industries for employees to negotiate shorter notice periods.

2. Startups – 30 Days Common

Startups and emerging businesses generally prefer shorter notice periods.

• 30 days is the most common, allowing faster talent movement and agility.
• In some cases, employees on probation may have as little as 7–15 days’ notice.
• Buyouts are usually flexible, since startups prioritize quick onboarding of replacements.

Startups are attractive for professionals who value flexibility and quicker career transitions.

3. Manufacturing & BFSI – Varies Widely

• Manufacturing Sector:
  Notice periods here depend on role and level of responsibility. While shop-floor employees often have 30 days, senior technical or managerial staff may have 60–90 days.
• Banking & Financial Services (BFSI):
  Notice periods vary between 30 to 90 days, depending on the organization’s size and compliance needs. Many private banks enforce 60 days, while MNCs in BFSI may extend it to 90 days for senior roles.

Both manufacturing and BFSI show mixed patterns, where notice periods are role-specific rather than uniform.

Key Insight:

• IT/ITES: Longest (60–90 days).
• Startups: Shortest (30 days).
• Manufacturing & BFSI: Mixed (30–90 days depending on level).

For employees, knowing industry norms is crucial before signing a contract, as it directly affects career mobility and joining timelines.

Conclusion

The notice period in India is one of the most important yet often misunderstood aspects of employment. It serves as a bridge between the employer and employee, ensuring business continuity for the organization while protecting the professional interests of the individual.

To recap the key points:

• Notice period duration in India generally ranges from 30 to 90 days, depending on company policy and industry norms.
• Employees have the right to serve, buy out, or negotiate their notice period, while employers can recover notice pay if the terms are not fulfilled.
• Salary during notice is calculated based on days worked, leave encashment, and other eligible benefits, minus any buyout recovery.
• Both parties must honor the employment contract, but statutory rights like gratuity cannot be arbitrarily denied.
• Industry practices vary: IT/ITES often mandates 60–90 days, startups prefer 30 days, and BFSI/manufacturing follow mixed patterns.

The most important lesson for working professionals is this: always read and understand your appointment letter carefully before signing. Being clear about notice period terms upfront helps avoid confusion and conflict later.

Finally, professionals should remember that notice periods are not just about serving time—they are about negotiating smartly, maintaining professionalism, and protecting your financial and legal rights during a career transition.

Key takeaway: Clarity, communication, and negotiation are your best tools to handle the notice period in India smoothly and confidently.

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