Understanding Notice Pay Calculation and Basic Pay Determination in Employee Compensation

Dear All,

Kindly clarify about one month notice pay:

If my Gross salary is Rs. 10,000/-
Basic - Rs. 3,000
HRA - Rs. 1,500
Other Allowances - Rs. 4,500
Conveyance - Rs. 1,000

Please clarify whether the one month notice pay is Rs. 10,000 or if some of the salary components should be deducted from the gross salary.

Thanks,
Nivya

Dear Nivya,

One month notice pay is to be considered as Rs. 10,000 unless specified otherwise.

R.N. Khola

Thank you very much, Mr. Kohla. Can you please tell me the rule for determining the salary component - Basic pay? I heard that it is usually calculated as 30% of the gross salary. Is this correct? Please assist.

Thanks,
Nivya

Dear Nivya,

Pay means all remuneration capable of being expressed in terms of money to be payable to a person for work done in an establishment. You may go through the definition of wages [section 2(vi)] under the Payment of Wages Act, 1936. I have already submitted that if it is not specified otherwise, then the full month's wages should be given as notice pay.

R.N. Khola

Dear Mr. Kohla,

Thank you for your response and for taking the time to address my queries. I appreciate the clarification regarding the one-month notice pay.

Another question that I raised in the previous communication pertains to whether there is a specific percentage that should be designated as the basic salary, or if it is left to the company's discretion. For example, if the gross salary amounts to 6000, what is the minimum proportion that should be allocated as the basic salary?

Thank you,
Nivya

Dear Nivya,

In my opinion, this is as per company policy, but if any employee is covered under any of the laws which give him protection regarding the fixation of the minimum basic, then we should adhere to that basic. For example, if an employee is covered under the Minimum Wages Act and if his basic is fixed under this Act, then we are to fix that basic as given in the notification.

R.N. Khola

Dear Nivya,

Greetings for the day :)

Regarding your query about the one-month notice pay calculation based on your salary components, here is the breakdown:

- Gross Salary: Rs. 10,000
- Basic: Rs. 3,000
- HRA: Rs. 1,500
- Other Allowances: Rs. 4,500
- Conveyance: Rs. 1,000

Typically, the one-month notice pay is calculated based on the basic salary, which is a fixed component in the salary structure. It's important to note that basic pay should be at least 30% of the gross salary. In non-metro areas, it is usually 40%, while in metro areas, it can be up to 50% of the gross salary.

It is advisable to follow the practice of deducting the notice pay based on the basic salary, as it provides a more stable and consistent calculation method. This approach is commonly followed by many MNCs to ensure clarity and fairness in the notice period pay deduction process.

If you have any further questions or need clarification on this matter, please feel free to ask.

Thank you,
[Your Name]

It varies from company to company. Most companies consider basic pay alone. If it's a mid-sized company, there are chances that they take gross pay into consideration. Anyhow, talk to your HR Head to find out whether it's basic pay or gross. Many companies don't allow their employees to simply walk out without paying off their notice period, so check on that as well.