Notice Period Rules and Severance Pay Explained: What Employees and Employers Must Know

It is necessary to have knowledge on the notice period rules and the severance pay by both the employees and employers, so as to facilitate a healthy and legal process of terminating employment. Such are rules specifying the required amount of advance notice to resign or be terminated and consequences of termination such as monetary damages due at the end of employment. In India, the labour laws, employment contracts and company policies shape the notice period and the severance obligation. This paper describes the operation of notice period, the times of severance payment, rights and liabilities of both parties they should be aware of to prevent conflicts and see that everything is done properly. For more labour rights insights and workplace updates, visit our Labour Rights page.

What Are Notice Period Rules?

The notice period rules specify how long it takes before the end of an employment agreement between the employee and employer. It gives time in transfer of knowledge, recruiting of replacements, or searching other jobs, with the period of the notice. In India, the length of notice is usually between 15 days and 3 months based on seniority, position and company rule.

These rules are normally spelled out in employment contracts. In the absence of a contract, the Industrial Disputes Act, 1947, and state-based Shops and Establishments Acts could be used. Their inability to provide the necessary notice could mean the salary deductions or a lawsuit.

Read Also: Rights During Probation Period: What Every Employee Should Know

Employee vs Employer Notice Obligations

Employees and employers are subject to clauses of notice periods. When employees are resigning, the employees have to give a notice to the employer when terminating, unless it involves misconduct. In its turn, some organizations permit notice pay, in which one party can make a compensation to the other according to which the notice period is not fulfilled.

To the employers, retrenchment of employees without giving a reasonable notice might lead to fines and legal suits. To staff members, it may impact the end settlement and subsequent job opportunities because of absconding without prior notice.

Understanding Severance Pay

Severance pay is any pay given to employees when they are laid off, retrenched or their businesses are closed. Severance is not very much obligatory in India, but it becomes obligatory by certain laws like the Industrial Disputes Act.

In most cases, qualified employees are paid a compensation amounting to 15 days of average pay per year of service accomplished. In other firms, the HR practices are improved severance packages provided to employees to help them in their transition.

When Is Severance Pay Applicable?

The severance pay is normally used when there is a redundancy, restructuring or downsizing. It does not usually extend to voluntary resignation or termination on account of misconduct. The eligibility is also subject to other factors such as tenure, type of employment (workman and managerial) and terms of contract.

Before they accept a separation agreement, their appointment letters and company policies, employees should carefully consider the entitlements of severance.

Key Differences Between Notice Period and Severance Pay

Whereas notice period rules look at prior communication before leaving, Severance pay is concerned with money after the firing. The length of notice is applicable to nearly all the exits, and the severance pay is case-specific. The two can be understood to avoid confusion when separating employment.