What is Notice Period?

A notice period is the period of time an employee is required to continue working (or an employer must continue paying) after either party gives notice of termination, before the employment actually ends. Its length is primarily governed by the employment contract, read together with applicable state Shops and Establishments Act provisions or the Industrial Employment (Standing Orders) Act, 1946 for workmen in industrial establishments with certified standing orders.

• Any employee whose offer letter or appointment contract specifies a notice period — durations commonly range from a few weeks to a few months depending on seniority and company policy.
• Workmen covered by certified Standing Orders under the Industrial Employment (Standing Orders) Act, where the applicable standing order prescribes notice requirements.
• Employees in a probation period may have a shorter contractual notice period than confirmed employees.

If an employee wants to leave before completing the notice period, most contracts allow a "buyout" — paying the employer a sum (often equal to the gross salary for the unserved notice days) in lieu of notice. Conversely, if the employer terminates employment without requiring the employee to serve notice, the employer typically pays salary in lieu of notice to the employee.

This amount is settled as part of the employee's full and final settlement, and its tax treatment follows normal salary tax rules.

• Not specifying the notice period and buyout formula clearly in the offer letter, leading to disputes at exit.
• Applying the confirmed-employee notice period to a probationary employee whose contract specifies a shorter one.
• Forgetting to reconcile notice-period recovery or payout correctly in the final settlement calculation.