If you’re resigning and can’t serve your full notice, you owe your employer the shortfall in cash, this is what most Indian offer letters call “pay in lieu of notice.” The calculator below gives you the exact number, using the same 30-day-month convention almost every Indian company applies.
How notice period buyout is calculated
The formula is simple: (Monthly gross salary ÷ 30) × shortfall days. Almost every appointment letter in India uses a flat 30-day month for this calculation, regardless of the actual number of days in that calendar month. February and August cost you the same per day.
“Monthly gross salary” usually means your full CTC-derived gross (Basic + HRA + all fixed allowances), not just Basic. Some companies exclude variable pay and one-time bonuses from this base; check your appointment letter’s notice period clause, it’s usually a single sentence buried near the end.
A worked example
Priya works at a Bengaluru startup on ₹80,000/month gross, with a 60-day notice period. Her new employer wants her to join in 30 days, so she serves 30 days and buys out the rest.
- Per-day salary: ₹80,000 ÷ 30 = ₹2,667
- Shortfall: 60 − 30 = 30 days
- Buyout amount: ₹2,667 × 30 = ₹80,000
That’s exactly one month’s gross salary, deducted from her final settlement (or she pays it directly if the F&F settlement doesn’t net enough). If she’d served the full 60 days instead, she’d owe nothing.
Who actually pays: employee or employer
Employee resigning with a shortfall owes the buyout amount to the employer. It’s usually adjusted against unpaid salary, leave encashment, or bonus in the full and final (F&F) settlement. If the settlement due to the employee is smaller than the buyout amount, the employer can raise an invoice or ask for direct payment.
Employer relieving an employee early (layoffs, restructuring, or if the company simply doesn’t need the person to serve notice) owes the same formula’s amount to the employee, since it’s the employer breaching the notice clause. This is far less common in practice but is enforceable if your appointment letter’s notice clause is mutual, which most are.
Can the notice period be waived without payment?
Yes, if both sides agree. HR can waive part or all of a notice period without buyout if they don’t need you around, common when handing over is already done or the role is being eliminated. This is entirely at the employer’s discretion unless your offer letter explicitly grants employees a unilateral waiver right (rare).
Is notice period buyout taxable?
If you pay the buyout (resigning employee), it’s simply a deduction from what you’re owed, not a taxable event, you’re paying with post-tax money you’d already have received as salary. If your employer pays you a buyout for early relieving, that amount is added to your salary income for the year and taxed at your slab rate, same as any other payment from the employer.
Frequently asked questions
Does the notice period buyout come out of my last salary or a separate cheque?
Almost always adjusted directly in the F&F settlement, along with any pending leave encashment, gratuity, and bonus. If your dues don’t cover it, some companies ask for a bank transfer before releasing the relieving letter, this is legally shaky if unpaid dues alone would have covered it, but common in practice.
Can my employer refuse to relieve me if I don’t pay the buyout?
They can delay issuing the relieving letter and experience letter, which affects your ability to join a new employer cleanly (especially if the new employer requires it). They generally cannot legally withhold your final salary beyond the buyout amount owed. If the dispute drags on, a written demand citing the Payment of Wages Act usually resolves it.
What if my notice period clause says “60 days or buyout, whichever the company decides”?
This is common in Indian appointment letters and gives the employer discretion to reject a buyout offer and insist on the full 60 days served. Read your notice clause carefully before assuming you can just pay your way out on your own schedule.
Does probation change the notice period?
Yes, most Indian companies apply a shorter notice period during probation (commonly 15 or 30 days) versus post-confirmation (usually 60 or 90 days). Check your offer letter’s probation clause specifically; it’s often a different number than the confirmed-employee notice period.
Sources
- Standard Indian appointment letter notice period clauses (industry practice)
- Payment of Wages Act, 1936 (final settlement timelines)
- Income Tax Act, 1961 (salary income taxability)