Resigning and serving the notice period

Notice period is the time period between an employee informing their employer of their resignation and their last day of work. When informing the employer that one is leaving the company, it is important to clearly state in the Letter of Resignation when your last day will be to set the term of your notice period, as per one’s appointment letter. Likewise, an employer is also under an obligation to give employees a fair notice period letter informing them about the termination of the contract.

The notice period is meant for various purposes like handover of crucial assignments and projects that are being handled by the exiting employee. Basically, it is meant for the smooth transition of work from one employee to another.

The notice period expectations are usually outlined in the contract of employment, which should be thoroughly read and understood by the employee before getting onboard. It is important that the employee comprehends and agrees to the terms and conditions before signing the employment contract to avoid complexities or misunderstandings later during the course of employment. When deciding how much notice to serve, employees must think about the impact of the remaining time at the workplace, how long it would take to transfer their responsibilities to another employee and consider other company operations.

Resigning from a company is a huge step, especially if one is leaving the company because of dissatisfaction with management or a similar conflict. Approach the situation with respect and consider the impact of departing to make the process go smoothly. An open conversation between the employee and employer about the reason for resignation can help in a lot of ways. The employee might consider staying if something bothering him/ her can be changed or sorted out and if not, it helps the employer stay informed of such issues and discuss with top management for action at a later stage for the benefit of other employees as well.

The Gujarat Authority of Advance Ruling held that an employee exiting a company without completing their notice period as outlined in the employment contract would be liable to pay 18% Goods and Services Tax (GST) on recovery of pay for the duration of notice period not served. The recovery of the amount from an employee for breach in serving the specified notice period would qualify as “tolerating an act” on the part of the employer and thus, would be liable to GST.

The authority has held that the said transaction would neither be covered under the exemption provided to employer-employee relationship, nor will the amount be covered under the employee exemptions under the GST Act.

This ruling has come in act due to a case relating to an export company based in Ahmedabad – Amneal Pharmaceuticals. An employee working for them wanted to leave the company without serving the mandatory three-month notice period, as specified in the appointment letter, which further led to complications between the employee and the company. Calling it as “tolerating an act”, the Gujarat Authority of Advance Ruling said that recovery of the amount would be in lieu of “breach in serving stipulated notice period.”

Industry experts suggest that the above was a ruling in a specific case and may not apply for all incidents where a corporate employee misses out on serving the notice period. However, it also depends on the company whether they are comfortable with the employee not serving the notice period mentioned in the employment contract or are willing to negotiate to reach a compromise.

In many cases, when an employee submits their notice period letter, the employer may ask them to leave immediately. In such cases, the employee will be given the due salary for the notice period even if they don’t work. This can happen only if the contract says that the employee is eligible for pay in lieu and does not apply to at-will situations.

According to HR consultants, it is best for the employees and employers to discuss all matters related to GST beforehand. If GST is applicable, then the employee must be told in advance of the consequences of leaving without serving the notice period as mentioned in the contract. If the employer happens to bear the 18% GST, the same is liable to be recovered from the employee.

Therefore, employees should clarify all their queries before signing the employment contract. They should be sure about the payment terms and conditions. This will help avoid any complications, especially payment penalties on account of GST later.

As a standard practice, it is advised that an employee should serve the notice period as agreed to and specified in the employment contract to avoid any complications.

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