Notice Period Rules in India (2026): Buyout, Recovery and Examples

An employee resigns and says they can only serve 30 days of their 90-day notice period. Can you refuse? Can you deduct the shortfall from their salary? Can you hold back their relieving letter until they pay? And when it's the employer ending employment, how much notice do you owe?

Notice period questions come up at every exit, and the answers depend on a mix of the employment contract, standing orders, your state's Shops and Establishments Act and the labour codes. This guide explains notice period rules in India for 2026: what the law says, how to calculate notice pay and buyouts, using leave against notice, what employers can and can't withhold, and how to write a notice period clause that holds up.

General guidance as of 2 October 2026, not legal advice. Notice requirements differ by state, by category of employee and by contract. Check your specific position with a labour lawyer or consultant.

The short answer

• There's no single notice period law for every employee in India. It comes from the employment contract, standing orders (for establishments covered by them), the state Shops and Establishments Act, and, for termination of workers, the Industrial Relations Code.
• Common contractual notice periods: 15–30 days during probation, 30–90 days after confirmation.
• Notice pay / buyout = daily rate × days of notice not served. The contract should say whether the daily rate is based on basic or gross.
• Employers can recover unserved notice from the final settlement if the contract allows it — but can't withhold earned wages indefinitely. Wages are due within 2 working days of the last working day under the Code on Wages.
• For workers retrenched after a year of continuous service, the Industrial Relations Code requires one month's notice or wages in lieu, plus retrenchment compensation.
• Relieving letters shouldn't be held hostage. Settle notice recovery through the F&F instead.

Where notice periods come from

1. The employment contract

For most office and managerial employees, the appointment letter is the main source. It should set out the notice period for both sides, during and after probation, and what happens if notice isn't served. Courts generally enforce reasonable, mutual notice clauses.

2. Standing orders

Under the Industrial Relations Code, industrial establishments above the notified headcount threshold must have standing orders (or follow the model standing orders). These cover termination, notice and related matters for workers. Check whether your establishment is covered and what your standing orders say.

3. State Shops and Establishments Acts

Most states' Shops and Establishments Acts require employers to give notice — or pay in lieu — before terminating an employee who has completed a minimum period of service, unless the termination is for misconduct. The required notice is commonly 30 days, but varies by state.

4. The Industrial Relations Code (for workers)

For workers (broadly, employees other than those in managerial or administrative roles and supervisors above a wage limit) with at least one year of continuous service, retrenchment requires:

• one month's written notice stating the reasons, or wages in lieu of notice;
• retrenchment compensation of 15 days' average pay for every completed year of service; and
• notice to the appropriate government authority.

The Code also provides for an additional contribution towards worker re-skilling on retrenchment. Larger establishments need government permission for retrenchment and closure. Get advice before any retrenchment.

Notice period during probation vs after confirmation

Stage	Typical notice	Notes
Probation	0–30 days	Often 15 days or "immediate" for both sides; must be in the contract
Confirmed, junior and mid-level	30–60 days	Most common is 30 days
Senior and leadership roles	60–90 days	Sometimes longer for critical roles
Workers under standing orders	As per standing orders	Plus statutory rules on retrenchment

Very long notice periods (for example, six months for a junior role) may be challenged as unreasonable. Keep notice proportionate to the role.

How to calculate notice pay and buyouts

Notice pay = daily rate × days of notice not served

The daily rate

Your contract or policy should define it. Common options:

• Gross monthly salary ÷ 30 (most common for buyouts);
• Basic ÷ 30;
• Gross ÷ days in the month of exit.

Using gross for both employer-paid notice and employee-paid buyouts is the simplest and fairest approach. Whatever you choose, use the same basis both ways.

Example 1: employee buys out the shortfall

Ritika's notice period is 60 days. She resigns on 1 October and wants her last working day to be 31 October — 30 days served, 30 days short. Her gross salary is ₹48,000 a month. Contract: buyout on gross ÷ 30.

Item	Calculation	Amount
Daily rate	₹48,000 ÷ 30	₹1,600
Shortfall	60 − 30	30 days
Notice buyout	30 × ₹1,600	₹48,000

This is recovered from her full and final settlement. If the F&F amount is less than ₹48,000, the balance is recoverable from her — but you can't hold her salary for days already worked as security.

Example 2: employer relieves early and waives notice

Same facts, but the manager agrees to relieve Ritika on 31 October and waives the remaining 30 days in writing. No recovery. Always record waivers in writing; disputes often arise when a manager verbally agreed to an early release and payroll later recovered the shortfall.

Example 3: employer terminates and pays in lieu of notice

The company ends Amit's employment (not for misconduct) with immediate effect. His contract requires 30 days' notice from the employer. Gross ₹36,000.

Item	Calculation	Amount
Daily rate	₹36,000 ÷ 30	₹1,200
Pay in lieu of notice	30 × ₹1,200	₹36,000

This is paid in his F&F along with salary up to the last day, leave encashment and any other dues. If Amit is a worker with more than one year of service, retrenchment compensation is also due.

Example 4: adjusting earned leave against notice

Nikhil has a 45-day notice period and 15 days of earned leave. His policy allows earned leave to be adjusted against notice with the manager's approval. He serves 30 days and adjusts 15 days of leave.

• Notice requirement met: 30 days served + 15 days leave = 45 days
• No buyout, and no leave encashment for those 15 days (they've been used).

If his policy didn't allow the adjustment, he'd owe 15 days' buyout and receive 15 days' leave encashment — which may or may not net to zero, depending on whether encashment is on basic and buyout on gross. Our leave encashment guide explains why the daily-rate basis matters.

Example 5: partial month and the last working day

Shruti resigns on 10 September with a 30-day notice period. Her last working day is 9 October (30 days from the date of resignation, counting the resignation date as day 1 — or 10 October if your policy counts from the next day). Decide how you count and say it in the policy; one day either way changes salary, leave accrual and PF exit dates.

What employers can and can't do

Can an employer refuse to accept a resignation?

Generally, an employee can resign by giving notice under the contract; the employer can't force them to keep working. The employer's remedy for unserved notice is recovery of notice pay as the contract provides — not refusing to let the employee leave.

Can an employer withhold salary for the notice shortfall?

The employer can set off the notice buyout against the F&F if the contract allows it. But wages for days worked, leave encashment and other dues must be settled — in the F&F — within 2 working days of the last working day under the Code on Wages. Holding everything back for months as leverage isn't defensible.

Can an employer withhold the relieving letter?

Holding a relieving or experience letter to force payment of a buyout is common — and risky. It can lead to complaints and claims for damages if the employee loses a job offer. A better approach: calculate the recovery, adjust it in the F&F, and issue the relieving letter once the F&F is settled, mentioning any unsettled amount separately. See our relieving and experience letter formats.

Can an employer enforce a non-compete after the employee leaves?

Post-employment non-compete clauses are generally not enforceable in India under Section 27 of the Indian Contract Act. Restrictions during employment (including the notice period) and confidentiality and non-solicitation obligations are treated differently. Don't rely on notice periods as a disguised non-compete.

Garden leave

An employer can ask an employee not to work during the notice period (garden leave) while continuing to pay them, if the contract allows it. The employee stays on the payroll until the last working day.

Notice period and taxes

• Notice pay received by an employee (when the employer terminates without notice) is taxable as salary or profits in lieu of salary.
• Notice buyout paid by an employee is recovered from salary; whether the employee can reduce their taxable salary by the amount recovered has been litigated, and the GST treatment of notice pay recovery has also been debated. Take advice from your CA on both before you set up payroll treatment.
• PF exit date should match the last working day in the ECR.

Writing a notice period clause

A good clause covers:

1. Notice period for each side, during and after probation.
2. How notice is given — in writing, by email to a named address.
3. How days are counted — from the date of resignation or the next day; calendar days.
4. Buyout — whether the employee can buy out, and the daily rate (gross ÷ 30 is clearest).
5. Waiver — who can waive notice, and that waivers must be in writing.
6. Leave against notice — whether earned leave can be adjusted, and who approves.
7. Pay in lieu — the employer's right to relieve early by paying in lieu.
8. Garden leave — the employer's right to ask the employee not to work.
9. Handover and asset return obligations during notice.
10. Recovery — that unserved notice and other dues may be adjusted in the F&F.

Common mistakes

1. No notice clause in the appointment letter, or different notice in the offer letter and the policy.
2. Recovering buyout on gross but encashing leave on basic without the employee knowing.
3. Verbal waivers that payroll doesn't know about.
4. Holding F&F and relieving letters for months to pressure the employee.
5. Six-month notice for junior roles.
6. Ignoring the Shops and Establishments Act notice requirement when terminating employees.
7. Retrenching workers without the statutory notice, compensation and government intimation.
8. Last working day errors that throw off salary, leave and the PF exit date.

How PeopleVio helps

What PeopleVio does:

• Resignation workflow — employees submit their resignation with a reason and proposed last working day; HR approves or rejects it with a note, and the employee can withdraw a pending resignation.
• Offboarding checklists — accept resignation, handover, asset return, access revocation, exit interview, full and final settlement and relieving letter, each assigned to HR or the employee.
• Leave balances from approved leave, so you know what can be adjusted against notice or encashed.
• Payroll with proration up to the last working day, and one-off adjustments for notice pay, buyout recovery or leave encashment, shown as separate lines on the final payslip.
• Asset tracking, so you can see what an exiting employee needs to return.

What PeopleVio doesn't do (yet): it doesn't store a notice period per employee or calculate the shortfall and buyout automatically. Check the contract, calculate the buyout with the formula above, and add it as an adjustment in the final payroll.

Active employees	Monthly billing	Yearly billing (per month)
20	₹1,180	₹980
50	₹2,450	₹2,050
100	₹4,900	₹4,100

Prices exclude GST. See the pricing page.

Exit checklist: notice period

• Confirm the notice period in the employee's contract (probation or confirmed).
• Agree and record the last working day, and any waiver, in writing.
• Decide on leave adjustment against notice, and record it.
• Calculate any buyout or pay in lieu with the contractual daily rate.
• Track handover and asset return during the notice period.
• Settle F&F — salary, leave encashment, recovery — within 2 working days.
• Update the PF exit date and issue the relieving and experience letters.

Frequently asked questions

What is the legal notice period in India? There's no single legal notice period for all employees. It depends on the employment contract, standing orders, the state's Shops and Establishments Act and, for retrenchment of workers, the Industrial Relations Code. Thirty days is the most common.

Can an employer force an employee to serve the full notice period? The employer can't force someone to keep working, but can recover pay for the unserved notice from the F&F if the contract allows it.

How is notice period buyout calculated? Daily rate × days not served. The daily rate is usually gross monthly salary ÷ 30, as defined in the contract.

Can earned leave be adjusted against the notice period? Only if your policy allows it. If it's adjusted, that leave isn't encashed.

Can a company hold the relieving letter if notice isn't served? It's risky. Recover the buyout in the F&F and issue the relieving letter; holding documents as leverage can lead to complaints and damages claims.

What notice must an employer give to terminate an employee? As per the contract and the state Shops and Establishments Act. For workers with a year's service being retrenched, one month's notice or wages in lieu, plus retrenchment compensation, under the Industrial Relations Code.

Is notice pay taxable? Notice pay received is taxable. The treatment of buyouts recovered from employees has been litigated — check with your CA.

Does PeopleVio track notice periods? PeopleVio tracks resignations, last working days, approvals and offboarding checklists. Notice periods and buyouts are calculated by HR and added to the final payroll as adjustments.

The bottom line

Notice periods are mostly a matter of contract — so write a clear clause, apply it the same way to everyone, put every waiver in writing, and settle recoveries through the F&F rather than by holding back pay or documents.

Managing exits over email and spreadsheets? PeopleVio brings resignations, approvals, offboarding checklists, asset returns and final payroll into one place. See PeopleVio's pricing or book a demo.

Related reading: Full and final settlement in India · Leave encashment calculation · Offer letter format with salary structure · HR compliance checklist for small teams