The common practice is to net the unserved notice off the final settlement. Section 18 of the Code on Wages does not allow it, for a manager any more than for a worker. Pay the wages in full within two working days, then recover the shortfall the lawful way.
Six formats, from the clause you write at the appointment stage to the demand you send after exit.
Both sides' notice in one clause, a named figure for a shortfall, and the words that make it compensation rather than a deduction. It can replace the notice clause in an employment agreement.
The employee asks to leave early. Waive the shortfall in whole or in part, in writing, or release them on their signed acceptance that the claim survives, without touching a rupee of their wages.
Every rupee of wages, paid within two working days, with the notice shortfall shown below the line as a separate claim. Encashment of earned leave sits above it, worked out in the encashment calculator.
Unserved days times the contract's own daily figure, often monthly salary divided by 30, gives the ceiling of the claim. Absence while still on notice is worked separately, because that one is a lawful deduction.
Sent after the settlement is paid. It claims reasonable compensation up to the contract figure, gives a period to reply, and does not hold back the relieving letter to force payment.
Section 17(2) runs from the exit, not the payroll calendar. Attendo records the leaving date on the day it takes effect.
Because the usual method is the one the Code rules out. Someone resigns, serves twenty days of sixty, and the settlement arrives with forty days' salary netted off. It feels like simple arithmetic. Under the Code on Wages it is an unauthorised deduction.
Section 18(1) says there shall be no deductions from the wages of an employee except those authorised under the Code, and it opens with notwithstanding anything contained in any other law. Section 18(2) then lists the purposes, fines, absence, damage or loss, housing, amenities, advances and overpayment, loans, taxes and court orders, social security, co-operative dues, union fees, a few railway entries and relief fund contributions, and says a deduction may be made only for those. An unserved notice is not one of them, and the notice period rules themselves give an employer no statutory figure to deduct.
The Code knows what notice money is, which is what makes the silence deliberate. The proviso to section 20(2) lets an employer deduct up to eight days' wages due in lieu of due notice, and only where ten or more employees acting in concert absent themselves without due notice and without reasonable cause. That is a collective walk-out. One person resigning early is not on it, and an employer reading the proviso as general permission is reading it without its first condition.
And the protection has no ceiling. Section 2(k) makes an employee anyone employed on wages for skilled, manual, supervisory, managerial, administrative, technical or clerical work, so the bar reaches a plant head in a manufacturing unit, a relationship manager at a bank and a nursing superintendent alike. Only Government establishments are outside the chapter, under section 25. The wages are due within two working days of the resignation taking effect under section 17(2), so there is no month in which to argue.
Two things this page does not say. It does not say what your State Shops and Establishments Act adds, and no State Act was read for this pack. And it does not settle the Explanation to section 18(1), which deems any payment by an employee to the employer a deduction from wages. Read on its words it catches a buyout cheque as well, so the pack treats it that way, and says plainly that no court reading was opened. The same rule is why the wage register should never show a notice recovery as a deduction line.
None of them involves the payroll. Each one leaves the settlement paid in full and on time.
| The item | Amount | When | How it is handled | Provision | Format |
|---|---|---|---|---|---|
| Wages for the final month | ₹45,000 | 2 working days | Paid in full | s.17(2) | 04 |
| Absence on notice, 3 of 26 days | −₹5,192 | same wage period | A lawful deduction, capped | s.18(2)(b), s.20(2) | 05 |
| Salary advance outstanding | −₹8,000 | same wage period | A lawful deduction | s.18(2)(f)(i) | 04 |
| Unserved notice, 40 days, ceiling | ₹60,000 | after payment | NOT deducted; claimed separately | s.18(1); Contract Act s.74 | 06 |
| Paid, before tax and PF | ₹31,808 | 2 working days | The claim travels on its own | s.17(2) | 04 |
Section 18(2) lists the only purposes a deduction from wages may be made for, and recovery of an unserved notice period is not one of them. Section 18(1) shuts out every other law, and section 60 voids a contract that tries to add to the list.
Source: Code on Wages, 2019, s.18(1) and (2), with s.60An employee whose settlement was netted can claim within three years under section 45, and the authority may order compensation of up to ten times the amount determined, on top of the amount itself. Paying less than is due is also an offence under section 54(1)(a), with a fine of up to fifty thousand rupees.
Source: Code on Wages, 2019, s.45(2) and (6), s.54(1)(a)Damage or loss to the employer's property, to that extent; riotous or disorderly conduct or violence; and an offence involving moral turpitude in the course of employment. Each needs a termination for that conduct, and a short notice is none of them.
Source: Code on Social Security, 2020, s.53(6)(a) and (b)A common one. Section 18(2) has no entry for it, so the netted amount is an unauthorised deduction and the employee can claim it back with up to ten times the amount in compensation.
Section 18(3) caps the total of AUTHORISED deductions in a wage period at fifty per cent of the wages. It limits deductions the Code already allows. It does not authorise one the Code does not, however small.
A clause saying the company may adjust any dues against the final settlement does not widen section 18(2). Section 60 makes an agreement that reduces what the Code makes payable void to that extent, and consent does not change that.
Section 17(2) gives two working days from the resignation taking effect, whether or not anything is in dispute. A settlement held for a month while the notice is argued is late as well as short, the same deadline that applies when an employer ends the job.
Section 53(6) of the Social Security Code forfeits gratuity on three grounds only, each tied to a termination for that conduct. Withholding it against notice pay is not one of them.
Days the employee stayed away without leave while still employed on notice are absence, and section 18(2)(b) allows that deduction, capped by section 20(2). Days after the last working day are not absence, because there is no longer a place they are required to work. Mixing the two turns a lawful deduction into an unlawful one.
Netted off the final settlement
Six formats, built on section 18
Getting the last day, the absence and the settlement right is the rest. Attendo keeps all three in one record.
Attendo (formerly Petpooja Payroll) is payroll and attendance software used by 40,000+ businesses across manufacturing, corporate offices, retail, hospitals and education. This template is one of the free HR templates we publish, each built from the gazette rather than from other templates.
Six formats, the worksheet and the demand letter, in editable Word. Free, and no card.
