Definition
Notice Pay Recovery
Notice pay recovery is the amount an employer deducts when an employee leaves without serving the full notice period, effectively buying out the unserved notice.
When you resign, your contract specifies a notice period. If you leave before serving it fully, the employer may recover notice pay — deducting an amount (often equal to salary for the unserved days) from your dues, or you may pay it to be released early.
This recovery is typically adjusted in your full and final settlement. A debated point is its tax treatment: tax was deducted on your gross salary, yet notice pay recovery reduces what you actually receive, which can lead to paying tax on income effectively forgone.
Understanding your notice clause and how recovery is computed helps you plan a job switch and negotiate buyouts or waivers with the new and old employers.
Related terms
- CTC vs Gross vs In-Hand SalaryCTC is the total cost a company bears for you, gross salary is your pay before deductions, and in-hand (net) salary is what actually reaches your bank after taxes and contributions.
- Sign-on BonusA sign-on (joining) bonus is a one-time payment offered to attract a new employee, often with a clawback clause requiring repayment if you leave within a minimum period.
- Full and Final SettlementFull and final settlement (F&F) is the process of clearing all dues between employer and employee when employment ends, netting off salary, benefits and recoveries.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.