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Notice period

What is a Notice Period

January 10, 2023

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What is notice period? And is a 90 days notice period required?

Notice Period in the USA - Mostly 2 weeks. 

Notice Period in India - Around 60-90 days. 

Is this difference justified? 

What is a notice period?

Notice period means the time an employer or an employee must give before ending an employment contract or a lease agreement. The purpose of this policy is to allow both parties to prepare for the termination and to ensure a smooth transition.

For employees, a notice period means that they need to inform their employer of their intention to resign or quit a certain amount of time before their last day of work. This could be a few weeks or months, depending on the notice period rules. These rules are usually mentioned in their employment contract or company policy.

For employers, it means informing their employees of their intention to terminate their employment contract or lease agreement and giving them a certain amount of time to prepare for the termination. This depends on the contract terms or the law in the country or state where the business is located.

In India, the Industrial Disputes Act, 1947 sets the minimum notice period at 30 days. However some companies choose to have a longer notice period such as 60 or 90 days, typically for senior or managerial positions.

When does it start?

Notice periods usually start when one party informs the other party of their intention to terminate a contract or agreement. For example, an employee may tell their employer that they intend to resign, or an employer may inform an employee that they are being terminated.

During the this period both parties are expected to fulfill their obligations and responsibilities until the end of the contract. This policy allows the employer and employee to make necessary arrangements for the future, such as finding a new job or tenant and ensuring a smooth and fair transition for everyone involved.

What is the 90-day notice period?

In a nutshell it means that the employee needs to inform the company at least 90 days before they leave the organization. This also works the other way around, where the employer must give a notice of 90 days before asking the employee to leave. However, there are exceptions to these rules. 

As per research conducted by Analytics India Magazine, 22% of Indian jobs have a 90-day notice period. This number is much more significant in the IT sector, with 1 in 3 IT Indian jobs having this policy.

There are a lot of perspectives on the 90 days notice period & like any other exciting riddle, they all have some merit. The best way to demystify this is to understand why it was instituted, how it changed over the years, and what is its current form. Once we do that, this becomes easier to understand.

But is a 90 days notice period relevant today? 

A lot has changed over the past two decades. Several aspects of recruitment and work have shifted online. This has caused recruitment, onboarding, and training processes to speed up. In most cases, finding a replacement takes less than 90 days, especially in industries like tech with a sufficiently large talent pool. At the same time, several industries are facing a talent shortage. 

Today, the 90-day notice period is causing problems for employees and employers, but it also holds valuable benefits. 

Due to this policy, employees must wait three long months before switching to a better opportunity. Refusing to do so may require them to pay heavy compensation. However, this policy also protects them from being laid off on short notice. It gives them sufficient time to find a new opportunity. 

Employers face the challenge of working with employees who have mentally moved on. Employees who have given their notice tend to have low motivation and productivity levels. Additionally, employees also use this period to offer-shop (a practice where employees use an offer from one company to get a better offer from another one). However, this policy provides a reasonable amount of time for job shadowing and knowledge transfer sessions, which are of great value to employers. 

Let's now look at both sides in detail.

The Candidate's Perspective 

Employees typically do not prefer having a 90-day notice period, given today's scenario. In fact, some of them have gone to the extent of filing a petition requesting the government to reduce this period. Why is that?

However, with several large organizations announcing layoffs amidst a global financial crisis, employees would require sufficient time to find their next job. In such cases, having a more extended notice period benefits candidates. 

The Employer's Perspective 

Employers typically prefer having a longer notice period. They have not made much effort to reduce the length of this period. Why is that?

On the other hand, employers are pressured to minimize bad hires as they must keep them for 3 months despite being misfits. They also have to bear the cost of paying employees with low drive and efficiency as their focus would have shifted to their new organization. 

Our recommendations and their benefits

The issue is complicated because if a company reduces the notice period without their competitors or other companies following suit, they become easy targets to get candidates quickly, making their business suffer at least in the short run. So, companies have no choice but to increase and match what the market does to protect itself.

Therefore, one of the ways in which this can be done properly is if there is legislation/law mandating it to be 15/30 days across the sector.

If that is done, a host of benefits would accrue to everyone involved.

1. Companies would become more efficient with systems and processes, if an employee resigns and all one has is 15 days, more effort will be put in to document their work and maintain data about what they do.

2. Since this would be uniform across the board, companies will learn to live with it very quickly.

3. More mobility for employees and the whole debate about ghosting and dropping off becomes less in intensity when the downside is only 15 days, companies will sooner than later find that talent they want.

4. In recruitment, the "always on" mode will actually reduce as there isn't a crazy need to make a backup of a backup of a backup. So, more quality & less repetitive work.

5. It also means that you, as an employee, also get 15 days' notice before being asked to go. Are you okay with that?

Conclusion 

Times have clearly changed, and countries across the globe have been making their rules around the notice period highly flexible to cater to the needs of employees. Several countries, such as the UK, USA, and Singapore, follow a notice period system of less than a month. With India being a big economic power, such policies must be regularly reviewed to ensure economic efficiency. 

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