Payment of three months salary at the time of termination.

When an employment contract states that a terminated employee will receive "three months salary" upon leaving, this typically includes all allowances that are part of their regular monthly pay, meaning the allowances will be calculated and included in the total three-month payout.

Most companies consider all allowances like housing allowance, transportation allowance, and dearness allowance as part of the total salary when calculating termination pay. 

Always refer to the specific wording in your employment contract to confirm exactly what components are included in the "three months salary" calculation. 

Namastey Jagdish ji,

Must say, you've an interesting proposition.

The calculation of three months’ salary upon termination depends on how “salary” is defined in the letter of appointment and company policy. Generally, unless explicitly restricted to Basic Pay and Dearness Allowance (DA), the term “salary” is understood to include all fixed components of the employee’s monthly earnings.

In most cases, salary for termination compensation includes Basic Pay, Dearness Allowance (DA), House Rent Allowance (HRA), Conveyance Allowance, Medical Allowance, and any other fixed monthly allowances. However, it does not include performance-based incentives, bonuses, overtime payments, or reimbursements like travel and meal expenses.

For legal precedent, the Supreme Court in LIC of India v. S.S. Srivastava (2016) has held that if an appointment letter specifies “salary” without clear exclusions, it must be interpreted broadly to include all regular allowances paid to the employee. Additionally, under Section 79 of the Indian Contract Act, 1872, any ambiguity in a contract is interpreted against the drafter, meaning the employer must provide the broader benefit unless exclusions are clearly mentioned.

To determine the exact amount, the full fixed monthly salary should be multiplied by three, unless the appointment letter specifies otherwise. If the employer refuses to pay all fixed components, a case can be filed under the Payment of Wages Act, 1936, or the Industrial Disputes Act, 1947 for recovery.

I hope I was able to clear some parts, to discuss further, reach me out at adv.vishesh@icloud.com.

Dear Adv.Visheshji namaskar,

Thanks for your advice which is complete and needs no further explaination .However  the concerned person being in the management cadre, can not seek remedy either under I.D.Act 1947 or the payment of wages Act.I was unable to trace the precedent cited by you in net.If the text is sent by mail, it would be helpful.Thanks again

Regards,

Adv.Jagadish D. Paranjape

jagadish347@yahoo.co.in