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Hello everyone,

Is it Mandatory for any company to carry forward the unused paid leaves of an employee to the next year? Or...does it differ from company to company?

We are a pharmaceutical KPO. We had a policy of carry forwarding leaves to the next year in case they are unused at the end of the calendar year.

We also had an option to encash the number of paid unused leaves above 30 at the end of the year. However, excess of 60 shall lapse.

But the employees have started taking short leaves instead of using their paid leaves. Short Leave means they exit early or come late for an hour or so and compensate it later in the week.

This ways many of them have accumulated their paid leaves and have reached to number of 40 -50 unused paid leaves.

This has led to the situation wherein the company needs to pay them the salary for 10-20 days, in case they ask for encashment.

Now, we have decided to amend the policy of carry forward of paid unused leaves to the next year to motivate them to use their leaves instead of accumulating.

One more question, can we tell the employees that the unused paid leaves at the end of the year shall lapse or are we bound to encash them at the end of the year?

Your suggestions/comments will be very useful.


Dear Jyoti,
  • According to the State Shops & Establishment you are required to carry forward EL but up to the certain limit as prescribed under this Act.
  • As both the parties have accepted the system of encashment & accumulation of leaves & in this way it has become one of the conditions of service in your establishment.
  • We are not bound to encash the EL at the end of year or every year. As per different Acts we are to encash the remaining EL while making full & final & that is too up to certain limit as per the applicable law.
  • If the employees of your KPO are covered under the definition of the employee as given under the Industrial Disputes Act, 1947 then you are required to give 21 days of notice regarding change of service condition as per section 9A of this Act. Try to settle the matter with your employees.
Opinion / comments submitted as requested

With Regards,

Dear Mr Khola - We are a startup Ecommerce company in Pune and would have around 50 employees by Feb end. I would like to know more on your point mentioned above i.e "According to the State Shops & Establishment you are required to carry forward EL but up to the certain limit as prescribed under this Act.". Can you help with how many EL/ PL need to be mandatorily carry forwarded as per Bombay Shops & Establishment.
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