Director Of Company
Hr, Ir, Law, Disc. Matters
Agm - Hro, Compensation & Benefit Mgt,
+1 Other

Dear Seniors,

I would like to request some help with reference to a couple of queries that I have. I will highly appreciate and will be thankful if some inputs can be given on the mentioned below two queries.

Also personal thoughts are welcome but will seek some inputs based on actual experience of similar kind or based on industry practice (if any):-

Q.1 Recently a company decided to have an audit of the leave records of all the employees starting from their joining date till date typically leading to the auditing of the records of around 5 years of the employees. The normal leave record keeping system that they had communicates the current leaves of all the employees to them on a monthly basis so as to keep them updated about their leave status and also communicates a final leave balance after all adjustments to all the employees before the year end (Jan –Dec is followed as the year in this case) and shares how many leaves will be carry forwarded next year before closing the leave balance account for that year.

This has been followed for the last 5 years and now after the audit (in which leave is calculated based on some aspects on which there is some ambiguity in the leave policy communicated and at some places leaves/attendance has been recorded incorrectly in the past ) there is a substantial difference in leaves which is coming for some employees and for some employees it is minor but all the employees are losing on their earned leaves which can be encashed later. It has been decided to go with the record which has come after the audit even if employees stands to loose on the encashable leaves.

Now I would like to ask is it correct (logically /legally/ as a industry practice) to change the leave records of the employees retrospectively as long as 5 years back even though if at some points leaves have been recorded in a wrong way in the past.

Q2. If an employee has been terminated under a disciplinary cause then will he be eligible for his monthly salary which has been kept on hold because of the enquiry proceedings at the time of payroll processing and also will he have entitlement for the encashment of his earned leaves in his Full and Final Settlement.

Awaiting the replies eagerly. Thanks in advance.

-HR Professional

From India, New Delhi
Leave, Attendance & Holidays are three co-related issues which drive the logic of an organization to carry forward the balance of un-availed Earned Leave to the next year as per their Leave Policy. For example, casual leave balances in most companies lapse, if not availed, by 31st Dec (some companies, however, permit encashment of unavailed casual leave during January next year).

During audits, as done in your company, if an employee was on leave but marked present (by oversight) in the Attendance Register, there is an obvious mistake. Some companies have rules that any week-ends/ holidays, which occur during the leave period, will not be discounted from the total leave duration. Such cases get pointed out during audit & result in reduction of the carried forward balances.

Well, an HR audit, under directions of the management, is a sufficient authority to regulate leave balances, but an employee has to be informed about the same.

As regards payment of dues to employees whose services are terminated on disciplinary grounds, the simple logic is that salary for the period served before termination has to be paid. Some companies have a policy of settling these dues during Full & Final after a period of 60/ 90 days. They can make penal deductions during F & F in case the disciplinary action was based on mismanagement of company funds resulting in financial loss to the company. Normally such deductions are based on a recorded inquiry.

Please remember that each company manages such cases as per their own policy guidelines which are deemed to have been read by all serving employees. Some companies make each employee sign having read the company HR policies. So far as a clear cut policy exists & decisions are taken keeping that policy in view, it may have full legal compliance.

However, someone more familiar with the legal aspects related to payment of wages by Private Companies can perhaps guide us better. My interpretations above are based only on experience.

From India, Delhi
Dear Mr. Bhatia,

Thank you very much for your valuable inputs. Now I had quite much clarity and confirmation on query no. 2 on what has been done is correct as I was questioned and being told that since it is a termination so the company reserves the right to pay or not to pay the withheld salary and the leave encashment where I was of the opinion that given the fact that the termination happened after the term the employee served with the company and after the leave he has accumulated and the existing appointment letter doesn’t mentions any specific withholding clause in the event of termination so legally we are bound to pay what he has earned.

For Q.1 I am still in a doubt as I am not too convinced for a retrospective change with having some ambiguity even in the policy communicated where points are not specific but open.

Also it is also not anywhere connected even on a micro level with my query but I would like to highlight the recent case of Vodafone and Hutch which is in the news where Government tried to levy some heavy tax on Vodafone by bringing a amendment in the Income Tax Law with retrospective effect which was not supported by Supreme Court and the Shome Committe and they gave the verdict that corrections can be made with prospective effect and not with retrospective effect until and unless it is one of the rarest of the rare cases (Please correct me if I have understood it wrong ).

So some where it gives me a little hint that MAY BE it is not even legally correct to bring a retrospective change until and unless it is one of its kind case.

Would like to have your more valuable views on this and also would like to invite others for their experiences.

From India, New Delhi

with regard to leave balances correction, I am of the opinion that retrospective corrections are not corerct since the employee used leave and some accumulate for future use. employer responsiblity to give eligible leave credit after due verification at the end of calendar year.

if signed the balance sheet , after 5 yrs can auditors go back and start revisiting to balance sheet for a correction, is the proposal to change figures is legally valid? expect in the case of Income tax computation under approved authority .

In the same way , correcting employee leave balances of previous years. there could be a chance employees can even dispute. if there is a reduction in leaves. cases where left employee FFsettlement is done, during last 5 yrs, how can recovery process happens? in case there is a recovery? . when in these cases fail to recover, is it justified to recover from employees who are working for the company. Hence, HR should convince Management and Auditors on the decision to recover may be done for prospective years, and it shall be applicable and limited for one calendar yr.

Hence, I suggest it would be for future and not to reconcile previous years and recovery.

From India, Hyderabad
Dear all, If after a proper audit is done and irregularities have come to light, there is no limitation on setting things right. So long as the records are proper and verifiable they can be corrected at a later point of time. As regards money matters, as per the Limitation Act, any claim would get extinguished after three years from the point of transaction or the date of last claim made. But the Payment of Wages Act does not precribe any limitation in recovering overpaid salary. Since what was done earlier was erroneous, correction can be done. This exercise would be legally valid if the employee concerned is informed of the detailed revised calculation.
An employee facing disciplinary action is entitled to his salary and it cannot be withheld on account of pendency of disciplinary action. Factories Act necessitates that a terminated employee is paid leave wages within three days of termination of service.
I hope the above clarifies.

From India, Bhopal
Dear all,

Remember, all labour laws are benevolent in nature, with a view to benefit employees. Every management knows it. I am sure the errors pointed out in audits would not be more than (+ or - )10%.. If an employee stands to loose then do not recover. If employee stands to gain, give him that benefit. For HR's mistake employees should not suffer, but gain. Make a rule that within HR department one internal auditor should audit such records every month, and there should be no room for an external audit to point mistakes after 5 years!. Have a clear cut HR policy. Please publish this, on notice board, "correction of leave due to 5 year audit as a one time policy". Any dues not claimed by employees who have left the organization shall be deposited in the employee welfare fund. After all this will add up to the good will of the employees, and may be they would contribute efficient work by their willingness to do duty, Organizational citizenship behavior can thus be a beginning.


S N Rao

From India, Bangalore
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