Earned Leave Encashment Confusion: Should Extra Days Be Compensated or Not?

Dear Friends,

Though this Earned Leave Encashment is being discussed at different times and forums, there is still some difference of opinion. Section 79 of The Factories Act, 1948, says that every employee who works for 240 days in the previous year is entitled to Earned leave at the rate of 1 leave per 20 days of working. When the worker is discharged, dismissed, or quits employment, the unused earned leave at his credit has to be paid. A worker is entitled to accumulate up to 30 days of earned leave, and any days over and above 30 will lapse.

Suppose a person has earned leave at his credit exceeding the allowable 30 days and has neither taken leave nor been allowed by the organization to do so, then is the additional leave to be compensated or encashed? Is this determined by the company policy or is it mandatory? This is not very clear in the Factories Act. I invite our learned friends to share their views along with any relevant mandatory laws/rules for the benefit of HR professionals.

-Srinaren

Dear Srinaren ji,

I asked the same question to our friends several times but received no answer. This is purely a company policy. In our organization, we provide 30 days as EL and 12 SL (Un-covered ESI holders are allowed). Accumulation of EL up to 60 days is permitted, and anything more than that will be encashable. Currently, most of the employees exceed 100 - 150 days. Management has allowed encashment of EL for the past 4 years. However, a new person has taken over the charge, and there is now a rule that encashment of more than 30 days will not be allowed. My situation is similar to that. Therefore, I formulated a Leave policy, presented it to the board, and received some sort of relief. It is PURELY A MANAGEMENT POLICY for encashment. Hence, I suggest you also prepare a leave policy and seek approval from the concerned authorities.

Regards,
PBS KUMAR
9848499629

Dear Kumarji,

You are absolutely right. It is the company policy regarding the encashment. Our certified standing orders state that one can accumulate up to 30 days, and the excess leave will lapse. Ours is an apparel industry, and there is always a shortage of workers as the attrition rate is very high due to the demand and supply gap. When they ask for leave, we will say no, and when the leave accumulates to more than 30, we say the excess leave has lapsed. However, for a person who has worked for some time and leaves the organization, we pay him the leave salary which he has at his credit. For a person who is still serving the organization, we deny the leave encashment for the excess accumulated leave. I want our other friends to come out with their views and suggestions.

Srinaren

Dear friends,

Let me clarify my points regarding Earned Leave (EL) as it falls under the Factory Act, and it is compulsory to provide 1 day of EL for every 20 working days. It is also necessary for the company to carry forward only up to 30 days of EL, with any balance leave above 30 days to be encashed based on the basic salary; otherwise, it would be considered a major violation. Therefore, I believe it is not just a company policy but a statutory obligation of the employer.

Thanks & regards,
Kumaran Siva

Dear Kumaran,

Thank you for your input. Could you please specify the sections under which balances of earned leave (EL) exceeding 30 days are to be encashed based on the basic salary? Otherwise, it would be considered a major violation. This clarification would greatly benefit many HR professionals.

Best regards,
Srinaren

Dear Srinaren ji,You are saying that the Regarding the EL issue the rules were already mentioned in the company's certified standing orders. You need not worry to change that mutual understand policy. You already aware about Section - 9A of the Industrial Disputies Act,1947 which is incorported hereunder:9A. SECTION - No employer, who proposes to effect any change in the conditions of service applicable to any workman in respect of any matter specified in the Fourth Schedule, shall effect such change, - (a) without giving to the workman likely to be affected by such change a notice in the prescribed manner of the nature of the change proposed to be effected; or (b) within twenty-one days of giving such notice : Provided that no notice shall be required for effecting any such change – (a) where the change is effected in pursuance of any settlement or award; or (b) where the workman likely to be affected by the change are persons to whom the Fundamental and Supplementary Rules, Civil Services (Classification, Control and Appeal) Rules, Civil Service (Temporary Service) Rules, Revised Leave Rules, Civil Services Regulations, Civilians in Defense Services (Classification, Control and Appeal) Rules or the Indian Railway Establishment Code or any other rules or regulations that may be notified in this behalf by the appropriate Government in the Official Gazette, apply. So accordigly you may putup a notice for chage / enhancement of this EL encashment proposal in that. This may solve your problem. Because in the EL issue the Factories Act not clear, so we (HR - HOD) have to take intiate on this such as prepare a Policy etc.Regards,PBS KUMAR

Can anybody help me if it is mentioned anywhere in the act that 2.5 days el may be given to employees?

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Can anybody help me with finding information in the act regarding granting employees 2.5 days of EL?

Accumulation of EL more than prescribed by the Factories Act and Shop Act automatically lapses as per the interpretation of both the provisions. However, if any employer wants to provide additional benefits to their employees, they can create specific rules and policies for encashment of the same. It totally depends on the will and wish of the employer.

There is no statutory obligation for the employer to encash leave beyond what is prescribed under these Acts.

Hi all, I have a query and require help. I work in the retail sector as a Store Manager. I have submitted my resignation and am currently serving a notice period. I had a discussion with HR regarding my Leave Encashment, but HR mentioned that there is no such policy in the company. I have reviewed my Appointment letter, but there is no mention of it. I kindly request all of you to please assist me if there are any laws regarding leave encashment in the retail sector.

Application of Sections 79-82

• Where a worker has worked for a period of 240 days or more during a calendar year, he is entitled during the subsequent calendar year to leave with wages calculated as follows:

1. If an adult: 1 day for every 20 days of work performed by him during the previous calendar year.

2. If a child: 1 day for every 15 days of work performed by him during the previous calendar year.

3. For this purpose, the following shall be counted:
a. Any days of lay-off.
b. Maternity leave not exceeding 12 weeks, in the case of a female worker.
c. The leave earned in the year prior to that in which the leave is enjoyed.

• The procedure for availing leave is also laid down, and the scheme for the purpose may also be formulated. The same is required to be displayed and shall be in force for 12 months from the date it comes into force.

• If a worker is terminated before he has taken the entire leave, or if, having applied for and not been granted such leave, the worker quits his employment before he has taken leave, the occupier shall pay him the amount payable under Section 80, which shall be at a rate equal to the daily average of his total full-time earnings for the days he actually worked during the month immediately preceding his leave.

Understanding Section 80 on Leave Encashment

When Section 80 mentions the encashment of leave under certain circumstances, it appears that the law expects us to pay under all circumstances. Of course, legal experts should confirm.

Regards,