Confused About Leave Encashment Rules in Private Companies? Need Your Guidance!

Dear Seniors,

I am working in a pharma company that deals with medical devices, and we have over 150 employees. The only thing that is confusing me is about the leave encashment. Are there any laws pertaining to leave encashment for private limited companies? Leaves, i.e., PL and SL, which are carried forward, for how many maximum years can they be carried forward? Secondly, when can they be encashed by the company? Is it entirely at the company's discretion to encash them? On which salary can they be encashed - Basic or Gross salary? I have found out that it is encashed based on Basic, but can the private company encash at Gross and current salary?

I request you to kindly shed some light on this topic and clarify if the Factories Act or any other relevant act where norms are given for leave encashment are applicable to private limited companies.

I request everyone to assist me promptly.

Waiting for answers.

Thank you,
Bhavna Bhadka

Hello,

There are rules regarding leaves under the Bombay Shops and Establishment Act. Casual Leave is generally granted for 7-12 days in a year, which may or may not be encashable. It is for the employer to decide as per service conditions. Sick Leave is generally granted for 12-15 days in a year, which generally is not encashable, but some employers do permit up to a certain number of days. Accumulation can be up to 90-150 days as per service conditions laid down by the employer. Privilege leave is granted at the rate of 21 days a year. Under the Shops Act, accumulation is 42 days, but the employer may permit accumulation up to 180 to 240 days and it can be encashed.

P. M. Patel

Hi,

As you are working in Surat, I believe you should first check the local laws. To the best of my knowledge, no law permits forced encashment unless it occurs at the time of leaving the organization or termination. Except for these circumstances, rules are framed by each company to suit their requirements.

Regarding leave quantum, these are prescribed under laws such as the Shop and Establishment Act of a state or the Factories Act, as applicable. Most companies offer a higher quantum to retain employees and formulate additional rules to cater to individual requirements that should not contravene local law provisions.

Encashment is generally done on Basic + DA. Many companies follow this practice, but some fall short of legal requirements. Certain pronouncements suggest that leave encashment should be based on Monthly Gross as if the person is on leave. You may need to calculate the total burden of such a change before approaching your management for a revision.

I hope these inputs will help you in decision-making.

Regards,

Rajpal

Hi,

In most of the corporate companies, the following details are applicable:
1. SL = 7 days in a year and it carries forward to the next year but up to 28 days, which means the maximum limit of accumulation is 4 years. In case an employee does not avail leave and the limit is exceeded, the extra leaves will lapse.
2. EL = 30 days in a year and it carries forward to the next year, credited in the employees' account up to 120 days (for MCS employees). For staff, the entitlement is the same, but the limit is only 90 days, meaning employees in this category can accumulate PL up to 90 days, and any excess will be encashed.

I hope the above information helps you.

Thanks,
Gyan

Dear Bhawana,

Please make it clear whether your industry is covered under the Factories Act or the Shop and Establishment Act. The suggestions given by friends do not apply to your industry, as your location is in Surat, Gujarat. The Shop Act will apply to you if you are in trading, or the Factories Act will apply to you if you are in manufacturing. Please clarify.

Thank you.

J. S. Malik

Please confirm if leave encashment is mandatory for a private firm or not.