Is Leave Encashment Policy Mandatory? Understanding Legal Requirements for Companies

Leave Encashment Policy: Is It Mandatory?

Whether it is mandatory to have a policy of leave encashment. Whether it is covered under any act or law to have leave encashment in a company. If yes, please provide the legal provisions for the same.

Regards,
Yogesh

As per Section 79(5) of the Factories Act, there is a provision for the accumulation of up to 30 days and unlimited in case of refusal by the employer. Such accumulated leaves need to be encashed to the employee at the time of separation. However, one can create their own leave encashment policy, which I don't believe is a requirement of any law.

Regards,
Ravinder Singh
[Phone Number Removed For Privacy Reasons]

As rightly quoted, as per the Factories Act, the accumulation of earned leave is subject to a maximum of 30 days, and any leave above 30 days is automatically nullified. If an employer agrees to allow accumulation without imposing any conditions, it is permissible, and the leave shall be encashable after resignation/termination, etc., based on the last drawn salary (Basic + DA).

Some organizations have a policy of encashing leave every year after the completion of 30 days of leave accrual in order to minimize liability, which is also considered a good practice. Each organization shall have its own leave policy, provided that the Factories Act and its rules are followed.

Regards,
Chandru
Bangalore

It is up to the company's discretion to follow the Factories Act or to create their own policies for leave encashment. In either case, the company must pay for the accumulated number of leaves. The leave encashment is capped at 30 days for an adult worker who has worked for 240 days in the previous year under the Factories Act.

Regards,
[Name]

There is no statutory compulsion to implement a Leave Encashment Policy, but accounting standards insist on the valuation of liabilities such as Leave Encashment and Gratuity.

Can an employer refuse to provide leave encashment at the time of separation to a senior manager or assistant general manager? Kindly help.

Leave Encashment at Separation

An employer cannot refuse leave encashment at the time of separation if leave rules are in place for encashment, which are applicable to this employee. If no rules are specified, then examine under which act this manager is covered regarding encashment of leaves.

R.N.Khola
Sr. Vice President, Labour Law Advisers Association, Gurgaon.

Hi friends, can an employer refuse leave encashment at the time of separation for a Senior Manager or AGM? Kindly help.

Regards

Hi Seniors, I am still waiting for a reply. Can an employer refuse to provide leave encashment at the time of separation to a Senior Manager or AGM? One has refused and not paid. Kindly advise.

Regards

What is the ceiling on bonus and leave encashment? I have information that there is a ceiling on a bonus of Rs. 10,000. If a company wishes to pay more, it will be considered an ex-gratia payment. Also, for earned leave (EL), only Basic and Dearness Allowance (DA) should be taken into account for calculation.

Our company is a registered private limited company operating chain stores in three different states. We are based in Mumbai, with the administrative office located in Chennai. Please advise on how we should apply various statutory rules, and also provide information on the bonus and leave policies that are applicable to retail stores. Thank you.

Regards,

Can anyone suggest how I can approach and convince my management for leave encashment? I need some strong and logical points.

What if the Employer is Covered Under the Shops and Establishment Act?

Hi, Yogesh, as per Section 79(5) of the Factories Act, there is a provision for accumulation of leave up to 30 days and unlimited in case of refusal by the employer. Such accumulated leaves need to be encashed to the employee at the time of separation. However, one can create their own leave encashment policy, which I don't think is a requirement of any law.

Regards,
Ravinder Singh
[Phone Number Removed For Privacy Reasons]