How to Manage Leave Carry Forward: Balancing Employee Needs and Legal Concerns?

Hi all,

We are a start-up company and we are in the process of formulating a leave policy.

We are giving CL + SL = 12 days which cannot be carried forward.

PL after completing 1 year = 14 (1 day for every 20 working days).

Now the issue is, I want to give an option for leave carry forward. So I am proposing that 30 days can be carried forward. The exact query is: If an employee has 20 days of leave when entering the next leave calendar year, they will be credited with an additional 26 days of leave, resulting in a total leave balance of 48.

Can I implement a formula where only 30 days will be accounted for and the rest will lapse? Thus, the maximum number of leaves an employee can accumulate at any point in time will be 30 days.

Alternatively, if I state that no leave carry forward is allowed and all leaves must be utilized within the same leave year, are there any legal issues?

Kindly consider this as an urgent query and respond.

Regards,

Jay

Dear Jay,

I would like you to consider this: Say you are allowed to accumulate 30 days of leave at the end of the year. An employee may have more leaves during the year, but at the end of the year, only 30 days can be carried forward. For example, an employee having 20 days in the current year may be credited another 20 days in the next year, but they need to avail 10 days before the end of the year; otherwise, the same will lapse.

Please allow your employees to carry forward their leave. Firstly, it is the right thing to do, and secondly, you will have employees rushing to apply for leave at the end of the year so that the leave may not lapse, and your work may suffer. Generally, PL PA is 30, and you can have a cap of a maximum of 45 days to be carried forward.

Hi Viraj,

Thank you very much for the advice. We are putting the 30-day cap because we need people to take minimum encashment by surrendering leaves.

Requesting one more help. How can I document the calculation as above? Can I write: "Balance EL remaining underutilized as on end of the leave calendar can be carried forward maximum up to 40 days and the rest will be lapsed." (for more clarity, refer to the calculation below)

Leaves as on 31st Dec = 20
Leaves credited as on 1st Jan = 26 + 14 = 40 (in this, the underutilized leaves carried forward from December month will be lapsed)

Kindly advise.

Regards,
Jay

Hi,

In our company, CL cannot be carried forward and cannot be encashed. SL can be accumulated up to 30 days with no encashment if it exceeds. PL can be accumulated up to 90 days, and the excess days will be encashed.

Regards,
Raghav

Dear Jay,

First, you should separate the leave issues as below:

Earned Leave / Privileged Leave (EL/PL) - It will be calculated based on the last year's working days, and if an employee works throughout the year, they will be entitled to 15 days of leave (301/20). This leave can be utilized, carried forward, or encashed by the employee.

Casual Leave and Sick Leave are decisions made by the company to extend these benefits to the employees. The Factories Act, 1948, does not specify the provision of CL/SL.

CL/SL will lapse at the end of the year (31st Dec) if not utilized by the employee.

You should calculate only the EL/PL balance, which should not accumulate to more than 30 days or 45 days, depending on your company's requirements and decisions.

Please note that some companies allow employees to accumulate leave from 30 to 150 days, varying from company to company. Based on your business, manpower strength, and employee manual, make a decision on restricting the number of leaves that can be accumulated.

I appreciate your concern that the company should not bear the burden of encashing excessive leave at the new salary rate. Instead, you want to encourage employees to receive some extra money annually through leave encashment, which is beneficial for both the employee and employer. For example, an employee with 30 days of EL credit on 31st Dec and receiving 15 days of EL on 1st Jan, totaling 45 days of EL, could be allowed to encash 15 days.

Before formulating your leave policy or manual, please refer to the Acts applicable in your state.

Regards,

Adiga

Before formulating the leave policy, please review the Act applicable to your company. If it is a manufacturing/production unit, refer to the leave provisions under the Factories Act and SO Act. If it is covered under the Shop & Establishment Act, review the State Shop Act. Failure to do so may result in non-compliance.

Dear all,

Please help, sirs. My company is not maintaining my leave records and not paying me for 30 days of leave encashment (i.e., leave with wages) yearly for the period from April to March. Is this correct or incorrect?

Rankam

Dear Rankam,

Any company should maintain the leave register; otherwise, how can they keep track of how many leaves have been availed and how many have been taken? An employee always has the right to know how many leaves he/she has availed and the balance. The Leave Register is a must in any company. Of course, it depends on the company policies whether leaves are based on the financial year or calendar year.

Thank you.

Hi all,

Thanks for the inputs and views. I have published the revised new policy based on all your feedback and have also checked the legal aspects. We have received a positive response from all our employees. Once again, thank you for taking the time to guide me.

Regards,
Jay

First of all, I want to say that you have some confusion about the calculation of leave. You wrote that an employee has 20 leave days, and in the next leave calendar year, he will be credited with 26 days, making the total leave balance 48. How is this possible?

For your kind information, PL (Paid Leave) is always carried forward and can be maximized up to 30 or 45 days or whatever is convenient for the company. After reaching the maximum limit, the remaining leave will be lapsed.

Pawan Agrahari

Hi friends,

I want to know, what is considered a working day? Is it physical presence + leave + weekly off + paid holiday OR only physical presence? Please tell me if anybody knows.

Thanks.

Dear HR Fraternity,

The basic naming of EL/PL is wrong according to me.

If you work in a factory under the Factories Act 1948, you are eligible for EL only. Since the leave is earned after 240 days of continuous working, it should be called EL. According to the Factories Act, 30 days can be accumulated, but it can be fixed as per individual company's policies. However, it should not go below 30 days as specified in the Factories Act.

PL, which you all refer to, is Privilege Leave, used in companies where the Shops and Establishment Act is applicable. Please refrain from using PL when the Factories Act applies.

CL is spelled out in the Standing Orders Act, allowing a maximum of 10 days and not to be encashed or accumulated after 31st December. In Tamil Nadu, the JCL (recently promoted as Additional Commissioner of Labour) has included Casual Leave (CL) in my company's Standing Orders.

SL is specified only in the ESI Act. Those eligible for ESI benefits can avail of Sick Leave (SL) as Sickness Benefit as per the ESI Act. No other act mentions SL.

First, all of you must understand this, dear HR intellectuals.

K. Gopalakrishnan
Sriperumbudur

Dear Jay,

All over the world in a Limited/ Private Limited Company, generally following Earned Leave policy is followed:



“”Annual / Earned Leave/ Paid leave

Generally annual vacation plan of an organization is designed to provide employees with the opportunity to rest and get away from the everyday routine. You are entitled to annual leave of up to 18 to 30 days (Varies depending on Company Standing Orders) working days in a calendar year. The EL will be accrued only after the completion of 240 days each year. You shall be entitled to earned leave only on confirmation of services.

Un-availed earned leaves if any for the year can be carried over to the next year. However you can carry over a maximum of 10/18 EL only. An employee, once entitled for Earned leave, is advised to avail at least minimum of 8/12 days leave per annum. In order to satisfy your preference and to meet the staffing needs of your department, you are advised to discuss your vacation plans at least two weeks in advance with your reporting manager.

Leave Encashment

Earned leave can be accumulated from year to year, up to a maximum of 60 working days at any given time. Any leaves over and above 24 can be claimed for encashment. Earned leave payment would be calculated as per the current Basic salary.””

[Login to view]

Some observations and suggestions.

Keeping only a 30-day leave balance is too low. Employees may need a longer leave, for example, for their own marriage, exams, hospitalization, accidents, etc. Therefore, why not allow for a higher number of days as leave balance, such as 90 days.

In cases where you are restricting employees' leaves despite them having sufficient leave balance, lapsing their leaves is not justified. In that scenario, the employer should en-cash the leave.

Hello, Friends,

It is not advisable to implement such a policy as it may create problems for you. When it lapses, everyone can take leave in December. You will then need to find alternative manpower for day-to-day work. It is better to accumulate at least 90 days before taking any action. By doing so, you can maintain a healthy environment and good relationships.

Regards,
Snitu

Please let me know how the leaves are calculated. After confirmation, we should get the leaves from Jan - Dec for next year. Suppose X person got his confirmation in Oct. 2010, then in Jan 2011, he should get the leaves for the entire year, including the leaves generated from Oct. 2010 to Dec. 2010. Is this right? Is there any law stating that one needs to work for 20 days to earn 1 day of leave? Please comment.

Thanks,
Sampada

Hi all, I have joined a company as Manager HR. As per the existing company leave policy: Total leaves - 30 (sick leaves - 15, casual leaves - 8, annual leaves - 7). Further, as per the leave policy, all the leaves will lapse at the end of every year, and only 5 leaves can be carried forward to the next year, which must be used in the first quarter of the following year, after which they will also lapse.

Furthermore, as per the current policy, if an employee resigns or is terminated, their entire leave balance (including sick, casual, and annual) gets encashed. I want to know if the above (cannot carry forward the leaves) is in line with the Factories Act / Shop & Establishment Act.

Thanks, Ankur.

Leave Policy Clarification

We are a 5-day working organization. We follow a policy of 1 sick leave and 1 casual leave, totaling 24 leaves per annum. My question is:

1. As per the law, all adult workers are entitled to one day off per week. Days off can be averaged over a two-week period, meaning you are entitled to two days off every fortnight. However, in my organization, the working days are normalized to 5 days a week with 2 days off per week, resulting in 48 days as Earned Leave. Is this correct?

2. Employees accrue 2 days of personal leave for every completed month of employment, totaling 24 days per year. Here, I already have 24 leaves per year. Should I still allow my employees to carry forward leaves or accumulate them? If we allow carry forward, what is the maximum number of sick/casual leaves that can be taken to the next year?

Please help.

Dear Sir,

Is there any policy regarding the maximum carry forward of earned leave (EL)? How many EL days can we carry forward, and is there a cap on the number of days? In my company, some employees have accrued around 200 EL days. I am interested in encashing more than the set limit. Please advise.

Regards,
Farhat Khan

Hello All,

I recently joined a company in Gujarat.

Leave Policy Overview

Now, here we have a policy regarding leave. An employee is entitled to one leave each month. If the leave is not utilized, it will not be carried forward to the following month. Instead, it will be calculated after a year as carry-forward leave, which can be encashed.

Question on Leave Accumulation

My question is: Can employees not use more than one leave even if they have accumulated more leave from previous months? Is this policy valid?