Is It Legal to Forfeit Unused Earned Leave? Seeking Advice on Policy Change

Hello Seniors, please advise. In my organization, we usually pay out earned leaves every year. Now, management wants to change the policy by not paying them out but instructing employees to use these leaves during the year, or they will be forfeited.

Please suggest whether this change is permissible according to the law or not.

Thanks in advance. I am waiting for your prompt reply.

Regards

If you are not encashing, it is okay, and asking the employees to avail is also okay. However, if some leaves are left over and not allowing for accumulation, it is against the law. A minimum number of leaves is to be allowed for accumulation as per the Factories Act/Shops Act and also to be encashed as paid if the employee is leaving the organization. If not, there is every possibility that employees may approach the labor department or courts; hence, it is better to comply with the rules thereof.

Regards,
Kamesh

Thank you for your prompt reply. I'll go through the Factories Act once again to address this query. What would be the possible way to overcome this problem?

Regards

It is not illegal if any leave lapses. Many companies have policies that encourage their employees to use all earned leave within a specified timeframe. Failing to take their leave within the given timeframe will result in it lapsing. Leave not used cannot be carried forward or encashed.

This approach is very fair, ethical, and legal.

Thanks,
Sanjeev

Leave Encashment Policy: Company Discretion

Whether to have provisions to encash leave or not is a decision of a company. There is no law to cover that. You have the law (Factories Act, 1948) to ensure that all employees of an organization get earned leave/paid leave; there is also a law to set a limit to treat the encashment money as taxable. Everything else is at the sole discretion of the company.

Legal Opinion on Leave Policy

Legal opinion in this matter is mentioned in three points as under:

1) As per subsection 5 of Section 79 under the Factories Act 1948, it specifies that if a worker does not take the whole of the leave allowed to them in a calendar year, such balance leaves shall be carried forward to the next year. Hence, Earned Leaves cannot be lapsed at the end of the year if unutilized.

2) Further, there is a provision in the above section that the maximum leaves to be carried forward to the next year cannot exceed 30. Hence, you can lapse unavailed leaves more than 30.

3) As per subsection 6 of Section 79 under the Factories Act 1948, if a worker applied for leaves during the year and the same were not granted by management, in such a case, "leaves applied but not granted" shall be carried forward to the next year irrespective of the limit.

Rest, you can decide as per the company policy. Always remember, no company policy is allowed to lower the benefits as provided by statutory provisions.

Hope I have been able to satisfy your query.

Regards,
Lokender

Earned Leave Encashment Policy at Any Co.

At Any Co., if it is profitable, employees are allowed to surrender earned leave (EL) for encashment, typically in January of every year. The E.L. encashment policy prevents unnecessary leave-taking and ensures continuous work for the Company's production needs.

Generally, when the industry is not fully busy, employees may be asked to utilize their EL to help reduce costs for the Company. Each company sets its own leave rules based on statutes, with E.L. being governed by the Factories Act. Employees can usually accumulate E.L. for up to 30 days, but individual company rules may allow for the accumulation of any number of EL days (e.g., 90/120 days, etc.).

There are no specific laws regulating the encashment of EL, so it is essential to adhere to the Company's policy as it may vary over time.

Regards,
D. Gurumurthy LL.IR & PM Consultant

Can you please elaborate on "leaves applied but not granted" shall be carried forward to next year irrespective of limit? I don't understand.

Thanks,

Lakshmi Anand K

Policy Compliance with Statutory Provisions

No organization shall frame a policy against statutory provisions. I feel, as an HR professional, it is our responsibility to advise the management on statutory provisions and the consequences of violating them. Any policy that provides better facilities than statutory provisions will be acceptable to statutory authorities or courts; otherwise, they will become void if challenged. Any such situation will put the management in an embarrassing position, which should be averted by us as professionals.

Regards

Yes, the information provided by Mr. Lokender is correct according to the Factories Act.

Regards,
Kumar

I need clarifications on the following:

Scope of the Act
Is this act for a factory or any private limited company?

Mandatory Paid Leaves
How many paid leaves are mandatory for a Pvt. Ltd. company to provide to its employees?

Regards,
Swati

Please guide me on how many minimum leaves, as per law, a company needs to allow according to the leave policy. As per my information, every 20 days of presence allows for 1 paid leave. However, my company only provides 12 leaves and does not offer encashment, sick leave, or casual leave, and only has three paid holidays.

Guidelines for Framing a New Leave Policy

Please provide guidelines for framing a new leave policy that I can forward to management for the betterment of employees. My management is not very employee-friendly; it is a Marwari group. Kindly guide.

Regards

Is it possible to calculate earned leave based on 365 days? For your information, the worker was present the whole year, so by calculation, the PL comes out to be around 18.25. (Sunday and public holidays have been considered as per the Factory Act provision).

Regards

Could you please guide me on what I should do? The brief of the case is as follows:

I resigned from the services of the Small Industries Development Bank of India (SIDBI), established on April 2, 1990, under an Act of Parliament, on January 29, 2010, to join another PSU company. At the time of resignation, I had 48 days of EL balance left in my leave account.

SIDBI Leave Policy

SIDBI has the following policy regarding:

- Every year, 30 EL days are credited to the employee.
- An employee cannot encash more than 15 days of EL in a particular year (thus, I cannot apply for encashment before resignation).
- EL balance will become zero after an employee's resignation (it cannot be encashed post-exit nor adjusted towards the notice period).

Additionally, I am required to deposit 3 months' salary to SIDBI for the notice period. Given the above, it is evident that provision no. 2 partially and no. 3 is fully inconsistent with the Leave rules generally followed by PSUs.

Advice Needed

In view of the above, please advise on the following:

1. What is the name and the provisions of the Act that govern the leave rules in SIDBI?
2. Is SIDBI free to establish its own Leave rules, despite inconsistencies with the general provisions of other Banks/PSUs?
3. What options are available for me to encash the EL balance from the Bank?

I am awaiting your suitable reply.

Regards