Unequal Leave Policies: Is It Legal to Standardize Employee Leave Entitlements?

Dear all, please help me find a solution for this. So far, I have not found any relevant posts on this issue. The company has issued appointment letters with different terms and conditions for different employees. For example, one employee was given 20 earned leaves per year, while another was given 30 earned leaves per year.

Proposed Policy Change

I am considering implementing a policy where all employees receive only 25 earned leaves per year. I am concerned about the legality of this decision. If I proceed with this change, how appropriate would it be from a legal standpoint?

Potential Employee Concerns

Changing the leave policy in this way may lead to questions from employees who were originally entitled to 30 earned leaves. They may inquire about the basis for reducing their entitled leaves after it was specified in their terms and conditions.

Please advise me on how to address this potentially serious issue. 

Thank you.

You can definitely harmonize the policy. The company has the right to change the rules and regulations as per business needs and bring parity among employees. There are no legal consequences for this. Please follow the procedure as outlined below:

1. Make a list of employees who will benefit. In any case, they will be happy.
2. Make a list of employees who will lose the benefits (5 days). You have to manage this with proper communication and by adding a one-time settlement in salary (for example, deducting 5 days' salary from their yearly CTC. For instance, if the gross salary is 300,000/- then 3 lakh divided by 365 multiplied by 5 days is equal to 4,110/- per annum, so their new gross will be 304,110/- per annum). However, you are not obligated to compensate, but as a good practice and to maintain positivity, you can do this.

Furthermore, you have to ensure proper and transparent communication with justifications. You can also mention the benchmarking with other industries as a reason.

Regards,

Mr. Vinod, thanks for your valuable response. Can you please guide me on the ways I can convince them? Some of the employees may start criticizing management for reducing their annual leave. What sort of justification can be given to them? Please let me know about it as well. :-!

Each person is unique; you cannot use the same key for every lock. However, given that you are looking for some tricks to convince them, try explaining to them that in order to bring harmony and fair treatment to each employee, the company has decided to provide the same number of leaves to all employees. Explain to them how important it is to be treated fairly. Also, tell them how they would feel if they were not given some privileges that other employees have.

Again, convincing them is all up to you; there are no magic tricks. You just need to understand what they want to hear and tell them exactly the same.

All the Best,

Regards,
Sagar Gulani

If I consider your suggestion, there may be some obstacles from the management side. They may not be willing to increase their CTC in lieu of reducing the number of leaves since it would affect other things like liability towards gratuity, bonus, etc., claims.

In your first post, you are asking to make only a one-time payment. But in the second post, indirectly, you are asking to make increased salary payments every year.

Please clarify this for me!

It is not an increased payment. If the leave is adjusted one time, the employee may receive future benefits like an increased annual base salary. This shows the benefits to employees.

However, if your management is not willing to do that, it is a management issue. Management is expected to be fair in such cases. You can still reduce the leave without compensation, but is taking the benefits your objective, or is harmonization your objective?

You will end up dissatisfying your employees, and employees are smart. They will remember this and definitely take care in the future. HR should be sensitive.

Regards,

Considerations for Adjusting Leave Policies

Increasing the CTC is not practically possible. You can give 5 special leaves to employees who accumulate 25 earned leaves on behalf of management in a year. This will help avoid confusion between those employees who acquire 30 earned leaves. However, increasing the CTC may raise objections from other employees in the same organization.

If my viewpoint is not acceptable, please reply back.

Good morning, I appreciate both the suggestions given by Mr. Vinod and Mr. Sanjeev. I will discuss the same with the management and will work towards a solution that is favorable for both employees and the company. Thank you all for your kind cooperation.

It is common practice that people with different Terms & Conditions of service are entitled to different days of leave. You have people governed by Standing Orders, people governed under Conduct, Discipline & Appeal Rules, and other Service Rules. Their working hours, Closed Holidays, and remunerations are different.

To bring all the employees under the same leave rules, you have to change their remunerations and working hours, etc. Thank you.

Understanding Earned Leave Policies

It is called earned leave and not gifted by your company to anyone. "Earned" means an employee earns the leave from their practical previous working days, which will be credited to their account every year. This should be calculated based on their physical attendance/working days, excluding any holidays, including Sundays. For example, on average, if the employee works more than 240 days, they are eligible for earned leave (excluding Sundays, which are 52, and their CL of 10 days if utilized, as well as any other leave of absence, including EL, ML, and LOP, etc.).

Factories Act Rules on Earned Leave

No company can alter this... Rule is Rule... beyond this leave, Company Management can consider if any employee has taken more leave than the limit. However, the company cannot declare that one employee gets 25 days EL while another gets 15 or 20 days. If one employee goes to labor court, the company may escape, but the HR Manager will be in trouble... be careful.

79. Annual Leave with Wages

(1) Every worker who has worked for a period of 240 days or more in a factory during a calendar year shall be allowed, during the subsequent calendar year, leave with wages for a number of days calculated at the rate of:
- If an adult, one day for every twenty days of work performed by them during the previous calendar year;
- If a child, one day for every fifteen days of work performed by them during the previous calendar year.

Explanation 1: For the purposes of this subsection:
- Any days of lay-off; by agreement or contract or as permissible under the standing orders;
- In the case of a female worker, maternity leave for any number of days not exceeding twelve weeks; and
- The leave earned in the year prior to that in which the leave is enjoyed; shall be deemed to be days on which the worker has worked in a factory for the purpose of computation of the period of 240 days or more, but they shall not earn leave for these days.

Explanation 2: The leave admissible under this subsection shall be exclusive of all holidays, whether occurring during or at either end of the period of leave.

(2) A worker whose service commences otherwise than on the first day of January shall be entitled to leave with wages at the rate laid in clause (i) or, as the case may be, clause (ii) of subsection (1) if they have worked for two-thirds of the total number of days in the remainder of the calendar year.

(3) If a worker is discharged or dismissed from service or quits their employment or is superannuated or dies while in service during the course of the calendar year, they or their heir or nominee, as the case may be, shall be entitled to wages in lieu of the quantum of leave to which they were entitled immediately before the discharge, dismissal, quitting of employment, superannuation, or death calculated at the rates specified in subsection (1), even if they had not worked for the entire period specified in subsection (1) or subsection (2) making them eligible to avail of such leave, and such payment shall be made:
- Where the worker is discharged or dismissed or quits employment, before the expiry of the second working day from the date of such discharge, dismissal, or quitting; and
- Where the worker is superannuated or dies while in service, before the expiry of two months from the date of such superannuation or death.

(4) In calculating leave under this section, a fraction of leave of half a day or more shall be treated as one full day's leave, and a fraction of less than half a day shall be omitted.

(5) If a worker does not in any one calendar year take the whole of the leave allowed to them under subsection (1) or subsection (2), as the case may be, any leave not taken by them shall be added to the leave to be allowed to them in the succeeding calendar year:
- Provided that the total number of days of leave that may be carried forward to a succeeding year shall not exceed thirty in the case of an adult or forty in the case of a child:
- Provided further that a worker who has applied for leave with wages but has not been given such leave in accordance with any scheme laid down in subsections (8) and (9) or in contravention of subsection (10) shall be entitled to carry forward the leave refused without any limit.

(6) A worker may at any time apply in writing to the manager of a factory not less than fifteen days before the date on which they wish their leave to begin, to take all the leave or any portion thereof allowable to them during the calendar year:
- Provided that the application shall be made not less than thirty days before the date on which the worker wishes their leave to begin if they are employed in a public utility service as defined in clause (n) of section 2 of the Industrial Disputes Act, 1947 (XIV of 1947):
- Provided further that the number of times in which leave may be taken during any year shall not exceed three.

(7) If a worker wants to avail themselves of the leave with wages due to them to cover a period of illness, they shall be granted such leave even if the application for leave is not made within the time specified in subsection (6); and in such a case, wages as admissible under section 81 shall be paid not later than fifteen days, or in the case of a public utility service not later than thirty days from the date of the application for leave.

(8) For the purpose of ensuring the continuity of work, the occupier or manager of the factory, in agreement with the Works Committee of the factory constituted under section 3 of the Industrial Disputes Act, 1947 (XIV of 1947), or a similar Committee under any other Act or if there is no such Works Committee or a similar Committee in the factory, in agreement with the representatives of the workers therein chosen in the prescribed manner, may lodge with the Chief Inspector a scheme in writing whereby the grant of the leave allowable under this section may be regulated.

(9) A scheme lodged under subsection (8) shall be displayed at some conspicuous and convenient places in the factory and shall be in force for a period of twelve months from the date on which it comes into force, and may thereafter be renewed with or without modification for a further period of twelve months at a time, by the manager in agreement with the Works Committee or a similar Committee, or as the case may be, in agreement with the representatives of the workers as specified in subsection (8), and a notice of renewal shall be sent to the Chief Inspector before it is renewed.

(10) An application for leave that does not contravene the provisions of subsection (6) shall not be refused unless the refusal is in accordance with the scheme for the time being in operation under subsections (8) and (9).

(11) If the employment of a worker who is entitled to leave under subsection (1) or subsection (2), as the case may be, is terminated by the occupier before they have taken the entire leave to which they are entitled, or if having applied for and having not been granted such leave, the worker quits their employment before they have taken the leave, the occupier of the factory shall pay them the amount payable under section 80 in respect of the leave not taken, and such payment shall be made where the employment of the worker is terminated by the occupier, before the expiry of the second working day after such termination, and where a worker who quits their employment, on or before the next payday.

(12) The unavailed leave of a worker shall not be taken into consideration in computing the period of any notice required to be given before discharge or dismissal.

Regards.

You cannot change the terms and conditions of the appointment letter without a valid reason or without the consent of the person concerned. It would be illegal and unfair practice.

Formulate and Introduce a New Leave Policy

I am enclosing the leave policy herewith for your reference.

Regards

As far as I feel, the minimum PLs as defined by law should be provided by the company. In case management is currently granting more leave than required and now wishes to reduce this allocation, it would depend on management's discretion. However, the company cannot reduce the PL entitlement below the legally defined minimum. As suggested by Mr. Vinod, employees may be compensated on humanitarian grounds, but this is not mandatory.

Further comments are welcomed.

Vinod's solution is appreciated. However, your objective is to bring uniformity in service conditions relating to leave among all employees. If you implement the solution, you are reducing leave on one hand but compensating them by paying them proportionately every year, thus retaining a distinction between the two classes of employees in another form. This increase in salary may have a cascading effect on P.F, ESI contributions, on gratuity and bonus, as well as leave encashment. Thus, in the long run, the benefit quotient of these employees may be far ahead of those who have lesser leave. This is not, in real terms, uniformity. I am not going into the legality of the reduction of one's leave arbitrarily, given the limited details. If such unilateral reduction is permissible and for the sake of harmony, you can grant such a pay increase as ex gratia for one year and thereafter withdraw it so that the extra benefit in the form of pay increase will not be recurring every year.

Regards,
B. Saikumar

HR & Labour Law Advisor

Mumbai

The better option seems to be what Mr. Mathur suggested, i.e., by bringing the leave entitlement of those with lesser leave on par with those with higher leave entitlement.

Regards,
B. Saikumar
Mumbai

Maybe we also need to understand the reason for having two types in the first place. This will help us make a decision on whether we should change it or not, and if yes, provide an explanation to the affected employees.

Regards,
Satish

Respected Seniors and Juniors,

I would like to address a query regarding leave. My question is: can two types of leave be granted in the case of consecutive absences from an organization?