Understanding Leave Encashment: What Happens to Unused Earned Leave Beyond 24 Days?

Dear Seniors, as per the Shops & Establishment Act provision, we need to give 12 days of Earned Leave (EL), and it can be accumulated up to 24 days.

Clarification Needed on Leave Policy

Kindly clarify the following points:

1. Will unavailed leave beyond 24 days be encashed?
2. Is encashment compulsory?
3. Can we define the leave policy to state that "if it's not availed, it will be lapsed"?

Thanks,

Ruth

You can definitely frame an internal leave policy with prior information on earned leave utilization, its terms, mode of carry forward, etc. As per the Shops and Establishments Act, you need to provide 7 sick leaves, 7 casual leaves, and 15 earned leaves, apart from national and festival holidays. Ensure that all leaves are provided and put the condition that they should be availed before the proposed year; otherwise, they will lapse.

However, you cannot change this overnight and make it effective immediately. According to the Industrial Disputes Act, you must communicate any changes in policies/procedures to employees at least 21 days before the proposed changes take effect.

Therefore, ensure that you can frame or change the existing policy and communicate with employees in a proposed manner before implementing it.

Shops and Commercial Establishments Acts: State-Specific Provisions

Shops and Commercial Establishments Acts are state Acts, and therefore, the provisions will differ from state to state. In the Kerala scenario, the Act simply states that leave can be accumulated up to a 'maximum' period of twenty-four days. This means that unavailed leaves will lapse.

Regarding encashment, the Act specifies that it shall be paid in cash at the time of discharge or termination of employment. This implies that the Act is silent on whether it can be encashed during service. Therefore, if the company wishes to reduce the practice of availing leave, it can include a provision for encashment in its leave policy.

Regards,
Madhu.T.K

If it is not availed, it will lapse. However, if the employee applies for leave and the management does not grant it, all such unavailed leave can be carried forward without any limit.