Is Our Contractor Right to Deny Privilege Leave Encashment Under BOCW Act?

We have engaged a contractor to build a compound wall at one of our plots. My company has a factory license. The contractor is registered under the Building and Other Construction Workers' Act.

We have a practice of paying privilege leave (encashment) to contract labor every month, and contractors are following the same. However, the contractor registered under the BOCW Act is denying paying PL encashment, stating that it is not applicable to him.

My query is whether what he is saying is right or wrong? Please advise. Your advice will help me to act accordingly to release the contractor's due payment.

Regards.

Payment of Privilege Leave to Contractors

The Privilege Leave (PL) that you expect the contractor to pay should be included in the payment that you are making to the contractor. Otherwise, why would the contractor pay from his own funds? You calculate the PL on a pro-rata basis, pay it to the contractor, and then ask him to pay his laborers.

Clarification Needed on Factory Plot and Compliance

The query is vague.

1. Is the plot a part of the factory? Does the factory license cover that area? If yes, BOCW does not apply.

2. How long is the work? If it's very short, then you do not need to worry about leave wages. If it is long, compliance with leave rules is important for your compliance status. However, giving leave encashment every month is a wrong practice and will get you into more trouble.

As the Principal Employer, you need to ensure that PL dues are paid to all of your contract workers. There is no bar to paying PL every month to contract workers since their jobs are not permanent, and the Principal Employer's responsibility also covers them.

Review the Contract

Please review the contract of the compound wall contractor once again and confirm whether all the statutory payments are included or not. Release the payment accordingly.

Regards,
R. Gunashekaran
Lawyer

Legal Implications of Monthly Payment of PL Dues

While there is no specific legal provision preventing the payment of PL dues every month, it is not considered a good legal practice. The law provides for allowing leave to workers, not for the payment of money in exchange if leave is not given.

By providing encashment of leave every month, you are ensuring that there is proof that leave is not given to the workers. This also ensures that the leave is not given, as there is no credit of leave for the workers to use.

In case matters escalate, this evidence could be used to show deliberate violation of the law and exploitation of workers by denying them leave and adequate rest.

Understanding Privilege Leave and Encashment

Privilege Leave (or alternatively called EL - Earned Leave) is normally credited to an individual's leave account in the following year. This leave is typically earned (in the Factories Act, for every 20 days of working, 1 leave is earned).

This leave is used by employees when going on leave for more than 3 days. Encashment occurs only when the leave balance in his/her credit exceeds a certain limit, after which it cannot be accumulated.

It seems like your company may be practicing something where "someone earns PL every month and immediately surrenders the same for encashment???" This could leave the individual with no leave to enjoy in the following months if they want to go on leave.

I do not believe your company is following this system or it has been misunderstood.

Reliever Wages in Security Services

When hiring security services for your company, the security agencies include a component called "reliever wages." This is the wage/salary for the individual who will relieve the existing security guard in case they take leave. If the reliever does not take any leave in the month, they may receive the same from their employer. I believe this concept has been mispracticed and projected as if it is PL encashment.

In summary, there is no concept of "encashment of leave every month." Leave is typically encashed once a year or at the time of leaving.

Regards,
V. Balaji