Navigating Salary Structure and Leave Policies for Small Organizations in India

I am working with an organization registered under the Bombay Shops and Establishment Act. It's not a 'Ltd.' or 'Pvt. Ltd.' organization. So, I wish to know what should be the components of the salary structure. As the employee size is small, we do not wish to have PF, resulting in grievances. Also, how many leaves per year should be provided, and what is their bifurcation?

How many employees are there in the company? If it exceeds 20, then you need to register for PF; otherwise, it is not required. The number of leaves allocated per month, ranging from 1.5 to 1.75, depends on the management decision. This is in addition to national holidays, Diwali, and other festivals.

Regards,

Hi, Thanks, Mayur. The employee strength is less than 20, so what should be the salary components?

Leave Structure and Bifurcation

Currently, we have 12 leaves per year, including national holidays and festivals, and 12 paid leaves per year, i.e., 1 paid leave per month that cannot be carried forward; it has to be utilized in the same month. If the leaves are restructured, how many should they be, and what should be their bifurcation?

Regards

As long as your company is registered, it doesn't matter whether it's a Ltd./Pvt. Ltd. company. You have to follow the statutory leaves mentioned in the Bombay Shops and Establishments Act. I am giving you the details that I have; please check for updates.

BOMBAY SHOPS AND ESTABLISHMENTS ACT, 1948

Privileged Leave/Earned Leave - 21 days on working 240 days in a year

Entitlement - 5 days after 3 months on completion of 60 days working in that period

Accumulation - 42 days

Computation - Suffixed or prefixed holidays to the leave period shall not be accounted as leave. Holidays or Sundays falling between the period of leave shall be treated as leave.

Casual Leave - Nil

Sick Leave - Nil

Maternity Leave - Provisions of the Maternity Benefits Act, 1961, to apply.

As far as salary breakup is concerned, you can follow a basic structure which includes Basic, HRA, Medical, Conveyance, and Special Allowances. There is enough material available on Cite Hr on salary breakup; do a bit of research, and you will definitely come across something useful.

Regards

Very good information. However, I have one doubt. What is the quantum of leave to be credited to an employee's account after working 365 days? It is correctly said that after working 240 days, an employee becomes eligible for 21 days. However, are these 21 days for those 240 days of work, or for the whole year?

One of the reputed sites, excelconsultancyservices.co.in, clarifies under FAQ, "An employee is entitled to annual leave with pay for 21 days for 240 days of work." Here, the calculation works out to 32 days of PL on completion of 365 days. Will you please confirm the leave quota for the whole year? Is it 21 days or 32 days?

Working Days Calculation

It's 240 working days in a year (i.e., 365/366 days). You have to deduct Sundays, Saturdays, national holidays, and government holidays from the 365 days to arrive at this figure. However, depending on your company's policy, this number can increase or decrease when you calculate the number of working days in a year. If this happens, you should keep the calculation at the number of specified working days, ignoring the number of days in the year. However, while calculating working days, you should also keep in mind the working hour criteria and ensure you are not making your employees work more than the specified quantum of working hours.

Regards

Look at the entitlement pointer: 5 days after 3 months with 60 working days. This means you will credit 5 days of paid leave once the employee completes 3 months in your company. The 3 months should include 60 working days, indicating that the employee must have worked for 60 days to earn 5 days of paid leave. Consequently, at the end of each quarter, you will credit 5 days of leave (assuming your employees are working for at least 60 days, excluding weekly offs and holidays within this period). At the end of the last quarter, you will credit 6 leaves to bring the total to 21.

Regarding New Employees

The first three months will be a probationary period. In the absence of any other leave (such as CL, ML), employees will have to manage with weekly offs, comp offs, or LOP leaves. After the initial probationary period, new employees' leave entitlement will commence.

Regards.

In many companies, the whole month, 30/31 days, is considered as working days, which include rest days also, since salary is paid for 30 days. We should not count actual days of work/attendance for the calculation of leave. It is practically not possible too.

Presuming your calculation of actual workdays, if anyone works for more than 60 days, say 75 days, in 3 months (deduct only 12 Sundays and 2-3 holidays from 90 days), they are still eligible for 5 days leave. Is it justified if a person puts in 60 days, and another person works 75 days, both are eligible for 5 days leave after 3 months? And for the whole year, 21 days! The Act allows Nil CL and Nil SL.

Rujuta's Statement

Rujuta's statement 'employee is entitled to get 21 days leave for 240 days of work' gives us a clear meaning, 32 days leave for 365 days, or at least 26 days leave (if 52 Sundays and 13 holidays are deducted from 365 days). The statement is also certified by excelconsultancyservices.co.in, and at many other places.

Is there any labour court or any other authority's decision on this?

I have checked into the Factories Act for clarity on this. You may assume it to be "240 days or more." I appreciate your concern for hardworking employees, and you are always free to have more leaves for those who put in more work/productivity. What the act does is put down minimum specifications, i.e., you are legally bound to credit only 21 days on completion of 240 working days. If you want, you may also give more EL, CL/SL/Comp Off/Rest days, etc. Less than what is specified is not allowed; more is always welcome.

I sincerely apologize for not making it clear under which act I am referring. It is the Bombay Shops & Establishment Act, which allows for Nil CL and Nil SL, and 21 days PL after the completion of 240 days of work. Your guidance has made it absolutely clear to us what the minimum quota allowed is under the Factories Act or Shops Act. We can certainly offer the best to our employees. Thank you very much, Sir, for your valuable input. Have a good time ahead.

I totally disagree with Mr. Abhay Bandekar and his understanding and agree with TEAMGROUP HR.

Understanding Leave Entitlement under the Bombay Shop and Establishment Act, 1948

As per the Bombay Shop and Establishment Act, 1948, and its amendment, under Section 35:

"Every employee who has been employed for not less than 3 months in ANY year shall, for every 60 days on which he has worked during the year, be allowed leave, consecutive or otherwise, for a period of not more than 5 days."

Explanation: An employee who has actually attended the office for not less than 60 days in 3 months in ANY YEAR can enjoy a minimum of 5 days of paid leave. Here, ANY YEAR means in between two calendar years as well.

Regarding the theory of Mr. Abhay, for 60 days working and 75 days working, yes, let a person attend the office for more than 60 days, but still, they will get only a minimum of 5 days leave. If the company wants, it can give more but not less than 5 days. If an employee is working 75 days, they will certainly earn more wages compared to an employee who works 60 days, so where is the question of injustice?

"Every employee who has worked for not less than 240 days IN A YEAR (irrespective of the date of commencement of service) shall be allowed leave, consecutive or otherwise, for a period of not less than 21 days."

Explanation: 21 days of MINIMUM leave will be allowed to an employee who attended the office for at least 240 days in a YEAR, i.e., from January 1st to December 31st. So, 21 days of leave for 365 days, not 240 as Mr. Bandekar quoted above, but will be given to an employee who has attended the office for at least 240 days, even if they joined a company in March and attended the office for 240 days minimum. In this case, they are entitled to 21 days of MINIMUM LEAVE.

It could be possible for someone to join in February; if they attend the office for 240 days, then they will be entitled to a paid leave of a minimum of 21 days.

I would have agreed with Mr. Bandekar's interpretation if the word "year" had not been suffixed to 240 days in the year. The definition of YEAR is given in Section 2, subsection 32.

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