Few things:
1. What kind of industry is it - if IT, then there should be flexi hours.
2. However, the daily attendance to be followed as per service rules/ Attendance Policy of the organization. If any clause is mentioned in Policy for flexi hours/ compensation and if employee is working for minimum hours in a day, then no question of deduction of leave should arise.
3. If there is no such policy mentioned in service rules, the employee should get the benefit and should be allowed flexi hours with no deduction of any leaves.
May I also mention that now a days all companies are working extended hours and staff members are required to work beyond specified time if any work is left undone.
Suggestion: Kindly arrange a session with the employees immediately for bringing awareness/ refresher of HR policies, wherein you can brief all HR & other policies with the employees. This will clear the doubts and difference among employees with HR.
Regards,
Satyanarayana