Legal Dilemma: Can We Deduct Salary for Negative Leave Balance When an Employee Resigns?

Hi Team,

Please clarify if there is a legal clause to withhold or deduct the salary of an employee if he/she resigns from the organization and is having a negative leave balance at the time of relieving.

Thanks,
Yeswanth

Dear Yeswanth,

Your query on "Negative Leave Balance" is intriguing. Let us consider two situations when salary is not paid:

a) Situation I: An employee proceeds on leave without proper approval from the Manager/HOD. On return, if the absence is not regularized, then (whether some additional punishment is awarded or not), he/she forfeits his/her pay. This deduction is on account of "Leave Without Pay" (LWP). The HR department, while processing the monthly salary, deducts the salary for the absent days.

b) Situation II: An employee has pressing personal/domestic commitments. Approval by the Manager/HOD is not a problem, but he/she does not have a balanced leave. Against this backdrop, he/she applies for LWP. The HR department, while processing the monthly salary, deducts the salary for the absent days.

In either situation, the question of a negative leave balance does not arise since the deductions owing to absence are made while processing the monthly salary. However, from your query, one gets a feeling that you have maintained the employee's leave account similar to a Current Account that companies open with their bank. At times, banks permit an overdraft facility since it is a company account. Does your leave policy permit such an overdraft of leave?

Thanks,

Dinesh Divekar

Hi Team,

Please clarify if there is a legal clause to withhold or deduct the salary of an employee if he/she resigns from the organization and has a negative leave balance at the time of relieving.

Thanks,

Yeswanth

You cannot withhold anyone's settlement. You can, however, deduct any amount that is due from the employee (notice the period not completed, for example). So, you can deduct the amount for excess leave taken.

Considerations on Withholding Settlements

In any case, how will withholding help or be resolved? How can he rectify the situation? Since he can't, it would amount to unjust refusal by the employer to pay his dues. Think about it from a moral viewpoint too. You should not be taking shelter of any legal provision to quietly pocket someone's dues by withholding in a manner that it never gets paid. To my knowledge, withholding means holding back until something is resolved, which means it is designed to be paid afterwards.

Saswata,

Companies credit casual leave in the month of July for employees. Let us say 15 days credited in Jul15, which is valid till 30th June 2016. Proportionately, 15/12 days per month = 1.25 days of C/L per month. Let us say a person avails 10 days of leave in the next three months and then quits. Will the company make any deductions from the final settlement regarding the excess casual leave availed by the employee? If so, is it legal?

I do not know which state the poster is in or whether it's an office or factory. So my answers are hobbled by that. I am making some assumptions here.

Most of the state laws, as well as the factory act, provide that you need to credit leaves on January 1 of each year. This is credited based on the number of days worked in the previous calendar year. There is no leave allowed as per law in the first calendar year of working, or in the second calendar year if in the first year he has worked less than three months. (Of course, this varies by state).

I assume in this case the company, on humanitarian grounds, allowed him paid leaves in anticipation of adjusting it in the next year. Then the employee resigned (or maybe absconded). In such a case, the company is very much within its rights to deduct the salary for those days. As you rightly pointed out elsewhere, the replies we give are based on assumptions where adequate information is not available.

The applicable laws are very clear on this. Where an employee, at the time of relieving, has dues payable to the company, then the dues are adjustable for recovery from such amount payable towards salary, incentives, allowances, etc.

Here, a negative balance is understood as leave given in advance in good faith for compelling reasons put forth by the employee.

Out of my knowledge, Casual Leave is for one year and if availed, there is no provision for withholding salary unless there is a mention in their appointment letter or any circulars issued to them, or that they can avail only 1.25 CL per month.

Saswata,

What if it is a company? Can you please clarify on Rao's question.

Regards,
Yeswanth

Legal Provisions for Salary Deduction

Under section 26(2)(f) of the Payment of Wages Act, the deduction or adjustment of overpayment of wages can be done by the employer. Thus, at the time of relieving, such recovery can be made. Similarly, under the Shops and Establishment Acts (e.g., the Delhi Act section 20(2)(vi)), overpayment of wages can be recovered in the specified manner. The applicable Act can be determined by the employer. A negative leave balance may be treated as an overpayment of wages. The category of leave for which the employee has drawn excess may be specified by the querist.

Thanks,

Sushil

Dear Sushil, My question is as follows: Will the company make any deductions from the final settlement regarding excess casual leave taken by an employee? If so, is it legal? This query was raised in an earlier post in order to receive a clear answer, similar to the one you provided, supported by relevant sections of the law. Shri Saswata also expressed a similar opinion on the permissibility of recovery. I am familiar with the relevant law and have witnessed instances where excess casual leave taken was deducted during the final settlement. This highlights the importance of individuals reading the statutory provisions and acquainting themselves with crucial and frequently utilized regulations. The principle that the pathway to knowledge is through reading, learning, and continuous education is well-established. Thank you.

Dear Mr. Nathrao, you have given a very good piece of advice to everyone. However, the interpretation of many provisions of the law is complex.

Casual Leave Under Section 22(1)(b) of the Delhi Shops and Establishment Act

Regarding casual leave under section 22(1)(b) of the Delhi Shops and Establishment Act, an employee is entitled to one day's casual leave after having completed one month's continuous service. Thus, it is admissible after rendering one month of service, and any excess casual leave taken can be deducted from the wages at the time of settlement, as per deductions under section 20 of the Act.

The queriest should have specifically asked for such clarification concerning CL.

Thanks,

Sushil

Dear Yeswanth Ji,
Your question pertains to the legal clause regarding the withholding or deduction of an employee's salary when there is a negative leave balance at the time of their relieving. Our senior member, Sushil Ji, has provided you with the legal clause. However, to provide a specific and concise answer to your query, I would like to state the following:

Can We Withhold The Salary Due To Negative Leave Balance?

Firstly, you posed a question in the title of the thread - "Legally Can We Withhold The Salary Due To Negative Leave Balance If The Employee Leaves The Company?" The answer to this is no. You cannot withhold the salary or settlement entirely. Nevertheless, you have the right to recover any excess amount that has been paid. If the excess amount to be recovered exceeds the amount due, you may notify the employee in writing and initiate the recovery process for the excess amount.

Regarding your query on the legal clause for withholding the salary, the answer remains the same as mentioned earlier - you cannot withhold the entire salary.

Legal Clause for Deducting the Salary

As for your query on the legal clause for deducting the salary, please refer to Sushil Ji's response as stated above.

I hope this clarifies the legal aspects of the salary withholding and deduction in the context of negative leave balances. If you have any further questions, please do not hesitate to ask.

Best regards