Understanding Compensatory Leave: Legalities and Best Practices for Employers

Dear All,

I have recently joined an organization in the service industry where there is a practice of encashing Compensatory Leave. I have some doubts about it; please help me in resolving them.

a) Can we encash the compensatory off legally? According to the law, we can only encash PL at the time of retirement or at the time of exit based on the basic salary drawn at that time. If yes, please tell me under which act it is applicable.

b) If I need to pay for the compensatory off, then under which salary head should we refer so that there will not be a legal obligation on the company's end in the future?

c) Do we need to pay compensatory off based on the basic salary or the gross salary drawn by an employee?

d) Is there any clause through which I can refer to and state to an employee that we cannot encash the compensatory off?

Looking forward to the above-mentioned queries.

Regards,
Arpit Khare

Compensatory Time Off Policies

I would like to inform you that different companies have varying policies regarding compensatory time off. These policies must be clearly outlined in the company's policy and approved by a management representative. Some companies include the compensatory time off policy in their Standing Orders.

Legally, employees are entitled to a weekly day off within 7 days unless the company requires them to work on the seventh day. In such cases, the employee must be given that day off within the following 3 days.

Therefore, it is important to establish a policy regarding compensatory time off and ensure that it is authorized by both the Labour Officer and Management.

Regards

Dear Sandeep,

I need clarification on the last statement. Do we need to get it authorized by the Labour Officer, specifically in the service industry? Is this mandatory on the company's end to do so? Because in my previous organization, we did not have such a policy.

Regards,
Arpit

There is no law which states to encash any leaves; it is always a policy of the company to compensate for the leaves which are not availed by the employer to their employees. It is similar to paying double payment of the wages for working employees on any festival holiday. Last but not least, the wages should be calculated on gross and not on basic.

Dear Arpit,

Compensatory off cannot be encashed; it can only be availed. The practice is that it should be availed within a week and cannot be clubbed with other leaves.

Regards,
Deepak Vasudevan

Dear Arpit,

Understanding Compensatory Off and Labour Laws

If you are talking about workmen, their services are strictly governed under Labour Laws. According to the provisions under the Factories Act, if a weekly off is not given, then a compensatory off is to be provided either 3 days before or 3 days after the original off day.

Compensatory Off for Management Staff

If it is a compensatory off for management staff, then such matters, along with other groceries, are addressed as per the company's HR Policies. Different policies exist with no similarity found because they have internal and external factors, just like you have. I have experience in dealing with this complex issue.

Challenges with Compensatory Off Encashment

The encashment of a compensatory off, if allowed, was observed to be gainfully misused by staff in concert. Secondly, the very encashment facility allowed the accumulation of compensatory off, as it permitted encashment at any time during the year. At times, more than one employee was observed away from work. Instead of providing a practical solution, it brought forth other complex issues. Therefore, we decided that compensatory off has to be utilized in any case within 4 weeks, and if not availed by the concerned individuals, it will automatically lapse.

Regards,

RDS Yadav

Director - Future Institute of Management and Technology

Labour Law Adviser

[Email Removed For Privacy Reasons]

There is a short route for encashment. In exceptional cases where the establishment wishes to assist the sincere, dedicated employees who contribute more than 100% and cannot be allowed to utilize the comp-off days, they can permit crediting those days to the EL/PL account so that these days do not elapse. This indirectly helps these individuals gain monetary benefits by encashing through this route. However, there are no hard and fast rules regarding comp-off days earned and whether to utilize them or not.