How Should HR Handle Leave Entitlements for Resigning Employees Before March 31?

Situation Overview

1. A company has a policy for leave that every year on 31 March, all "entitlement" leave of the employees will lapse.
2. Annual leave is termed as "entitlement" in the rules and regulations of the company; there is no category for earned leave.
3. An employee resigns on 20 March with 10 annual leave days still pending.
4. Upon resignation, the employee loses all entitled leaves.
5. The employee has to serve a 2-month notice period.

HR Decision Options

Option 1: Allow the employee to use the 10 remaining leave days.

Option 2: Do not allow the employee to take leave but allow them to encash the pending leave days.

Option 3: Do not allow the employee to take leave and do not allow encashment of leave. Are there any legal repercussions for this? If yes, please cite the rules with reference to Maharashtra state laws.

Question No. 1: Earned leave under the Factories Act does not lapse; it gets carried forward to the next year.

Question No. 2: Whether you call it entitlement leave or anything else, the Factories Act refers to it as Annual Leave with Wages.

Question No. 3: Read this extract from the Factories Act - CHAPTER VIII, Annual Leave with Wages:

79. Annual leave with wages

[(3) If a worker is discharged or dismissed from service, quits his employment, is superannuated, or dies while in service during the course of the calendar year, he or his heir or nominee, as the case may be, shall be entitled to wages in lieu of the quantum of leave to which he was entitled immediately before the discharge, dismissal, quitting of employment, superannuation, or death calculated at the rates specified in sub-section (1), even if he had not worked for the entire period specified in sub-section (1) or sub-section (2) making him eligible to avail of such leave, and such payment shall be made -

Question No. 4: See the answer above.

Your options will be governed by the Factories Act (I presume the establishment is subject to the same act).

Apart from Mr. Nathrao's view, even if your establishment comes under the Shops & Establishment Act, then too the leave has to be carried forward to up to a maximum of 3 years, equivalent to 63 leaves. Please let us know what your Leave policy states so as to give an appropriate view. For more details, please refer to the Bombay Shops and Establishment Act.

Compliance with Leave Regulations

Actually, there is no challenge. Establishments have to follow leave rules as laid down in the Act governing their establishment, such as the Factories Act or the State Shops and Establishment Act. One can give more leave than stipulated, but providing less will be a violation. Establishments should automatically fall in line and not try to find loopholes in the fine print or some court ruling. Providing adequate leave for employees is one way of developing employee satisfaction and winning employee loyalty. These two attributes will more than compensate for employee absence due to leave.

Dear [Recipient],

Company policy should be in line with or offer additional benefits compared to the Labor Laws. You are required to provide Annual Leave with Wages as per Section 79 of the Factories Act, 1948. According to the Factories Act, the accumulation limit is 30 days. You have the option to encash leaves beyond the limit.

Regards,
Govind Pawar

Entitlement Leave and Encashment

The annual leave in your company, if termed as Entitlement Leave, cannot be subjected to lapse when somebody is leaving; it is to be encashed. Encashment of due leave is a provision specifically laid down in the FA. If an employee has applied for leave, your company can allow pro-rata leave. For example, in a 2-month notice period, the employee would have earned 5 days of leave—so allow 5 days of leave, or you can allow more if you think it is appropriate within your leave rules.

Regards,
RDS Yadav
Labour Law Adviser
Director - Future Instt of Engg and Management

In the context mentioned in the post, a private policy on a particular subject matter is what an organization is going to do or refrain from doing in a particular manner. A law on the particular subject matter is what and how everyone covered by it should do the same thing. Therefore, no policy of an organization on any subject matter can run counter to the legal provisions on the same subject matter.

Whatever be the poster's establishment, the management should have understood the concept of "Earned Leave" in its right sense notwithstanding any other nomenclature conferred on it according to one's whims and fancies. Leave of absence from work or workplace, commonly known as "leave," is a reprieve granted to the employee not only to discharge personal and social obligations but also to rejuvenate and maintain efficiency levels.

That's why earned leave is computed based on the number of days worked and specifically designed to be availed of in the succeeding year with a facility to accumulate to a certain limited extent. If my presumption is correct, no law envisages the periodic surrender of earned leave for cash benefits other than in the event of any lawful termination of employment. The cash equivalent of the unavailed portion of earned leave at one's credit is part and parcel of the employee's terminal benefits.

Hence, at this juncture, choose either option-1 or option-II. However, do not hesitate to bring the fact to the notice of your management that the present leave policy needs to be in tune with the legal provisions applicable to your establishment.

All leave records and accounting are done in line with the calendar year, not in line with the financial year, is what I have learned in the past. Am I right? If yes, even the adjustment of all leave as of 31.03 every year is wrong, apart from the fact that the company is canceling all un-availed leave (which is even more absurd).

Hi All,

Thanks for your opinions, suggestions, and advice. It's really helpful and I can use it for the benefit of employees and the organization.

Will it make any difference if the firm is an office or a factory? Ours is an IT firm.