Navigating Leave Wages: What Happens When You Leave a Job Early in the Year?

Leave Wages in Full and Final Settlement

1) If an employee works during part of the calendar year and leaves at the commencement of the subsequent calendar year (e.g., during February or March), will it be obligatory for the employer to pay leave wages as part of the full and final settlement?

Eligibility for Availing Earned Leave (EL)

2) For availing earned leave (EL) accrued during part of the previous calendar year, should the employee complete 240 days of service, or can the employee avail EL earned during the previous year at the beginning of the subsequent calendar year (e.g., February or March)?

Leave Without Pay (LWP) vs. Earned Leave (EL)

3) Can an employee, with EL at credit, choose to apply for leave without pay (LWP) and retain EL at credit, or can the employer insist that the employee utilize the accrued EL first before opting for LWP?

Proportionate Leave Calculation for New Employees

In respect of an employee who joins your company during the preceding year, the 240 days shall be made proportionate to the days available for working. For example, if an employee joined in July, they should have at least 120 days of working; if they joined in September, they should have 80 days of working, etc. Please note that these 120 or 80 days are inclusive of weekly offs and holidays. By deducting the number of leave days taken in the current year, you can pay the rest along with the full and final settlement.

Leave Without Pay (LOP) and Company Policy

If an employee believes they should use their earned leave to be accumulated or used in the future only, and they choose to take leave without pay (LOP) by sacrificing pension, bonus, and other benefits affected by such LOP, they may do so. There is no law preventing an employee from taking LOP when they have sufficient leave to their credit. However, if your company policy does not allow it, you can prevent them from taking LOP when they have leave to their credit.

Termination and Leave Settlement

In the course of termination, leave earned till the date of leaving or accumulated should be paid when settling the employee's account.

Continuous Service Requirement

Continuous service of 240 days is for those who are on the payroll from the 1st day of the calendar year or otherwise 2/3 of the available working period of the calendar year.

Loss of Pay (LOP) Considerations

Loss of Pay (LOP) occurs when there is no leave balance remaining in the employee's account. Regarding your query, avoid introducing new elements that could lead to larger problems in the event of any industrial dispute.

Whether EL encashment should be paid on the basic+DA or the total gross, which includes allowances such as HRA, etc.

Thank you.

Dear Madhu T K,

As you said, it should be on salary as per the contract of employment, other than reimbursements and those allowances which are paid based on attendance. Can you support your statement with the appropriate act?

Thank you.

Understanding Salary Bifurcation

Salary or wages are the remuneration that the employer has agreed to pay in return for the services or labor provided by the employee, right?

Now, after fixing a wage of, say, Rs 15,000, you, like any other employer, will, for his "convenience," bifurcate it as basic wage Rs 2,000, HRA Rs 8,000, Conveyance allowance Rs 3,000, and washing allowance Rs 2,000. This bifurcation has nothing to do with the employee, but the employer, having been given to understand that all statutory payments are based on basic wages, has set the basic wages to the minimum so that his contribution towards PF, Bonus, Gratuity, etc., could be reduced.

As far as an employee is concerned, his wage is the total amount as agreed upon, and it is not Rs 2,000 but Rs 15,000. If he takes a day's leave (paid leave), he will get the pay based on Rs 15,000 and not Rs 2,000. As such, when he encashes it, shouldn't he get the same amount?