Is it relevant to provide paid leaves every month or at the year end?

Paid leaves are provided annually. Should they be accrued after the date of joining or after the completion of the probation period? Also, is it relevant to provide paid leave monthly if an employee is on leave, or should it be encashed at the year-end or when the employee resigns, whichever is earlier?

Dear friend,

A leave of absence is an employment benefit provided under every establishment-specific labor law or the contract of employment, depending on the cadre of employees. The purpose of such a statutory or contractual benefit is to enable the employee to take a break from the monotony of work, rejuvenate, and refresh themselves to maintain their efficiency levels. It also allows them to fulfill personal and social obligations as members of society. This is why leave is categorized as lapsable and cumulative. Lapsable leave, such as Casual Leave and Sick Leave, expires within the calendar year, and there is no option to cash out such leave. Cumulative leave, like Earned Leave, accrues annually based on the number of days worked by the employee and can be accumulated up to a certain limit. Only this type of leave can be surrendered for cash benefits upon termination of employment as part of terminal benefits.

According to the legal stance, lapsable leave cannot be cashed out, as this would defeat the purpose of the leave provisions. Employees should utilize lapsable leave only when necessary. However, allowing the surrender of the unavailed portion of lapsable leave for cash at the end of the year may not pose a legal issue and could encourage full attendance throughout the year.

Regarding cumulative leave, periodic surrender for cash benefits can be done with employee consent, as there is no explicit statutory prohibition against it.

Thank you!

Dear Colleague,

The Factories Act and respective State Shops Act provide for the quantum, rate, and eligibility for accrual of leaves. Usually, it is the number of days worked and available for use initially upon confirmation or on the 1st of January every calendar year.

Encashment of unavailed Earned Leave is provided after cessation of employment. However, several companies have a policy of encashment of EL while in service, but other types of leaves like CL and SL are not encashable.

Regards,
Vinayak Nagarkar
HR and Employee Relations Consultant