Adjusting Earned Leaves Against Notice Period: How to Determine the Correct Exit Date?

Adjusting Earned Leaves Against Notice Period

In case of adjusting earned leaves against the notice period, what will be the relieving date in the record?

Scenario

- Date of Resignation: 12/02/21
- Notice Period: 45 Days
- Last working date: 29/03/21
- EL in hand: 25 days

So if we adjust his EL with the notice period and his last date will be 04/03/21, but we paid till 29/03/21. Then for PF/gratuity record, what will be the exit date, 04/03 or 29/03?

Please guide.

I am sorry, but I am having difficulty understanding your explanation. Both of the last working days you mentioned are in the future. Therefore, you should only pay the individual up to the earliest possible date of separation, which is 04-03-2021. When calculating any financial aspects related to employment, such as salary, contributions to EPF and ESI, and gratuity, only the actual termination date should be considered. In this case, the termination date would be 04-03-2021 after adjusting the 25 days of earned leave against the shortfall in the notice period.

Let me correct myself.

Right, as you mentioned, all dates are in the future, so I am asking this query.

My Query

If I consider his EL (25 days), then actually his last working date in the office will be 04/03. However, we will pay him a salary till the date of 29/03. So my first question is: Can we do it that way? And the second question is: What will be the exit date for PF, gratuity, relieving letter, etc.?

Clarification on Payment and Exit Date

When the concerned employee shall be working until 4/3 (presumably he shall be relieved from his duties and responsibilities on 4/3, during closing hours), why do you want to pay him until 29/3? What is the logic behind this?

As regards PF and ESI, the next date to his date of relieving shall be the date of exit from employment.

Why do you want to pay him up to 29/3? What is the logic behind this?

Adjusting Earned Leave with Notice Period

We would like to adjust his Earned Leave (EL) with the notice period. So, from 04/03 to 29/03, can we mark him on paid leave to adjust the same?

Hi Jareena, in that case, the employee shall be on the payroll of your company until 29/3, and you may mark the date of exit in PF/ESI records accordingly.

Adjustment of Leaves from Notice Period Buyout

Adjustment of leaves from notice period buyout is at the management's discretion. They may allow or decline to adjust. However, in case of adjustment, such leaves are considered paid leave, and after the adjustment of leaves, the leaving date will be determined.

Statutory Contributions

Another important factor is that all statutory contributions would be deducted and paid upon such adjustments. This is not considered as the "encashment of leave" but rather as an adjustment for notice working days.

I think that you have to distinguish between permitting the adjustment of Earned Leave (EL) at credit against an unserved notice period and permitting the exiting employee to avail the entire EL at credit during the notice period. In the former, the employee is not required to be present for work, nor are you going to allow him encashment on termination that would be an earlier date subsuming the number of days of EL into the notice period fixed. Only in the latter case, you are going to pay him leave salary and relieve him on the agreed date as per the notice clause mentioned in the contract of employment.

Adjusting Earned Leaves Against Notice Period

This is very common in many organizations. In this case, the employee will work until 04/03/2021, and the rest of the notice period will be adjusted against their accumulated earned leave. The employee may be released with effect from 04.03.2021 after the close of business, as stated in the release letter: "You are hereby released from the services of the Company with effect from 04.03.2021 after the close of business and after adjusting your shortfall notice period from your accumulated earned leave."

Automatically, the employee will be removed from the PF, ESIC, etc.

S K Bandyopadhyay (WB, Howrah)
CEO - USD HR Solutions

Management's Prerogative on Notice Period

It is the prerogative of the management how they like to consider the notice period. Most companies prefer or consider serving the entire notice period of 30 or 60 days, as the case may be. The earned leave (EL) should be settled with the payment of Full and Final (F&F). If the management considers EL adjustment in the notice period, then (Notice Period - EL), the employee has to work for the balance period.

As per prevailing practices in most industries, no organization generally allows earned leave to employees who are on the notice period. Instead, they prefer encashment of the balance leave or adjust the shortfall of the notice period against the balance leave.

Here, we don't understand why the employee or the HR personnel is insisting on the date of release as March 29, 2021, when the employee will not be physically available at the workplace or performing any job for you.

Reasons for Insisting on March 29 Release Date

I foresee the following reasons:

1. The employee may be thinking that if he is released on March 29, he will benefit from earned leave for the month of March.
2. He may be trying to entertain employment offers, negotiate with other organizations, and wants to prove that he is still employed by you.
3. He may complete 5 years of service by March 29.
4. Your company will incur additional costs for 25 days of salary plus benefits if not released on March 4.

It is normally risky to continue with such employees because if you don't discontinue access to his/her email ID, your laptop may still be in his/her possession, there are security concerns, and lastly, in case of an unfortunate accident, there are employment compensation issues.

Therefore, the last date of exit should be considered as March 4, 2021 (his physical last working day), and adjust the shortfall of the 25 days notice period against his balance leave, as already advised by the senior members.

Regards,

Suresh

The relieving date should be the exit date, 29/03, instead of 04/03.

Thanks & regards,

Sumit Kumar Saxena

Dear Members, since the salary is proposed to be paid until 29/03/21, the last working day will be 29/03/21. For the calculation of gratuity and other benefits, 29/03/21 should be taken into account.

Regards, N. Lokanadha Babu
Manager-HR