Understanding Earned Leave: When Are Employees Eligible for EL Payment and Credit?

Dear All,

I need clarification on the below-mentioned points regarding our payroll system:

Earned Leave Credit Timing

1. Do we need to credit their earned leave only after the completion of 240 working days, or can we credit their EL after the completion of the calendar year as per the applicable Act?

Eligibility for Earned Leave for New Employees

2. If an employee joins in June or July, will they be eligible to avail the EL after the completion of the calendar year, or do they need to complete 240 working days as per the Act?

Earned Leave Payment upon Early Departure

3. Whenever an employee leaves the job in 4 to 5 months, will they be eligible to get their EL payment along with F&F settlement, or will it be applicable only after the completion of 240 working days?

Thank you.

Hi Sajith, please note the answers to your queries:

1. No, completion of 240 days is not mandatory.

2. EL eligibility starts from the joining date itself, usually before the 15th to 20th of the particular month.

3. Generally, EL encashment is applicable after the completion of 6 months.

@Sajithda,

Clarifications to your number-wise queries are given below:

Q1: Do we need to credit their earned leave only after the completion of 240 working days, or can we credit their EL after the completion of the calendar year as per the applicable Act?

Ans: If any employee worked in the company for the whole year (after the completion of the calendar year), EL could be credited to the employee's account in January of the following year.

Q2: Suppose if any employee joins in June or July, will they be eligible to avail the EL after the completion of the calendar year or need to complete 240 working days as per the Act?

Ans: The same formula applies (as per the answer to Q1). However, only pro-rated credit can be given to such employees.

Q3: Whenever the employee leaves the job in 4 to 5 months, will they be eligible to get their EL payment along with F&F settlement, or will it be applicable only after the completion of 240 working days?

Ans: If an employee leaves the job in 4-5 months from the date of joining, they will not be eligible for any EL payment/encashment because no EL applies to them.

If the applicable act is Karnataka S&E, then the following rule will be applicable for calculating EL:

Annual leave with wages

(1) Every employee in an establishment shall be entitled to leave with wages and shall be allowed to avail such leave for the number of days calculated at the rate of:

(i) One day for every twenty days worked by an adult.

(ii) One day for every fifteen days worked by a young person.

If the applicable act is the Factories Act, then the following rule will be applicable:

If a worker is discharged or dismissed from service, quits employment, is superannuated, or dies while in service during 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 his discharge, dismissal, quitting of employment, superannuation, or death. This is 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. Such payment shall be made:

(i) Where the worker is discharged, dismissed, or quits employment, before the expiry of the second working day from the date of such discharge, dismissal, or quitting; and

(ii) Where the worker is superannuated or dies while in service, before the expiry of two months from the date of such superannuation or death.

In calculating leave under this section, a fraction of leave of half a day or more shall be treated as one full day's leave, and a fraction of less than half a day shall be omitted.

The answer, as stated by seniors, is correct. It depends on the state in which you are operating and whether it is a factory or comes under the shop and establishment act. The rules on when the leave is required to be credited and what is the minimum number of days to avail of the leave are given in the concerned act/rules. However, nothing stops the company from providing better terms of employment. Therefore, you also need to check what your HR Manual and Standing Orders are saying in this regard.

Leave Calculation and Eligibility

The leave calculation and leave of an employee are credited at the end of the calendar year. The eligibility is 240 days of working (1st Jan to 31st Dec) for those on the payroll from the 1st day of the calendar month. Those who join after 1st January need to work 75% of the available man-days in the calendar year.

Leave Settlement and Accrual

The employee needs to be settled with leave accrued at 1 day per 20 working days or on a prorated basis of the maximum earned leave fixed for an employee. Any employee who leaves the job within 4 to 5 months is eligible to receive their earned leave payment along with the full and final settlement.

Leave Determination Under Acts

Usually, leave is determined by two Acts - the Factories Act Sec-78 and the Shops and Establishment Act of the State. The nomenclature of leave under the Factories Act is "Annual Leave," whereas under the S & E Act, it is "Privilege Leave" (WB S & E Act).

Under the WB S & E Act, there is no eligibility criteria to earn Privilege Leave. However, under the Factories Act, conditions are mentioned under Sec-78 for the eligibility of Annual Leave under different circumstances.

Earned Leave (EL) Under the Factories Act

In this post, the question is regarding "Earned Leave" (EL), and let us consider the employee is under the Factories Act.

1.0 Leave earning is usually considered after the completion of one calendar year. However, there are organizations that, in case of emergency need, provide EL in advance.

2.0 An employee who joins other than on the 1st day of January, for example, in June or July of any year, shall be entitled to leave if they have worked for two-thirds of the total number of days in the remainder of the calendar year (Factories Act - Sec-78(2)).

3. If an employee quits their employment during the course of the calendar year (e.g., working for 4 or 5 months in a year), they shall be entitled to wages in lieu of the quantum of leave to which they were entitled immediately before quitting employment. In this case, pro-rata leave will be required to calculate as per point no. (2) above (Sec-78(3) of the Factories Act).

S K Bandyopadhyay (Howrah, WB)

CEO-USD HR Solutions