Calculating Gratuity: How Does Unpaid Leave During Notice Period Affect It?

My company has attendance and payroll software. If proper in-out punches are not applied and no leave balance is available, then it automatically calculates the Loss of Pay (LOP) for those days. In this case, the basic salary is also reduced in proportion to the absent days.

Calculating Gratuity During Notice Period

What if an employee, during the notice period, deliberately takes leaves over and above the available balance and also fails to punch for attendance? The salary for that month gets reduced (i.e., the basic is changed). So, for calculating Gratuity, will the last working month's basic be considered (reduced) or the basic as per the Cost to Company (CTC)? (Service rendered is more than 7 years.)

Understanding Gratuity Calculation

The gratuity is paid based on the last drawn salary. It refers to the pay scale and not the actual amount of take-home pay or the salary given by the employer. Loss of Pay (LOP) will not affect the gratuity amount payable.

Impact of Absence on Salary and Gratuity Calculation

The wages/salary of the employee shall be affected for his absence from the office, which may be due to leave/absence owing to a mis-punch. The calculation of Gratuity is done on the basic rate of wages at the time of leaving service but not the basic wages paid out of attendance in the last salary drawn. The days of absence have only an impact on the calculation of continuous service.

Sir, it seems that your company is too harsh on employees' minimum rights. Who said to reduce the basic pay when an employee does not have leaves in their leave account? First, learn and feed the computer with biometric thumb-impressioned attendance.

Every company employee avails all yearly general casual leaves; they can avail medical leaves for one month in a year. Your biometric machine does not seem to be fed with that information, I think.

Never prefer to reduce basic pay even though they avail all medical leaves. You have only the right to deduct the absent days' salary by calculating a single day's salary. For example, if the salary is altogether without monthly deductions is 13,000, divide it by 26, then it comes to Rs 500 per day.

You can deduct that money, multiply it with absent days, and pay the balance salary by deducting regular PF, ESI deductions, etc.

You have no right to reduce basic pay for LOP.

If challenged in labor court, the employee may win over you in the Quasi-Judicial Authority court because of illegal deduction of employees' salary by doing unfair labor practices by your company.

I think this reduction of basic pay for employees in an LOP situation at the time of the Appointment agreement order is unjust.

Dear friend,

Authorized LOP and its impact on gratuity

LOP can also be authorized if the employee specifically applies for it in advance, and you just stop with a proportionate salary cut. Therefore, it cannot affect the continuous service for the purpose of gratuity later.

Handling unauthorized absence

If you want to exclude that absence as an unauthorized one, you have to declare such unauthorized absence as a break in service as per your service regulations.

Software limitations

I am not a software expert to suggest suitable modifications in the software in this regard.

Leave during notice period

About the availing of leave during the notice period by an exiting employee knowingly with no leave at his credit, you can extend his notice period accordingly. It is better to inform the employees about their leave balance whenever they go on leave.

Gratuity calculation

Regarding the last drawn salary for the purpose of gratuity, it is the salary payable under the contract of employment on the date of termination of service giving rise to payment of gratuity and NOT that actually paid as rightly suggested by our friends.