Unlimited PTO in Indian IT Firms: Could This Policy Violate Local Laws?

Hi, My IT company would like to implement the concept of "unlimited PTO/leaves" for the Kolkata office. They have implemented the same benefit for the US corporate office. Employees do not accrue any leaves but can avail of these leaves if their manager approves them. The employees are not paid for any leave balance when they leave the company. Does this concept infringe any state or central laws? Please help.

Compliance with the Shop & Establishment Act

Being an IT setup, you are governed by the Shop & Establishment Act of the state to which you belong. The provision regarding leave is there in the Act, and you are bound to follow it.

Manager's Role in Leave Policy

Your leave policy of the principal in the US sounds very interesting, but then it is all in the hands of the manager, and the employee is at his mercy.

Dear friend,

The employee becomes eligible to get a certain amount of leave under the provisions of either the Shops and Establishment Act or the Factories Act of the respective state. In your case, it should be the West Bengal Shops and Establishment Act.

While there are a few differences in the acts enacted by the various state governments, an employee is eligible to get 15 days of earned leave per year. A particular company may choose to give a little more leave than prescribed by the act, but not less.

In your case, your company chooses to provide an unlimited number of days of leave. However, what if an employee avails of the leave even below the required level of 15 days? Should he be forced to forego the unavailed portion of the leave? No, this is not possible.

There cannot be a tradeoff between the provisions of the company on their own and statutory provisions. Therefore, whether your company provides an unlimited number of days of leave or not, the unavailed portion must be carried forward, and if the employee does not exhaust that leave, then he/she should be paid salary for that period.

A senior member has given a reply. However, other senior members are expected to give a reply to validate what I have said above.

Thanks,

Dinesh Divekar

Compliance with Host Country Labor Laws

Any MNC operating in a host country is bound by the local laws. Particularly, if its branch in the host country employs native citizens, it should comply with all applicable labor laws without any deviation that disadvantages employees.

Leave Provisions and Socio-Cultural Aspects

If meticulous attention is focused on the leave provisions of any labor law, it becomes clear that these provisions, relating to employee leave and holidays, stem from the socio-cultural aspects of the region. Therefore, it would not be appropriate to apply the leave provisions of the MNC's home country labor law for the sake of uniformity across the world wherever it operates.

Differences in Indian Labor Laws

All establishment-specific labor laws in India do not have uniformity in leave provisions due to differences in operations and the nature of work performed by employees. The only exception to this generality is earned leave for employees, which is unique due to its carry-forward feature to succeeding years if unavailed, accumulative benefits up to a certain statutory limit, and the right to encashment upon termination of employment for any reason. However, the U.S. provisions cited in the post run counter to the current statutory provisions in all Indian labor laws.

It is precisely the essence of the views expressed by the learned members above, which everyone should agree with.

The implications of unlimited leave policies

Yes, this can put the organization in trouble if there are no proper policies in place. Unlimited leave is quite impractical as no employee can go on leave for an indefinite period (without pay also).

Legal requirements under the Shops Act

As per the Shops Act, the organization has to maintain a few registers for leave and attendance as well. There are specific rulings for leave. Leave availing cannot be at the mercy of the approver. Leave encashment, lapse, and carry forward aspects should also be considered in the long term.

Balancing flexibility with compliance

If the idea is to have flexible policies, reduce checks and balances, but it is not recommended to ignore the labor legislations.

I agree with the replies given above. If you still want to have the policy in place, you need to make certain amendments to it for your Indian operations:

Minimum Leave Requirements

1. Minimum Leave of 21 days (I think that is what the West Bengal Shop & Establishment Act requires). This means the manager cannot disapprove of leave when the employee asks for less than 21 days in that year.

2. If the manager does disapprove, carry forward and encashment should apply.

3. You will still need to keep leave registers and records because, without them, you will never know whether the minimum day requirement is met or not.

Managerial Approval and Employee Rights

Leave is always subject to the approval of managers, even in our laws. However, you need to ensure that this option is not used to deprive the employee of their basic rights, which in your case is the 21 days of paid leave in a year.

Dear All,

I have had experience and practiced unlimited CL & SL in an MNC manufacturing plant in Kolkata, West Bengal for workmen and management staff. The workmen were entitled to annual leave as per the Factories Act, while the management staff had 30 days of Privilege Leave. The organization is a refractory manufacturing organization. In 1994, when I joined the greenfield project, my Managing Director, who was a highly innovative and people-oriented person, advised me to establish certain rules and regulations, including leave rules, that would motivate employees while maintaining control.

As a result, until 2018, the organization had no union. The average CL and SL taken by workmen in a year were a maximum of 8 days, with additional annual leave taken for another 7/8 days each year. The management staff typically used an average of 20 days of leave per year, including CL, SL, and PL. The definition of CL was for genuine extreme emergencies, and SL was for genuine sickness. There were instances where 20/22 days of CL were sanctioned for a workman when his elder sister was suffering from cancer, and 2.5 months of SL were granted for broken legs to some other workman.

In 2018, after the formation of a union and a change in management, the new management attempted to alter the leave rules with limitations but was unsuccessful. To date, there has been no major misuse of the leave system. Interestingly, if anyone shows a tendency to misuse the leave rules, it is always addressed by fellow workmen/union members before management takes any action.

The workmen are designated as "Assistant" - Manufacturing Assistant, Maintenance Assistant, Quality Assistant, etc.

In my opinion, anything is possible with the right wish, will, strong leadership, and good relationships.

Thanks & Regards,

S K Bandyopadhyay (West Bengal, Howrah) CEO-USD HR Solutions [Phone Number Removed For Privacy-Reasons]