Is Our Mid-Year Resignation Leave Policy Fair? Seeking Advice on EL Encashment Practices

Employee Leave Policy and Final Settlement

As per the policy, we are crediting Earned Leave (EL) only after the employee completes one year of service. Crediting of 15 days of EL happens in January of every year.

When an employee resigns in the middle of the year, say, on 1st October:

• We are deducting the leave on a pro-rata basis, in this case for 3 months (October, November, December) which is 3.75 days, and
• Encashing the balance left.

Is this practice correct, or should we add the current year's leave also during the Final Settlement (FNF) and pay the employee for the balance left of the previous year plus the leaves of the current year (from January to October in the above example)?

Encashment of Earned Leave on Termination

On termination of employment, the encashment of earned leave, referred to by various names, is a statutory terminal benefit in almost all establishment-specific labor laws, subject to the ceiling on its accumulation as fixed therein. The accumulation of earned leave is a continuous process over the years, based on the leave earned and availed by the employee each year.

Eligibility for Leave Encashment Before Completion of a Year

In the event of termination of employment before the completion of a year, eligibility for earning leave only occurs when the outgoing employee has completed 240 days of service within the service period before termination. In such a scenario, the leave earned during the year must be calculated and added to the leave balance for the purpose of encashment. Otherwise, it is not necessary.