Navigating Final Settlements: Can Earned Leave Offset Your Notice Period?

Privilege or Earned Leave During F&F Procedure

Please suggest if Privilege or Earned Leave should be paid during the F&F procedure. If yes, and the employer is not paying it off, then what should an employee do? Can PL or EL be used against the notice period to waive it off to the extent of the PL balance? Is it optional to do so?

Handling Privilege Leave During Notice Period

It depends on the situation. If the company has already found a replacement, you can allow the employee to adjust the PL against the notice period and relieve him earlier. On the other hand, if his presence is very important during the notice period, you can refuse to accept any leave requests and ask him to be regularly available for knowledge sharing and then encash the PL along with full and final settlement.

Payment of Unavailed Privilege Leave

Unavailed PL should be paid to the employee at the time of exit. It is unfair and legally unacceptable to hold it. If the employer does not pay it, the employee can approach the Labour officer and file a complaint. If he has been working in a supervisory/managerial capacity, he cannot get the protection of labor law, and the labor officer will not help him.

Dear Priyanshi,

Understanding Earned Leave and Its Encashment

Earned Leave, also known as Annual Leave with Wages under the Factories Act, 1948, Privilege Leave under most State Shops and Establishments Acts, and Leave with Wages under the Model Shops and Establishments (Regulation of Employment and Conditions of Service) Rules, 2016, can be encashed by the employee upon the termination of their employment. Certainly, no employer can refuse to pay it.

The failure or refusal to pay the wages for such leave balance on termination would give rise to a claim under Section 15 of the Payment of Wages Act, 1936, as such a sum falls within the definition of 'wages' under Section 2(vi)(d) of the same Act.

Adjustment of Earned Leave Against Notice Period

However, the adjustment of the Earned Leave balance against the notice period to be served under the exit clause of the contract of employment is a matter left to the sole discretion of the employer. As you know, the notice period on unilateral termination or resignation of the employee is a crucial time for the employer to find a suitable substitute and complete any unfinished work left by the departing employee to ensure the smooth workflow of the organization is not disrupted. This is a general reason for the refusal of any kind of leave during the notice period.

If the employer has no objection, it can be allowed.