How Should EL Credits Be Handled for New and Departing Employees Each Month?

Hi Everyone, we are conducting a study to propose changes to our company's current policies. Could anyone share their thoughts on how ELs are credited for employees? Will it be at the beginning or end of the month?

EL Credit for New Employees

For an employee who joins in the middle or towards the end of the month, how does the EL credit occur?

EL Eligibility for Departing Employees

Also, when an employee leaves the company, will they be eligible to receive EL for the last month?

Thank you.

Eligibility for Earned Leave (EL)

Legally, an employee becomes eligible for earned leave (EL) only after completing the minimum required service in the company. This period should not exceed 12 months, although the company may opt for a shorter period for crediting EL. Some companies credit EL once the employee completes the probation period, with the entitlement effective from the date of joining. Typically, all leaves are credited in January based on the attendance in the previous year. For employees who joined during the previous year, EL will be proportional to their period of service.

Monthly Crediting of EL

Monthly crediting of EL is not a common practice. However, if it would add value to the employees, it can be implemented. In such cases, the credit should be processed on the first day of the month. Employees who join by the 15th of the month will receive full credit for that month, considering one month of service, while those joining after the 15th will not receive any credit for that month. This procedure can be followed.

EL Credit Calculation

Basically, EL is to be computed based on the number of working days an employee puts in. Normally, it will be credited in the subsequent year in January on a pro-rata basis. You may follow the Factory rules or your company policy if you have one.

Normally, this mid-month or end-of-month situation does not arise unless you have any specific guidelines or policies in this regard.

Is your company a factory, shop, or establishment?

For a factory, Section 79 of the Factories Act explains how Annual Leave with Wages is to be computed. For a factory, it is from January to December. Please read the Act along with your state rules. I will provide one example to start with; for the rest, please read and learn. It is in your own interest.

A worker/employee joins the factory on 12/1, which is the first day of December. On 1/1, which is the first of January, he will be entitled to Annual Leave with Wages (EL) if in the previous year he had worked for two-thirds of the calendar days. In this example, the calendar days are 31. For entitlement, he must have physically worked for 20 days, and if he had done so, he will get one day of EL credit.

You can divide the EL into 4 quarters. For example, for 20 EL days in a year, you may give him 5 EL days in each quarter, subject to his working days.

As per my understanding, the law is silent on the monthly or quarterly counting of working days for the purpose of calculating Earned Leave (EL). According to the law, EL shall be one day for every 20 worked days for an individual. Nowadays, most companies have software for time office and salary purposes. These software programs have provisions to calculate EL as per the law.

While relating to the question, if an individual joins in the middle of the month and continues their services, their total worked days will be considered to credit their EL in the month of the succeeding January. To avail of the leave, an individual must have served for 240 days. However, if an individual resigns or leaves before completing 240 days, they shall be paid for the leave they earned as per legal provisions. There is no prohibition mentioned in the Factories Act (FA) for EL authorization to a probationer because they are considered an employee even during the probation period.

Still, please read the provisions of the law and consult your legal expert before making any decisions on the above subject.

Regards, Ratan Bhardwaj
[Phone Number Removed For Privacy-Reasons]

I refer to response no. 6. As I mentioned in one of my earliest posts, the new Labour Codes have reduced the eligibility requirement for leaves from 240 days of work to 180 days of work in a year. However, the quantum of leave earned will remain unchanged, that is, 1 day of leave earned for every 20 days of work. Similarly, no change has been proposed in the limit on carry forward of leaves, which remains at 30 days.