Can We Deduct Leave from Employees Who Quit Mid-Year After Using All Their Leave?

Dear All, I wanted help from seniors again. Can there be leave encashment from an employee?

Case: In my organization, which is a startup, we have allotted leave on a pro-rata basis (24 = 14 PL + 10 CL for the year) at the start of the year itself. The question is, if an employee leaves the organization in the months of April to June and has consumed all their leaves during these entire 6 months of their service, can we deduct their leave (PL) already consumed for another 6 months in the Full & Final Settlement? Anyways, he/she has worked for 6 months and consumed over 24 leaves in full and is now leaving the organization. Can the loss to the organization be seen as we have already paid for the entire leave?

Let me put it another way.

Leave encashment from an employee

Leave encashment means the deduction of leave granted to an employee if they leave, right? Once a leave is granted, it cannot be taken back simply because the employee is leaving the establishment. The employee might question, "If I were not entitled to the leaves, why was I given them?"

HR perspective on leave policies

Leaves are regulated partly by the law in force and partly by the policies of the establishment. If your establishment is covered by the Shops and Commercial Establishments Act, the Act specifies how many leaves an employee should get each year and under what conditions. This Act is a state Act, so provisions may vary from state to state. Without knowing which state your establishment is in, we cannot guide you properly. However, most states have earned leaves, sick leaves, and casual leaves as admissible. The number of days of eligibility may vary. Earned leave is given to an employee who has worked for 12 months, but sick leaves and casual leaves are granted during the first year of service as well.

Earned leave and legal rights

Earned leave credited is the leave earned by an employee for the service rendered in the preceding year. The employee can take it or carry it forward to the next year. If they leave, they can encash it. Therefore, by deducting the leaves when they leave the company, you would be taking away one of their legal rights.

In the case of sick leaves and casual leaves, you are expected to grant them proportionally to the months worked. However, if you have already granted them, you should not take them back.