Understanding PL and EL in Gross Wages: Are We Compliant with Labor Laws?

As a manufacturing unit, we have engaged 77 operation and maintenance manpower (semi-skilled, skilled, and highly skilled) under a contractor with all valid statutory licenses as per legal provisions under the CLRA Act. PE has issued a work order on a cost + margin basis.

The contractor has fixed the gross wages in the following structure: Basic (as per state minimum wages per day) + PL-2.56% (8/12/26) on basic + EL-4.81% (15/12/26) on basic + Washing + Uniform + conveyance + Special Allowances to arrive at Gross Wages.

Query: Is it legal for the contractor to include PL & EL as part of the Gross Wages?

The workmen are demanding leave against PL & EL or to be reimbursed separately once accumulation starts over and above their monthly wages, which is eligible under the Factory Act of Chapter-III. Is it compliant as PL & EL are being paid in their monthly wages?

Hi, Leave entitlement cannot be part of wages. It should be an additional statutory benefit apart from the fixed salary.

Understanding Leave Types

Both PL and EL are the same type of leave. In accordance with the Factories Act, the leave entitlement of employees is termed as Earned Leaves (EL), whereas, under the Shops and Establishments Act, the entitled leaves are termed as Privilege Leaves (PL).

First of all, PL & EL are the same. Many contractors are making invoices considering all costs because the contractor will be required to pay for leave days. Now, the question is whether it should be claimed by the contractor along with the monthly invoice or it will be separately paid.

Different Ways to Handle Leave Payments

It may be dealt with in different ways. In one way, it is the responsibility of the contractor to take care of everything, and the invoice is based on the number of manpower engaged. Another way is the contractor will prepare the invoice based on actual days of payment and separate leave pay. As per the Factories Act, leave pay is the daily ordinary rate of wages, which is the monthly gross cash component, not only the basic.

Opinion on Employment Costs

In my opinion, everything in employment one has to earn, and the employer has to spend—whether it is salary, leave, gratuity, bonus, etc. All are conditional. Therefore, everything should be part of CTC.

S K Bandyopadhyay (WB, Howrah)
CEO - USD HR Solutions
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