Leave Encashment After Resignation: How Can I Legally Claim Unpaid Leave?

Query Regarding Leave Encashment Policy

I have a query regarding the leave encashment policy. One of my friends left an organization a few months back. He had a certain number of leaves which he had not availed earlier. When he left the organization, his full and final settlement was done, but the leaves were not paid for. I just wanted to know if there is any legal way things could be settled, or please guide me on how to proceed in this matter to get the money from my previous organization.

It would be of great help.

Thanks in advance.

Regards

Are we talking about you being in trouble or your friend? Please note, there could possibly be a condition that accrued leaves do not have any value in the Full & Final Settlement. Otherwise, the accrued leaves in full or limited to a certain number of days (as agreed per company policy) should be paid in the Full & Final Settlement. For example, Basic Pay is considered for the encashment of the accrued leaves.

Regards,
Lancy Menezes

Leave encashment policies vary from company to company. Therefore, only the company's HR department will be able to provide information on their specific policy. If they are processing the full and final settlement manually, there is a slight chance that they may have forgotten to include it.

Additionally, in some companies, if the employee is not confirmed, they may not receive leave encashment, or the company policy may dictate that leave encashment is not provided.

Regards,
Gunjan

Understanding Leave Encashment Policies

Leave policies vary from organization to organization. From a legal point of view, only Annual Leave (AL), Privilege Leave (PL), or Earned Leave (EL) will be encashed. It would be best to directly talk to your HR person regarding the same.

With Regards,
Vineet Deshmukh

Understanding Leave Encashment Policy

Leave encashment policy is not practiced by all organizations. Firstly, you need to find out whether the company follows this policy. If they have never introduced such a policy while your friend was a part of the company, and even while he was serving the notice period or on his last day, he is not eligible to claim leave encashment.

Pro-rata Basis for Leave Allotment

Secondly, leaves are always allotted on a pro-rata basis. For example, if your company provides you with 24 leaves per year, that becomes 2 leaves per month. Depending on the month he resigned, the allowable leaves are to be calculated, and things are taken further. For instance, if your friend resigned on 1st March and his last working day, as per the 30 days' notice, was 30th/31st March, in this case, your friend has only 2*3=6 allowable leaves. So if he has availed 6 leaves in that period, he has no balance leave to be encashed. If he exceeds 6 leaves, pay would be deducted.

Interesting that you start the post with your friend being denied leave, but you end by asking for help to get YOUR money back from the company. Both as per the Factories Act and the Bombay Shop and Establishment Act, at termination or resignation, the outstanding leaves are required to be encashed along with full and final settlement. However, these will only cover the leaves specified by the company, such as the annual paid leave of 1 day for every 20 days worked in the case of a factory.

You can quote the relevant section of the Acts and ask the company to pay the balance. No contract or agreement between the company and the employee can override the legal provisions, so the company's provisions do not matter.

Thank you for the enlightenment on -

It propelled me to study further and I found the following. I have certain doubts and would be obliged if you could clear them.

Leave Policy as per Bombay Shops and Establishment Act

1) Leave Entitlement:

- Employees who have worked for at least 60 days in a year shall be entitled to not more than 5 days of leave (continuous or otherwise).
- Employees who have worked for at least 240 days in a year shall be entitled to not more than 21 days of leave (continuous or otherwise), and such leaves can be accumulated up to a maximum of 42 days.

Note: Leaves allowed to an employee under clauses (a) and (b) shall be inclusive of the days during the period of such leave on which a shop or commercial establishment remains closed.

Doubt 1:

If a person applies for leave on Saturday and Monday, the Sunday sandwiched between the two days shall be treated as leave and not a paid holiday. Hence, in this case, we shall deduct 3 leaves and not 2. Kindly correct me if I am wrong. I am asking since someone objected to this practice, but I found it to be quite correct.

2) Separation:

If an employee entitled to leave under subsection (1) is discharged by his employer before he has been allowed the leave, OR if having applied for and having been refused the leave, he quits his employment before he has been allowed the leave, the employer shall pay him the amount payable under section 36 in respect of the leave.

Section 36: Pay During the Leave:

Every employee shall be paid for the period of his leave at a rate equivalent to the daily average of his wages for the days on which he actually worked during the preceding three months, exclusive of any earnings in respect of overtime.

Doubt 2:

For people who are receiving wages (daily wages), it is advised that they ought to be paid only the wages, and no overtime compensation is to be considered. However, are we to consider incentives if we are paying?

Doubt 3:

For salaried employees, we have different components - Basic, DA, Medical, Conveyance, Food, HRA, etc. If we look at it, Conveyance is the allowance paid to people for coming to the workplace. Are we to pay such a component on leave, or should we be paying only Basic + DA during such leaves, and other allowances should be calculated and paid only for the days worked in the month?

Doubt 4:

If a person is applying for a half-day and works only for 4 or 5 hours instead of a full shift, should the half-day leave be deducted and hence the wages and salary accordingly?

Doubt 5:

If the person has exhausted all his leaves, any further leaves that he takes would be leave without pay, and their wages/salary would be deducted against each day of leave. In such a case, should we deduct their gross pay per day or just their Basic + DA per day?

Doubt 6:

If the person is resigning and has leaves to his account which as per the rule should be encashed, then in such a scenario:

1) For the current year of service, how many leaves should the person be eligible for encashment? Full 21 days' leaves, or would it be calculated on a pro-rata basis depending on the number of months served?
2) Should we be compensating them on Basic + DA or on gross? As per the pay during the leave, it is enough to pay Basic + DA, so do the employers have any further obligations apart from Basic + DA?

Thank you in advance for being patient and solving the query.

Understanding Leave Policies Across Organizations

The leave policy varies among different organizations. The statutory rule is that any employee is entitled to a certain number of days of leave every year, including sick leave, casual leave, and earned leave. However, there is no law covering leave wages.

In some organizations, to reduce absenteeism, they announce leave encashment. This may not be applicable in all organizations. Even if there is a policy, it is bound by certain restrictions. In your case, be happy that the company paid all your settlement dues. Leave encashment, even if a policy exists, is applicable for those in continuous service and is paid at the end of the year for those who did not avail themselves of the entitled leave but did not take it.

Section 79 of the Factories Act

Section 79 of the Factories Act provides for the encashment of leave at the end of service, such as termination, resignation, etc. Please go through.

Thank you very much, sir, for the elaborated answer to each query. Much appreciated for the guidance. However, maybe because of so many queries, one last query was unanswered.

Doubt 6: If the person is resigning and has leaves to his account which, as per the rule, should be encashed, then in such a scenario:

1) For the current year of service, how many leaves should the person be eligible for encashment? Full 21 days' leaves, or would it be calculated on a pro-rata basis depending on the number of months served?

2) Should we be compensating them on Basic + DA or on gross? As per the pay during the leave, it is enough to pay Basic + DA, so does the employer have any further obligations apart from Basic + DA? I believe the leaves are to be taken on a pro-rata basis. The second part of the query was already covered when you mentioned that leave encashment should be on gross. Correct me if wrong.

Thanks once again.

Sorry, I thought this was self-explanatory. Reading it again, I realize it is not. Leaves are credited to the account of a person at the end of a year. For convenience, it is taken as the calendar year (I think it is mandated in the act). So when the person leaves, he would have leave to the credit of his leave account, which would have been for the previous year. If he leaves at the start of the year, he would get leave for the previous year.

Few companies voluntarily give leave credit proportionately at the end of each month. But as far as I know, it is not required by law. So, when he leaves, he will get unutilized leave for the previous year, not the current year. The amount paid will be on the basis of gross salary excluding overtime.

Thank you very much, sir, for an elaborated answer to each query. Much appreciated for the guidance. However, maybe because of so many queries, one last query was unanswered.

Doubt 6: If the person is resigning and has leaves to his account which should be encashed as per the rule, then in such a scenario:

1) For the current year of service, how many leaves should the person be eligible for encashment? Full 21 days' leaves, or should it be calculated on a pro-rata basis depending on the number of months served?

2) Should we be compensating them on Basic + DA or on gross? As per the Pay during the leave, it is enough to pay Basic + DA, so do the employers have any further obligations apart from basic + DA? I believe the leaves are to be taken on a pro-rata basis.

The second part of the query was already covered when you mentioned that leave encashment should be on gross. Correct me if wrong. Thanks once again.

Timeframe for settlement of leave encashment on resignation

In most organizations, the time frame for the settlement of leave encashment upon resignation varies. It is typically outlined in the company's policies or employment contract. The process usually involves calculating the number of accrued but unused leave days and disbursing the corresponding amount to the employee.

Employers usually strive to settle leave encashment promptly to ensure a smooth transition for the departing employee. However, specific timelines can differ based on company practices and local regulations. Employees are advised to refer to their organization's HR department or relevant documentation for precise details on the settlement process.