Legal implications if PL is not carried forward nor encashed? Is it Mandatory?

Hello Fellow HRs,

Is it mandatory to carry forward or encash the Privilege Leave of an employee? What are the legal implications if the same are not carried forward nor encashed?

Dear friend,

When there is provision for earned leave (EL), its accumulation, and encashment in the event of termination of employment in the establishment-specific labor law applicable, the employer must comply with all such provisions. Failure to do so could result in penal action by the enforcement authority and may also lead to the raising of an industrial dispute by the aggrieved workers.

Dear Umakanthan sir,

I always learn a lot through your valued suggestions.

I have a query on the subject matter. If an organization, through its leave policy, defines the maximum limit of accumulated leaves, in such a case, if any employee has already accumulated the maximum leave, is the company legally liable to pay the balance of paid leave of the current year, or can it be lapsed?

For example, if the maximum paid leave is 30, and as of 31.12.2020, Employee "A" already has a balance of 30 paid leave days, and for the current year ending on 31.12.2021, the employee "A" earned 15 paid leave days. In this scenario, is the company obligated to pay the 15 paid leave days, or can it be lapsed according to the company's leave policy?

Please share your valued suggestions on the matter.

Thanks in advance.

There are two aspects to this problem. Firstly, the leave accumulation cannot exceed the maximum, and the excess leave lapses. Secondly, in the example cited, the leave being added on 1st January 2021 is 'Advance Credit'. In many organizations, advance credit of leave is not counted as accumulated leave. So the advance credit is allowed and kept separate, and after the advance credit period is over, the excess leave over thirty days is lapsed. The approach is to be as employee-friendly as possible.

Dear Pan Singh,

I endorse the reply of Mr. KK!HR, who is bestowed with rich experience in the practical side of HRM. In my experience as an administrator of labor laws, what I can say is that the normal calculation of any leave of accumulative nature linked to the days worked by the employee in a year, like that of EL, would be taken up at the end of the year only. Therefore, the leave accrued during the year has to be added to the existing credit balance, and only then the total leave at credit has to be rounded off to the ceiling. If my contention is correct and is in sync with the practice followed in the industry, the total leave balance of 45 days as of 31-12-2021 at the credit of employee 'A' by adding the 15 days earned during the entire year 2021 would be rounded off to 30. It is only for the employee to be conscious about his leave balance and avail it intelligently in a planned manner to avoid such lapse. Anticipating such a situation, no employer, I think, would come forward to ask the employee to go on leave.

A final note of caution: The leave policy of an organization can be more liberal so as to confer better leave benefits to its employees, but the policy cannot run counter to the beneficial provisions of the law.

Dear colleagues,

This is in addition to what the learned colleagues have stated on this subject.

The maximum limits of EL accumulation and carry forward must be in sync with provisions under the Factories Act or State Shop Act as applicable.

Since the law lays down minimum requirements, the employer can provide better leave facilities in terms of leave quantum, accumulation, and encashment, etc., but not lower than the law. Anything lower than the law entails penal action. In the case of better facilities, these aspects will be governed by the company policies on this matter.

As per the law, the reference date of leave earned and/or to be carried forward up to the laid-down limits is the 1st of January of the subsequent year. The EL is considered earned if the required number of days are worked in the previous calendar year and credited to the account on the 1st of January, which can be availed in its entirety or in installments permitted by the leave rules.

Encashment of the balance EL is allowed under the law upon termination of services. Some organizations have better encashment rules while in service, and the same will apply to the encashment of EL for situations - in service or termination.

Regards,

Vinayak Nagarkar HR and Employee Relations Consultant

It is mandatory to carry forward or encash the Privilege Leave of an Employee. The employee can take legal action against the employer if the same is not carried forward or encashed.

In general, Earned Leaves do not lapse but are carried forward up to the accumulation limit. Beyond the limit, they get encashed in the salary. Leave of other types, such as CL and SL, lapses if not availed during the calendar year, but not the EL.

The leave rules of each establishment differ from one another. Where no leave rule is available, the rules under the Factories Act/ S&E Act, and Rules of the Mines Act are applicable to determine the matter.

The Shops and Establishment Act provides that every employee shall be authorized to preserve his earned leave for 40 days and allowed to encash the unused earned leaves.

To avoid any sort of controversies in the organization between the manager/management and the employees, the Industrial Employment (Standing Orders) Act of 1946 is drafted perfectly by observing all the pros and cons. To ensure this, it is vital to maintain frequent communication with the Labour Commissioner's Office. Regular visits to the office are necessary to get the drafts vetted and then approved, with the signatures of the employees' or workmen's consent and the representative of the management, who can be a Personnel Manager/HR Manager based on the prevailing designations. This process would help avoid all mishaps in the workplace.

In addition, the management must consider the workforce as their family members, but how does this translate in practical terms?