PAYING OF LEAVE WAGES - IS IT COMPULSORY??

Friends,

We all know that each employee (whether a worker or staff) who works for 240 days is eligible to earn leave at 20 days per year. This earned leave is encashable at some organizations, while some will allow it to be carried forward to a predetermined number of days; any leave beyond the accumulated limit will lapse. When an employee leaves the organization, the leave they have accrued will be encashed and paid as part of their full and final settlement. This provision is granted under the Factories Act and Labour Act, ensuring that those who work 240 days are entitled to their earned leave as a legal right.

Now, my question pertains to the fact that some organizations believe they are not obligated to pay for accrued leave when an employee departs from the organization.

I am eager to hear your comments and views on this subject.

Best regards,
Srinaren

Srinaren

We are talking about a group of people where some of them have leaves available to their credit only because they have not availed them. This is because the company does not allow them to leave responsibility for a long time, whereas others are enjoying their leaves time to time.

How can we make this difference? As soon as we clear this problem, we just need not pay anything. This is my thinking. Don't know what others got so about.

Rahul :o

Dear Rahul,

This is not for a particular group of people who do not avail the leave. According to the Factories Act, Section 14 states that leave can be accumulated to an extent of 180 days, and at a stretch, 90 days of leave can be availed. Encashment is allowed up to 120 days. It could be that the employee himself has not availed and sincerely attended his work, or part of the leave he has utilized and the balance he has accumulated. In either case, it is his legal right concerning the leave he has earned.

My question was that at the time of leaving, whether the Management is bound to pay the wages for the leave he has at his credit and settle his account or not? Awaiting more responses on this subject.

-Srinaren

Mr. Srinaren,

Where is the doubt? If I am right, the Factories Act was amended to this effect way back in 1978 or 1979. It is applicable to the Mines Act and the Shops and Establishments Act as well. To my knowledge, earned leave is handled only in these legislations. Legally, the employer has to calculate earned leave up to the last working day and encash. This is a legal requirement, and if someone is doing otherwise, it must be more due to ignorance rather than any specific logic. All legislations cover all employees irrespective of their wages. Am I clarifying enough??

Siva

Dear Siva,

You are right! Unfortunately, this question arises now and then. Our fraternity is under a cloud in the eyes of the Management. Many times, the Management feels that HR people are not protecting the interests of the Organization and that this payment need not be done. As you said, the Management may be ignorant, but this puts a lot of pressure on the HR people. I want our friends to come out with their views and opinions so that there will be a clear-cut opinion on this.

-Srinaren

Dear Mr. Naren,

I am coming across lots of queries on Leave and procedures on this site. These questions may seem trivial at first glance, but I remember when I started my career, I had similar doubts and it took me some time to understand. After seeing all these queries, I am planning to prepare a consolidated procedure manual. I will circulate it within the next 15 to 20 days. I believe you all can review, make amendments, and this manual can serve as a reference guide on leave procedures.

There are issues such as whether prefixing Sunday is allowed or what happens if a holiday falls in between. There is no ready-made answer; it all depends on how we calculate the Leave.

Thanks,
Siva

Friends,

I know a company where management is encashing the EL at the time of retirement only and reducing the EL Encashment limit from 240 to 60. Does management have the right to reduce this limit at any time? Please clarify.

Mukesh

Dear Srinaren,

Please note that leave is accumulated by employees because they were not allowed to avail the leave due to organizational work pressure imposed on the employee. Therefore, it is appropriate that leave encashment be given. Also, it is accumulated for even surrender against their notice period, and for many reasons, leaves are accumulated in employees' accounts.

Regarding your question, the answer is "Yes."

L. Kumar

Although leave is not a matter of right for an employee, the surrender of unavailed leave is definitely a right. Unless otherwise provided in the Standing Orders of the company, an employee has every right to have their leave surrendered.

Regards,
Madh.T.K

Dear Friends,

Please refer to Sec-22 regarding leaves of the Delhi Shops and Establishment Act, 1954. It explains everything about the encashment of leaves. Even I'm facing the same problem regarding the encashment of leaves, but still, my management is after my life to find means and ways to avoid encashment of leaves.

Regards,
Govil Nanda

Dear Mr. Govil Nanda,

I am posting this because many of our colleagues are facing this problem. Although many managements are aware of this issue, they try to put pressure on HR personnel to find ways to avoid payment of leave wages when an employee leaves the organization. I want to gather the views of individuals worldwide so that all HR professionals are informed and can educate management on this matter. I eagerly anticipate hearing from my other friends to express their views on this.

Srinaren

In my view, any employee under the labor laws can have Earned Leave (EL) encashment at the time of leaving the organization. Not paying the leave encashment can lead to legal punishment.

With regards,
valbooj

Dear Srinaren,
Encashment of Earned Leave / Privilege leave is mandatory under Factory act and rules. In case the Act is not applicable, then it is at management’s discretion.
Moreover, PF deduction on EL encashment is also mandatory.
As per section 22 (1)..
“an employee who has completed a period of four months in continuous employment, shall be entitled to not less than five days privilege leave for every such completed period”
An employee who leaves the services of the organization after completion of his/her 4 months of continued service will be entitled to get the encashment of EL with his/her full & final settlement.
No other leave encashment is mandatory as per law.
Thanx,
Sweety Singh

I have read so many valuable views about EL encashment, but I want to know that as per the Factory Act, can management reduce the limit of encashable EL at the time of leaving the job or retirement. EL leaves are accumulated by the employee during his service period, and suddenly at the time of his retirement, management decides to reduce the limit of encashable leaves. Is there any act? Please clarify.

Mukesh

Dear Mukesh,

The Factory Act does not mention anything about the reduction of earned leave (EL) encashment by management. This decision falls under the purview of company policy and is not governed by the act.

Regards,
LK

The Factories Act restricts the accumulation of leave to 30 days. However, any leave refused by the management due to any exigency during the current year shall be transferred in full.

Regards,
Madhu.T.K

Hi,

Absolutely right, as replied by L. Kumar. Leaves are accumulated only because of the work pressure and denial by management, which means an employee has sacrificed their fun, joy, family sharing, social profit, and others, and given their time to make a profit for management. In vice versa, when he/she leaves, management has to compensate for the loss by giving encashment by simple logic, taken earlier given now. That is the best moral practice of management, and regarding the law, whatever it says, God will bless with grace to the said organization. Hope it will work.

Thanks,
Tarun

Dear Friends,

Can anyone shed some light on the following case? An employee has worked for 9 months and is now claiming leave encashment at the time of Full and final settlement (as he resigned after 9 months). Will he be eligible for this benefit? What happens if employees leave before completing a year - are they still eligible to claim encashment? Is it their legal right?

Regards

Encashable leave (earned leave) will become due only after completion of one year of service. A person leaving the establishment after 9 months is not eligible for earned leave.

Regards,
Madhu.T.K

Dear Sheetal,

This is purely at the discretion of the management. If leave will be credited after completion of one year, then if the employee resigns in the intervening period, then he is not eligible for encashment.

Regards,
L. Kumar

Is it compulsory to pay employees for leave encashment while in service after accumulation of leaves of more than 30 days?