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Understanding leave and leave policies

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After having bagged your dream job (congratulations for that!), we believe you would like to read your employment contract in more detail. One of the clauses on the contract deals with the leaves that you can avail. Well, thank your employer for providing you this work-life balance! These are off-work days in addition to the holidays that you are entitled to, in the manner laid out in that policy, and you need not work all work-days to earn your salary. Most of these leaves are 'paid leaves' except for leaves taken beyond such entitlements, which is termed as 'Loss Of Pay (LOP)' or 'Leave WithOut Pay (LWOP)'.

While there are laws dictating minimum leaves to be provided by employers, the specifics on leave rules vary widely between employers. The requirement concerning leaves to be provided by employers are specified in various laws and would depend on the nature of the organization. Factories Act, 1948 is applicable for factories in India. For establishments other than factories (such as IT/ service companies, shops, etc.), every state has enacted Shops & Commercial Establishments Act. Let us understand various types of leaves and terminologies used in leave policies, along with corresponding provisions in the Factories Act & Karnataka Shops & Commercial Establishments Law.

Earned leave (EL) - It is called so because you 'earn' these leaves by working on workdays. These can normally be used for any personal reason such as vacation/ to observe festivals which are not declared holidays, etc. This kind of leave is also known as Vacation Leave (VL) or Privilege Leave (PL) or Flexi Holiday or Annual Leave. However, you will have to plan for these leaves and inform your employer in advance. Providing such leaves is mandatory as per labour laws, though the quantum of 2 such leaves vary state by state. As per the Factories Act and Karnataka Shops & Establishments law, a minimum of one day for every 20 days worked is to be provided as earned leave. Days worked shall not include holidays, weekends or days on which the employee does not actually work.

Casual leave (CL) - Some companies provide casual leave entitlement in addition to EL. Such leaves are provided to accommodate any urgent/ unforeseen personal requirements as against EL being planned leaves. This is not mandatory in Karnataka. However other states may mandate the employer to provide casual leave as well. For example, as per the Kerala Shops & Establishments law, 12 days per annum casual leaves have to be provided. For the Bonus Bill to become law, it will need to receive assent from the President of India.

Sickness leave ( SL ) - They are also called Medical Leaves (ML) and these are provided on the grounds of sickness/ accidents met by employees. Such leaves are to be mandatorily provided as per the labour laws. As these leaves are prone to misuse, employers normally seek a medical certificate in case the number of days of leave, at once, exceed two or three. As per Karnataka Shops & Establishments law, employers have to provide 12 days per annum sickness leave. Though there are no additional leaves (in addition to earned leaves) in the Factories Act, there are laws pertaining to compensation for accidents/ sickness caused during the course work.

Maternity leave/ Paternity leave - Maternity benefit Act of 1961 requires that employers have to provide 12 weeks paid leave to any woman who has worked for at least 80 days in the 12 months preceding the date of expected delivery. The amendment to this Act (introduced in Rajya Sabha in August 2016, and is yet to be passed to come into effect as on this day) seeks to increase this benefit of 12 weeks to 26 weeks. The sad part for fathers or yet to be fathers is that there are no laws in India providing paternity leaves. However, certain employers do provide paternity leaves as an additional benefit.

Bereavement leave - This is also known as compassionate leave. Such leaves are provided to employees in the case of an unfortunate death of a family member. These are not required by law in India. Many IT companies provide such entitlement of 35 days.

Compensatory off (or compoffs) - If you are required to work on a week-end or a holiday due to the priority of your deliverables, you may be granted compensatory off on any other work day. These are provided specifically in the policies by employers, and there are no rules in specific about compoffs.

Leaves are tracked like a bank account. Periodically, leaves of different categories are credited (added) to your account as per the employer’s policy. Whenever you apply for any leave, it is similar to a withdrawal from your account, and it reduces your leave balance. 'Availing a leave' means such utilization. Generally, employers define a leave year (either financial year i.e., April to March or calendar year). If you don’t avail your leaves that you earn in the same year, the balance would be usually carried forward for utilization in the coming year. There may be caps on such carry forward, meaning you cannot carry forward leaves beyond that limit. The excess leaves in your balance beyond the cap would either be paid (see the portion on encashment below) or would get lapsed. This does not bode well for the employees who work the hardest. The Karnataka Shops & Establishments law and the Factories Act requires that earned leaves are to be carried forward up to 30 days.

Loss Of Pay- When you don’t have sufficient leave balance and avail leaves, such leaves are beyond your 'paid leave' entitlements and therefore you will not be paid salary for such excess leaves. These are termed as Loss of Pay (LOP) or Leave Without Pay (LWOP). Some employers also state in their policies that any leave availed in violation of leave policy would also become LOP. An example being, using earned leave without prior intimation or approval, or not providing medical certificates in case of sickness leave as per policy. You will see that the salary you receive at the end of the month would be reduced due to 'LOP'.

Leave encashment -This means you receive money in lieu of leave balance, and is similar to redeeming your credit card points in cash. Normally, leave encashment happens only at two stages. One, when you have excess leave balance beyond the limit as per your employment
policy. Second, when you resign from your employment. What’s tricky here is the base on which you get paid. While many employers provide leave encashment at only basic salary, some pay at the rate of gross salary.

Since there is no uniformity in laws across India as far as leaves are concerned, employers stipulate their policy on leaves to suit their Industry, culture and applicable laws. It would be advisable to go through the policy in detail to understand these rules.

This blog is written by Pavan Sharma, partner of Balakrishna Consulting. He can be reached at: