Leaves in Private Companies in India

Earned Leaves

Leave is a period off from work or duty. Thereby, Earned Leave or Paid leave is that leave period during which the employee is still paid by the employer, even in the absence of work performance.

Leave Encashment

Generally, employees are granted to take leaves during the period of service. Employees may avail such leaves. In case the leaves are not utilized, as per the organization’s policy, it could arise in the following possibilities:

  • Lapse of such leaves
  • Accumulation for future
  • Allowed to be encashed

Such Leave Encashment can be allowed every year or at the time of termination or retirement from service.

Computation of rate of such leave encashments is at the discretion of individual organizations. Earned leaves are generally calculated at the rate of regular base pay or fixed pay of an employee. (on a per-day basis)

Taxation of Leave Encashment of Earned Leave

The payment received on account of encashment of un-availed leaves would first form a part of the employee’s taxable salary.

However, Section 10(10AA) of the Income Tax Act,1961 provides an exemption in respect of amount received by way of encashment of unutilized earned leave by an employee at the time of their retirement. (whether on superannuation or otherwise)

Exemptions of the amount received by way of encashment of unutilized earned leave:

A. Received during employment, that is, while still in employment: Fully taxable for both Government employees and Non- Government employees.

B. Received at the time of retirement or after retirement:

1. Employees of Central Government/ Members of Civil Services/ local authority employees: Leave salary received at the time of retirement is fully exempt from tax.

  1. Non-government employees:

Taxable Leave salary = Leave salary received - Amount exempt u/s 10(10AA)

Amount exempt u/s 10(10AA) = Least of the following:

a) Leave credit

X Average salary per month

b) 10 X Average salary per month

c) Actual amount received as Leave salary

d) Threshold Rs.3,00,000

Where,

Leave credit = Leaves granted by the organization - Leave taken.

(Only a maximum of 30 days for every completed year shall be considered. Excess if any, is ignored).

Example: If leaves granted by the organization are 42 per year, consider only 30 (per year) for the above calculation.

Average salary per month:

Basic salary

+ D.A drawn (if considered for retirement benefits only)

+ Commission based on a percentage of Turnover

Each of the three above has to be taken as an average of the last ten months (10 months up to the date of retirement has to be taken. So, the last month of service is also to be considered)

Additional Pointers:

  • Leave salary received during the period of service is fully taxable.
  • Where leave salary is received from two or more employers in the same year, the aggregate amount of leave salary exempt from tax cannot exceed Rs.3,00,000.

Example:

Leave Salary received from Employer1 in 2020- Rs.1,40,000

Leave Salary received from Employer2 in 2020- Rs.2,40,000

Therefore, Leave Salary Threshold for 2020=

Rs.3,00,000 in totality (and not Rs.3,00,000 in each case)

  • Where leave salary is received in any earlier year from a former employer and again received from another employer in a later year, the limit of Rs.3,00,000 will be reduced by the amount of leave salary exempted earlier.

Example:

Leave Salary already exempted in 2016 Rs.1,40,000

Therefore, Leave Salary Threshold for 2020=

(Rs.3,00,000 – Rs.1,40,000) = Rs.1,60,000 (and not Rs.3,00,000)

Mandatory Leaves

  • 26th January on account of Republic day
  • 15th August on account of Independence Day and
  • 2nd October on account of Gandhi Jayanti

Casual Leave

These are leaves that are not strictly mandated by law but given as a time off to accommodate certain unforeseen situations. Organizations across India grant an average of 7 days of casual leaves a year. However, these are subject to the organization or company’s policies, requiring employees to seek prior approval for a leave exceeding three days at a stretch. Unlike earned leaves, this leave cannot be carried forward if not utilized. There is no encashment facility available either.

Sick Leave

Sick leaves are intended for resting the employee from work due to health-related purposes. Depending on the act (or organization policy in the absence of any) an employee may be able to use such leaves for rest due to an injury or illness, hospitalization, doctor appointments or health check-ups etc. upon submission of necessary documentation as prescribed. Different provisions are provided under different Acts:

  • 15 days of sick leave is provided under the Apprentices Act, 1961
  • At least 1/18th of the period worked under the Sales Promotion Employees (Conditions of Service) Act, 1976
  • 30 days of sick leave for 18 months of service under Working Journalist and Other News Paper Employee’s (Conditions of Service) and Miscellaneous Provisions Act, 1955

(Refer ‘Gist of limits for various Leaves’ at the end of this article for more information about Casual and Sick leaves.)

Maternity Leaves

Maternity Leaves and the Governing Act

The Maternity Benefit Act, 1961 along with The Maternity (Amendment) Act, 2017 protects the interest of employment of women during the time of her maternity and entitles her of a list of benefits.

The Central Industrial Relations Machinery (CIRM) in the Ministry of Labour is responsible for enforcing this act. CIRM is an attached office of the Ministry and is also known as the Chief Labour Commissioner (Central) Organization.

Maternity benefits here primarily mean paid absence from work to take care of herself and the child.

Do all employers come under the purview of the act?

The act is applicable to:

  • all factories, mines or plantations including such establishments belonging to the government or an establishment requiring physical labour, skills or performances
  • all shops or establishments where more than ten people are employed or were employed on any day in the preceding 12 months
  • With the approval of the central government, the state government may decide that the provisions of the act may also apply to any other establishment not mentioned above, after giving a notice of at least two months in advance.

However, this act shall not apply to any factory or other establishment to which the provisions of the Employees’ State Insurance Act, 1948, apply.

Do all employees come under the purview of the act?

As per the Act, to be eligible for maternity benefit, a woman is eligible only if she worked for the employer for at least 80 days during the 12 months preceding the expected delivery date.

Maternity Benefits

  • The Maternity Benefit Amendment Act makes it mandatory for every establishment to inform in writing and electronically about every maternity benefit available under the act, to every woman at the time of their initial appointment.
  • Paid Maternity Leave- The Maternity Benefit (Amendment) Act,2017 has increased the duration of paid maternity leave available for women employees to 26 weeks (from the earlier period of 12 weeks)

This benefit can be availed by women in two portions:

    • for a period extending up to a maximum of 8 weeks before the expected delivery date
    • and the remaining can be availed after childbirth

For women who are having two or more surviving children, (i.e. for the 3rd childbirth,) the duration of paid maternity leave shall be 12 weeks:

    • Six weeks before the expected date of delivery
    • and six weeks after

In the case of a stillbirth or miscarriage, six weeks of paid leave is allowed.

  • Maternity leave for Adoptive and Commissioning mothers :
    • Here, Adoptive mother is a mother adopting a child below the age of 3 months
    • Commissioning mother has been defined as a biological mother who uses her egg to create an embryo planted in any other woman
    • Maternity leave of 12 weeks to be available to mothers adopting a child below the age of 3 months from the date the child is handed over to the adopting mother, as well as to the commissioning mothers.
  • The Maternity Benefit Act provides that a woman will be paid maternity benefit for the period of actual absence (as prescribed above) based on her average daily wage. This is to be calculated at the rate of her average daily wage in the three months preceding the maternity leave.
  • In the case of tubectomy, a woman can opt for two weeks leave immediately from the date of the tubectomy, upon producing necessary proof.
  • Work from Home- Depending upon the nature of work, women employees may be able to benefit even after the expiry of the 26 weeks leave period abovementioned, on terms that are mutually agreed upon with the employer.
  • Creche facility- The Maternity Benefit (Amendment) Act,2017 makes creche facility mandatory for every establishment employing 50 or more employees.
    • The mothers would be permitted to visit the creche four times during the day (which includes their rest intervals)

A creche is a place where small children can be left to be looked after, while their parents are elsewhere. (or at work in this case)

  • Complaints- In case of Complaints, no court inferior to that of a Metropolitan Magistrate or a Magistrate of the first class shall try any offence under this act.
  • The time limit for complaints- Also, no such complaint shall be filed after the expiry of 1 year from the date on which the offence is alleged to have been committed.

Paternity Leaves

Paternity Leaves and the Governing Act

Paternity leave is the male counterpart of maternity leave (provide a link to maternity leave section above). It is a period of time off from work that a father gets in order to take care of a new-born.

Unlike the Maternity Benefit Act, 1961, there is no statute per se for paternity leaves in the Indian labour laws.

However, certain provisions are contained under Central Civil Services (Leave) Rules, 1972 with respect to the same.

Do all employees come under the purview of the Act?

The Rules provide for the following persons working for the Central Government:

  • Civil servants
  • Apprentice
  • Probationer

Paternity Benefits

  • Paid Paternity Leave- To eligible employees as stated above with less than two surviving children, paid Paternity Leaves may be granted:
    • for a period of 15 days before the date of delivery of the child or
    • up to six months after
  • The Rules provide that a man will be paid paternity benefit for the period of actual absence (as prescribed above) based on salary equal to the pay drawn immediately before proceeding on leave.
  • If the Paternity Leave is not taken within a period of 6 months of the birth of a child, it shall be treated as lapsed.
  • Such Paternity Leave may be combined with leave of any other kind.
  • The Paternity Leave cannot be reduced against the regular leave balance which the employee is otherwise eligible to take.
  • Also, the above Paternity Leaves cannot normally be refused under any circumstances.

As stated above, similar provisions are also applicable to the adoption of a child under the age of 1 year.

Paternity Benefits in the private sector

Though there is no separate statute to ensure paternity leaves in the private sector, employer’s can have their own set of guidelines to extend benefits to their men-turned-father employees.

Many companies off late have included Paternity Benefits in their company policies.

The gist of limits for various Leaves

Employers have to consider the provisions of the following while drafting their leave policies.

Leaves for Establishments covered under the Factories Act, 1948

Applicable to all that fall under the definition of ‘workers’ under the Factories Act, 1948 including:

  • Workers
  • Contract workers
  • Executives
  • Management staff
  • Supervisors

Particulars

Earned leave

Casual

Sick

Maternity

Quantum per year

1 day leave for every 20 days worked in the previous year

Nil

Nil

As per ESI Act or Maternity Benefits Act

Entitlement

Upon working 240 days in the first previous year

NA

NA

NA

Utilization

To apply for leave 15 days prior. Leave not to be availed more than 3 times a year

NA

NA

NA

Carry Forward

Not more than 30 days

NA

NA

NA

  • Leave Register and Leave a book to be maintained for all workers
  • Leave can be calculated on Basic wages and Dearness allowance.
  • If a worker has rightfully applied for leaves and has not been granted the same, such refused leave shall be carried forward without any limit or restrictions
  • If the worker has resigned from the establishment or has been terminated, the earned leave balance should be paid to the worker and in case of death, to the nominee.

Leaves for Establishments covered under the Shops and Commercial Establishments Act

Various states in India have individually adopted the Shops and Commercial Establishments Act. A gist of the provisions are presented state-wise (alphabetical order)

  • Andhra Pradesh Shops and Establishments Act, 1988

Particulars

Earned leave

Casual

Sick

Maternity

Quantum per year

15 days

Not exceeding 12 days

Not exceeding 12 days

Wages for 6 weeks preceding delivery and 6 weeks after delivery

Entitlement

Upon working 240 days in a year

During 12 months of service and subsequent 12 months

During 12 months of service and subsequent 12 months

For every woman who has completed 6 months of service or more

Accumulation

45 days in 3 years

Not allowed

Not allowed

Not allowed

  • Assam Shops and Establishments Act, 1971

Particulars

Earned leave

Casual

Sick

Maternity

Quantum per year

16 days

(after 12 months of continuous employment)

12 days for 12 months service

12 days for 12 months service

Provisions of Maternity Benefits Act, 1961 apply

Entitlement

Upon working 240 days in a year

During 12 months of continuous employment

During 12 months of continuous employment

Accumulation

Maximum of 30 days

Not allowed

Not allowed

  • Bihar Shops and Establishments Act, 1953

Particulars

Earned leave

Casual

Sick

Maternity

Quantum per year

1 day leave for every 20 days worked in the year

12 days

12 days

Provisions of Maternity Benefits Act, 1961 apply

Entitlement

6 days

(upon working for 120 days in 4 months)

Entitlement is Minimum of 80 days

During the year

During the year

Accumulation

Maximum of 45 days. If employee has 45 days of leave to their credit and is refused leave, then such period of refused leave is to be encashed

Not allowed

Not allowed

Computation

All holidays falling in the middle of the leave period shall not be computed.

  • Bombay Shops and Establishments Act, 1948

Particulars

Earned leave

Casual

Sick

Maternity

Quantum per year

21 days

(upon working for 240 days in a year)

Nil

Nil

Provisions of Maternity Benefits Act, 1961 apply

Entitlement

5 days after 3 months

(upon completion of 60 working days in that period)

Nil

Nil

Accumulation

42 days

Nil

Nil

Computation

Suffixed or prefixed holidays to the leave period shall not be accounted as leave. Holidays or Sundays falling between the period of leave shall be treated as leave

  • Delhi Shops and Establishments Act, 1954

Particulars

Earned leave

Casual

Sick

Maternity

Quantum per year

15 days

12 days casual-cum-sick leave

No provisions

Entitlement

5 days after 3 months

(upon completion of 60 working days in that period)

Not less than 1 day for every completed period of 1 month (casual-cum-sick leave)

Accumulation

45 days in 3 years

Not allowed

Not allowed

  • Jammu and Kashmir Shops and Establishments Act, 1966

Particulars

Earned leave

Casual

Sick

Maternity

Quantum per year

15 days

14 days every year

Nil

Provisions of Maternity Benefits Act, 1961 apply

Entitlement

Upon working 240 days in a year

During the year

Nil

Accumulation

Maximum of 3 months

Not allowed

Nil

Computation

Suffixed or prefixed holidays and Sundays to the leave period shall not be accounted as leave. Holidays or Sundays falling between the period of leave shall be treated as leave

  • Karnataka Shops and Commercial Establishments Act, 1961

Particulars

Earned leave

Casual

Sick

Maternity

Quantum per year

20 days

(1 leave for every 20 days. Upon working for 240 days in a year)

-

12 days on Medical grounds

Provisions of Maternity Benefits Act, 1961 to apply

Entitlement

Upon working 240 days in a year

If joining during mid year, entitled to 2/3rd of the remaining period during the year

-

-

Accumulation

Maximum of 30 days

Not allowed

Not allowed

  • Kerala Shops and Establishments Act, 1948

Particulars

Earned leave

Casual

Sick

Maternity

Quantum per year

12 days after 12 months of continuous service

12 days

12 days

(upon sterilization operation, additional– 6 days for men and 14 days for women)

Provisions of Maternity Benefits Act, 1961 apply

Entitlement

All holidays and Sundays falling at the end or in between the period of leave shall not be counted as leave

-

-

Accumulation

24 days in 2 years

Not allowed

Not allowed

  • Madhya Pradesh Shops and Establishments Act, 1948

Particulars

Earned leave

Casual

Sick

Maternity

Quantum per year

30 days after 12 months of continuous employment

14 days

Nil

Provisions of Maternity Benefits Act, 1961 apply

Entitlement

5 days after 3months employment

(Upon completion of 60 working days in that period

During the year

Nil

Accumulation

90 days in 3 years

Not allowed

Not allowed

Annexation

No annexing of casual leave allowed with earned leave. Suffixed or prefixed holidays and Sundays to the leave period shall not be accounted as leave. Holidays or Sundays falling between the period of leave shall be treated as leave

  • Odisha Shops and Commercial Establishments Act, 1948

Particulars

Earned leave

Casual

Sick

Maternity

Quantum per year

20 days (1 leave for every 20 days)

-

15 days on medical grounds

Every woman who has put in continuous employment of 6 months or more shall be entitled for 6 weeks of leave preceding delivery and 6 weeks after delivery

Entitlement

Upon working 240 days in a year

If joining during mid year, entitled to 2/3rd of the remaining period during the year

-

-

Accumulation

30 days in case employees have 30 days earned leave to their credit and if it is refused then it can be allowed to be extended

Not allowed

Not allowed

Computation

Holidays or Sundays suffixed or prefixed or falling in between the period of leave shall not be treated as leave

  • Punjab Shops and Commercial Establishments Act, 1958

(Haryana State to also refer to the same)

Particulars

Earned leave

Casual

Sick

Maternity

Quantum per year

1 leave for every 20 days worked

7 days

7 days

Every woman who has put in continuous employment of 6 months or more shall be entitled for 6 weeks of leave preceding delivery and 6 weeks after delivery

Entitlement

After 20 days of continuous employment

During the year

During the year

Accumulation

30 days

Not allowed

Not allowed

Annexation

Suffixed or prefixed holidays and Sundays to the leave period shall not be accounted as leave. Holidays or Sundays falling between the period of leave shall be treated as leave

  • Rajasthan Shops and Commercial Establishments Act, 1958

Particulars

Earned leave

Casual

Sick

Maternity

Quantum per year

20 days (1 day leave for every 12 days worked) Upon working 240 days in a year

If employee has joined during the year and has worked for at least 2/3rd of the year, then they too shall be eligible

-

-

Every woman who has put in continuous employment of 6 months or more shall be entitled for 6 weeks of leave preceding delivery and 6 weeks after delivery

Accumulation

30 days

-

-

  • Tamil Nadu Shops and Establishments Act, 1958

Particulars

Earned leave

Casual

Sick

Maternity

Quantum per year

12 days

12 days

12 days

Provisions of Maternity Benefits Act, 1961 apply

Accumulation

24 days

Not allowed

Not allowed

  • Uttar Pradesh Shops and Establishments Act, 1962

Particulars

Earned leave

Casual

Sick

Maternity

Quantum per year

15 days upon every 12 months of continuous employment

10 days

15 days

Provisions of Maternity Benefits Act, 1961 apply

Entitlement

On completion of 1 year continuous service

After 6 months of continuous service

After 6 months of continuous service

Accumulation

45 days in 3 years.

If employees have 45 days of leave to their credit and are refused leave, then such period of refused leave is to be paid

Not allowed

Not allowed

  • West Bengal Shops and Establishments Act, 1963

Particulars

Earned leave

Casual

Sick

Maternity

Quantum per year

14 days for every completed year

10 days

Not more than 3 days at a stretch

14 days every year (on half pay)

Every woman who has put in continuous employment of 6 months or more shall be entitled for 6 weeks of leave preceding delivery and 6 weeks after delivery

Entitlement

Upon completion of 1 year of continuous service

During the year

During the year

Accumulation

24 days in 2 years

Note : The law only ensures a bare minimum. Employers can always extend leave benefits over and above what is prescribed by the Act.