Understanding Leave Entitlement and Encashment

The number of leaves each employee and worker is entitled to depends on the respective state’s Shops and Commercial Establishment Acts and the newly implemented Occupational Safety, Health and Working Conditions Code, 2020 (OSH Code). Crucially, the entitlement differs depending on whether one is classified as an employee or a worker.

Under most state legislation, provisions regarding leaves apply to employees. However, under the OSH Code, these provisions apply specifically to workers. This article discusses the number of leaves entitled to employees and workers, with a specific focus on Karnataka, Maharashtra, and Delhi.

Leaves Under the OSH Code for Workers

As per Section 32(1) of the OSH Code, a worker is entitled to leave subject to whether they have worked for 180 days in a calendar year. Once this criterion is satisfied, every worker is entitled to:

• 1 day of leave for every 20 days of work performed.
• In the case of an adolescent, 1 day of leave for every 15 days of work performed.

Eligibility Criteria and Lay-offs

As per Section 32(1)(iii), the 180-day eligibility requirement is satisfied even if the worker was on lay-off, maternity leave, or annual leave (trade holiday) during that period. However, the worker will not accrue leave at the rate of 1 day for every 20 days of work for the period spent on lay-off, maternity leave, or annual leave. This is because leave is only accrued based on work actually done; therefore, no leave accrues when the worker is absent from work.

Furthermore, if a worker joins after 1st January, they must work for ¼th of the remainder days to be eligible instead of completing 180 days in that calendar year. Additionally, Section 32(1)(iv) prohibits the implementation of a “sandwich leave” policy. In other words, employers cannot count intervening weekly offs or holidays as leave when an employee avails leave before and after such days.

Termination and Wages in Lieu

As per Section 32(1)(vi), if a worker is discharged, dismissed, or quits employment, they are entitled to wages in lieu of all remaining leaves accrued prior to the cessation of employment, even if the eligibility criteria were not fully satisfied. This means that if there are 20 days of leave remaining, the worker can encash them. All such payments must be made by the employer within two working days after the employment ends.

In cases of superannuation or death, the nominee is entitled to the same benefit (wages in lieu of remaining leaves), and the employer shall pay this within two months.

Leave Encashment and Carry Forward

Leave encashment refers to wages in lieu of unused leave. As per Section 32(1)(vii), any leaves not taken by a worker during a year will be carried forward for the succeeding year, provided the total number of carry-forward leaves does not exceed 30 days.

As per Sections 32(1)(viii) and (ix), a worker has the right to encash their leaves on demand at the end of the calendar year. If the accumulated leave exceeds more than 30 days, the employer shall encash them. However, this 30-day carry-forward limit might be increased if the state’s Shops and Establishment Act provides for a higher threshold.

As per Section 120 of the OSH Code, its provisions have an overriding effect; however, where a worker is entitled to more favourable benefits under any other law, award, agreement, or contract of service, the worker shall continue to receive those more favourable benefits. Therefore, one must always follow the law that is most favourable to workers.

Leaves in Karnataka

The legislation governing leaves in Karnataka is the Karnataka Shops and Commercial Establishment Act, 1961. This Act governs leaves for employees; consequently, it also applies to workers.

Entitlements

As per Section 15(3), every employee is entitled to 12 days of leave in a year on grounds of sickness, accident, or any other reason. Furthermore, as per Section 15(1):

• Every adult employee gets 1 day of leave for every 20 days of work.
• In the case of a young person (adolescent), they get 1 day of leave for every 15 days of work done.

Discharge and Dismissal

As per Section 15(4), where an employee is discharged or dismissed during the course of the year, they are entitled to earned leave accrued for the period worked, even if the employee has not completed the number of days specified under Section 15(1) for earning leave (i.e., 1 day’s leave for every 20 days of work performed).

Carry Forward and Encashment

As per Section 15(7), the statutory accumulation limit for carry-forward leaves is 45 days for adult employees. However, if an employee applied for leave but the employer refused it, such unavailed leave may be carried forward without any limit. Although the OSH Code mandates a carry-forward limit of 30 days, as per Section 120 of the OSH Code, the more beneficial right prevails for workers. Hence, in Karnataka, even under the state Act, 45 days of leaves shall be carried forward, and any excess should be encashed by the employer.

Workers can also demand leave encashment at the end of the calendar year as per the OSH Code.

Leaves in Maharashtra

The legislation governing leave entitlements in Maharashtra is the Maharashtra Shops and Establishments (Regulation of Employment and Conditions of Service) Act, 2017. The provisions relating to leaves are contained in Section 18 and apply to workers employed in establishments covered under the Act.

Casual Leave

As per Section 18(2), every worker is entitled to 8 days of casual leave with wages in every calendar year. Such leave is credited on a quarterly basis and lapses if it remains unavailed at the end of the calendar year.

Earned Leave

Further, under Section 18(3), a worker who has worked for 240 days or more during a calendar year is entitled in the subsequent calendar year to earned leave at the rate of 1 day for every 20 days of work performed during the previous calendar year.

Separation from Employment

The proviso to Section 18(6) provides that where a worker entitled to leave (other than casual and festival leave) is discharged before being allowed to avail such leave, or where they resign, retire, die, or suffer permanent disability after having their leave refused, the employer is required to pay full wages for the period of leave due to them.

Carry Forward and Encashment

As per Section 18(5), a worker is permitted to accumulate earned leave up to a maximum of 45 days. Further, where the employer refuses to sanction leave applied for at least fifteen days in advance, the worker is entitled to encash the leave in excess of 45 days under Section 18(6).

Although the OSH Code prescribes a carry-forward limit of thirty days, Section 120 of the OSH Code saves more favourable benefits available under any other law. Accordingly, the more beneficial provision under the Maharashtra S & E Act permitting accumulation of up to forty-five days continues to apply to workers. Consequently, workers in Maharashtra may carry forward earned leave up to 45 days, and any leave in excess thereof, where encashment becomes applicable under the Act, must be paid by the employer.

Workers can also demand leave encashment at the end of the calendar year as per the OSH Code.

Leaves in Delhi

The legislation governing leave entitlements in Delhi is the Delhi Shops and Establishments Act, 1954. The provisions relating to leaves are contained in Sections 22 and 23 of the Act and apply to employees employed in establishments covered under the Act.

Entitlements

As per Section 22(1)(a), every employee is entitled to privilege leave of not less than 15 days after every 12 months of continuous employment. Further, under Section 22(1)(b), every employee is entitled to sickness or casual leave of not less than 12 days in every year.

Separation from Employment

As per Section 22(2), where an employee who is entitled to privilege leave is discharged by the employer before being allowed to avail such leave, or where the employee resigns after having applied for and been refused the leave, the employer is required to pay full wages for the period of leave due to them.

Carry Forward and Encashment

As per Section 22(1A)(i), unavailed privilege leave may be carried forward and accumulated. However, the total accumulation cannot exceed three times the privilege leave to which the employee is entitled after every twelve months of employment. Since an employee is entitled to 15 days of privilege leave after twelve months of continuous employment, the maximum statutory accumulation permitted is 45 days.

Casual and sickness leave, on the other hand, cannot be accumulated and lapse if not availed, as provided under Section 22(1A)(ii). The Delhi S & E Act does not provide a general right to annual leave encashment while an employee continues in service. Leave encashment is statutorily mandated only upon separation from employment in the circumstances specified under Section 22(2).

Accordingly, unlike the OSH Code, employees covered under the Delhi S & E Act cannot demand encashment of accumulated privilege leave at the end of the calendar year merely because it exceeds the statutory accumulation limit.

However, since the OSH Code is more favourable than the Delhi S & E Act (as the former allows encashment of excess leaves), workers in Delhi may carry forward privilege leave up to 45 days, and any accumulated leave in excess thereof would be required to be encashed by the employer in terms of the OSH Code. The workers can also demand leave encashment at the end of the calendar year because, as per Section 120 of the OSH Code, the more beneficial right prevails for workers.

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