New labour laws will mandate companies to compensate employees for over 30 unused leaves

In an unprecedented move to acknowledge work-life balance, the government’s new labour laws will have a few changes that will benefit employees in more than one way. Some of the important changes and the areas of impact will be: Lower take-home pay, higher contribution to the Employees’ Provident Fund (EPF) account, calculation of the number of paid leaves available in a calendar year and the maximum working hours in a week. One of the laws will mandate companies to compensate employees who have not claimed more than 30 days of leave.

The Occupational Safety, Health and Working Conditions Code, 2020 defines an “employee” as a person who is employed to do any work, skilled or unskilled, manual or clerical, in or in connection with the business of an establishment, whether the terms of employment be express or implied. The code also clarifies that “managerial or supervisory” employees are not covered by the definition of “employee”. Managerial employees are those who are responsible for the overall management of the establishmhttps://clc.gov.in/clc/labour-lawent, while supervisory employees are those who are responsible for supervising the work of other employees.

The four labour laws namely the- Occupational Safety, Health and Working Conditions Code; Code on Wages; Industrial Relations Code; and Social Security Code

It’s ave been passed by the Parliament and are notified by the government. However, they have not yet come into force. The laws are awaiting effective implementation date from the government that are yet to be announced. The codes or laws are one of the major economic changes implemented by the Modi government.

How do the experts view these changes?

“Section 32 of the Occupational Safety, Health and Working Conditions Code, 2020 (OSH Code), has a number of conditions with respect to availing annual leave, carry forward and encashment. Section 32(vii) allows a worker to carry forward annual leave to a subsequent calendar year, up to a maximum of 30 days. In case at the end of the calendar year the annual leave balance exceeds 30, then the employee will be entitled to encash the excess leave and carry forward 30 days to the next year,” Sowmya Kumar, partner at law firm INDUSLAW, said, according to a report.

“At present, similar requirements are present in shops and commercial establishments legislations of a few states (for example Andhra Pradesh and Telangana). However, enforcement is not very strong. Once the OSH Code comes into force, employers will definitely have to factor this into their employee costs,” adds Kumar.

Experts believe that the new rule will do away with the system of unused leave getting lapsed beyond a certain limit. “As per the Occupational Safety, Health and Working Conditions Code, 2020, if the leave balance exceeds 30, the worker will be entitled to encash the excess leave. Such leave encashment will be done at the end of each calendar year. The annual leave for workers cannot lapse under the labour codes and will have to be availed or carried forward or encashed.

Currently, many organisations do not allow leave encashment on an annual basis as well as for the paid leave balance to exceed the carry forward limit,” a report quoted Puneet Gupta, partner (people advisory services) at EY India as saying.

So, to avoid paying an employee/worker for unused ‘paid leaves’ exceeding 30 days in a year, employers may ask workers to go on vacation i.e., utilise the excess ‘paid leave’. Gupta also says, “The implementation of OSH provisions may entail a financial impact as well as a cash flow impact for employers.” He further pointed out that the OSH Code’s rules on yearly leave and leave encashment apply only to ‘workers,’ or personnel who do not hold managerial, administrative, or supervisory positions.

Leave encashment is the compensation made by an employer to an employee for unutilized paid leaves at the time of retirement or resignation. Every salaried employee is entitled to a certain number of paid leaves each year under labour legislation. Employees are not required to use all of their accrued leaves, and many employers allow them to carry over unused leaves to later years.

How will the compensation amount be calculated?

“Under the OSH Code, the amount of leave encashment will have to be calculated with reference to wages as defined under the Code on Wages. As per the definition, the term wages includes all remuneration payable as per the terms of employment in respect of work done in such employment, except certain components which are specifically excluded (such as house rent allowance, conveyance allowance, bonus payable under any law, etc) provided the excluded components do not exceed 50% of total remuneration. In layman’s terms, one can say that employees will be paid for all the allowances on a per-day basis except those allowances that are specifically excluded,” said Gupta from EY India, the report mentioned.

Please, also have a look into : Kerala fully replaces manual labour with robotic scavengers for cleaning manholes