New Labour Laws: Companies Need To Compulsorily Pay Employees For Unused Leaves Exceeding 30 Days

The new four labour laws which are yet to be implemented will drive major changes for both employees and employers. Among other rules, employees cannot accumulate more than 30 days of paid leave in a calendar year, however, if it exceeds 30 days then the employer or company will need to pay for the excess leave to the employees.

According to the ‘Occupational Safety, Health and Working Conditions Code’, in all four labour laws, employee means those who are not in managerial or supervisory positions.

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The government of India is all set to implement four new labour laws — Occupational Safety, Health and Working Conditions Code; Code on Wages; Industrial Relations Code; and Social Security Code — which has already passed in the parliament but effective date is pending.

“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, was quoted as saying by The Economic Times.

According to experts, the new regulation will eliminate the practice of forfeiting accrued leave beyond a specific threshold. Hence, in order to avoid paying for unused leaves, companies might ask their employees to go on a vacation, which means utilising the excess paid leave.

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Puneet Gupta, Partner, People Advisory Services, EY India, was quoted as saying by ET, "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. It is important to note that provisions relating to annual leave and leave encashment under the OSH Code are applicable only for 'workers' - that is, employees who are not in managerial or administrative or supervisory roles."

Experts also believe that leave encashment on an annual basis will have a financial impact on the employer.