Under new labour laws, unused leaves beyond 30 will be paid for by employer

As the government is working to implement the four new labour laws, the new regulations will affect take-home pay, EPF contribution, number of paid leaves, and maximum working hours in a week, The Economic Times (ET) has reported.

One of the labour laws, namely, the Occupational Safety, Health and Working Conditions Code, states that an employee cannot accumulate more than 30 days of paid leave in a calendar year. 

In case an employee accumulates more than 30 days of paid leave in a calendar year, the employer will have to pay for the excess leave(s). However, this condition only applies to workers not in managerial or supervisory positions, the report said.

Importantly, the Occupational Safety, Health and Working Conditions Code, the Code on Wages, Industrial Relations Code and the Social Security Code are waiting for a government notification for these new laws to take effect, the report added.

New Labour laws: What do the experts say?

Speaking on the subject, a Partner at a law firm, Sowmya Kumar told ET, "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."

People aware of the subject say that the new regulation will do away with the system where unused leaves used to lapse beyond a certain time limit.

Another industry expert, Puneet Gupta from EY India, was cited in the report as saying that according to the Occupational Safety, Health and Working Conditions Code, 2020, if the balance of leaves goes beyond 30, the employee will be entitled to encash the excess leave(s). Such encashment will be done at the end of the calendar year, Gupta said.

In such cases, to avoid paying the extra money to an employee, companies may ask workers to go on vacation, utilising their excess paid leave(s).

Both experts cited above said that the leave encashment at the end of the financial year on an annual basis will have financial ramifications for employers.

How will the salary for paid excess leave(s) be calculated?

Once the new law takes effect, encashment of leave(s) in excess will become mandatory, the ET report said.

Coming to the question of salary calculation for these leaves, Gupta from EY India was quoted in the report as saying, "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 other words, employees will be paid for all the allowances on a per-day basis except for those that are specifically excluded, Gupta added.