How Do Casual Leaves and Earned Leaves Work in India?

Every state has a different leave policy and leaves rules. The different types of leaves that are typically granted in India include earned leaves, casual leaves and sick leaves. A worker can avail these leaves without any loss of income.

The leave policy in India states that every employee, across all sectors, is qualified to get a certain amount of leaves every year. It is the responsibility of the employer to grant the specified quantity of leaves to their employees as per the earned leave rules and casual leave rules.

The quantity and the types of leaves granted to each employee depends on the state, the employer, and the industry, and whether the company falls under The Shops and Establishment Act or The Factories Act.

Every state has a different leave policy and leaves rules. The different types of leaves that are typically granted in India include earned leaves, casual leaves and sick leaves. A worker can avail these leaves without any loss of income. So, let us check out the casual leave rules and earned leave rules.

Casual Leave Rules

Casual Leave or CL is granted to an eligible employee if they cannot report to work due to an unforeseen situation. Casual leave can also be utilised if an eligible employee wants to take leave for a couple of days for personal reasons, but not for a vacation. Companies are strict when it comes to casual leave rules and allow a maximum of three days of casual leave in one month. Further, the employee should seek prior permission before availing this type of leave. Casual leaves are paid for by the employer. Some other casual leave rules include:

  • In general, casual leaves can be availed for a minimum of half a day to a maximum of three days. Beyond this, leaves should be availed as earned leave or privileged leaves. If the employee wishes to avail the three leaves at the same time, then they need to seek permission from the company.
  • If the employer is registered under the Shops and Establishment act, then the employee is qualified to get casual leave of six days.
  • Casual leaves cannot be carried forward to the next year. According to casual leave rules, after the year ends, the casual leaves which are unused expire automatically.
  • The unused casual leaves cannot be encashed like earned leaves or privileged leaves. They simply expire when the year ends.
  • Casual leaves cannot be clubbed with earned leaves or sick leaves.
  • For new employees or for someone who has just resigned, the casual leaves are allotted proportionately. For instance, if an employee joins the company on July 1, i.e. the middle of a year, the number of casual leaves available will be half the actual amount and will be applicable till December 31, i.e., the last day of that year.

Privilege leave or earned leave rules

As the name suggests, earned leaves are the leaves earned by the employee for providing more than 240 days of service to the employer in a given calendar year. These leaves can be used for vacation or travel. The employers can make use of a proper leave management system to track and maintain the records of the used and unused leaves of an employee. Some of the common rules associated with earned leaves are:

  • The calculation of earned leaves is done monthly for the entire calendar year. Ideally, the earned leaves get credited to the employee’s leave account at the start of the calendar year, but the number of leaves the employee is entitled to also depends on the number of months they worked. For instance, according to the employer’s leave policy, 1.25 leave days get added to the employees leave account on completion of one month of service with the company.
  • If an employee joins the company at the middle of the calendar year, then the entitled earned leaves will be calculated on a pro-rata basis, from the joining date to December 31 of the same year.
  • If an employee resigns, the entitled leaves are calculated on a pro-rata basis until the last working day. If the employee has taken any extra leaves, this will get adjusted in the final settlement amount.
  • If an employee is unable to utilise all the entitled earned leaves in one calendar year, then the unused earned leaves will get carried forward to the next year. However, there is a limit to the number of leaves that can be carried forward to the next year. Every employer, depending on the state and region, has different carry-forward rules. The maximum leaves that can be accumulated are 30 days. However, according to The Shops and Establishment Act, it can go up by 45 to 60 days, depending on the policy of the states.
  • The accumulated or unused leaves get automatically encashed if they exceed the limit or when the employee leaves the organisation. The encashment procedure depends on the company leave policy in India.
    >The formula to calculate encashable earned leaves is:
    Amount encashed = monthly gross salary * accumulated encashable leaves / 22
  • The encashment of leaves while in service is entirely taxable as per the law. Any leave encashment payment received by state and central government employees during retirement is 100% exempt from any taxes. In all other cases, the exemption amount is limited.

Differences between privilege leave and earned leave

Many employers and employees get confused between privilege leaves and earned leaves. The purpose and nature of both leaves are the same. However, they differ in the following aspects:

  • As per the Factories Act, the leave entitlement of the employees is termed as earned leaves or EL, whereas, under the Shops and Establishments Act, the entitled leaves are termed as privilege leaves or PL.
  • Under the Factories Act, a single earned leave is granted for every 20 working days, i.e. 18 leaves per year. Under the Shops and Establishment Act, five privilege leaves are granted for four months of work, i.e. 15 leaves per year.

The information shared above about the different types of leaves should give you a clear idea about the various types of leaves that employers can provide to their employees and allow you to set up a policy that works in both yours and in favour of your employees.

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Comments

  1. comment-author
    Aremu Ishola

    Please i want to know if the above applicable to all employee like outsourced employees and regular employees, Is there anything like leave allowance under the law i.e in india. if yes! how to calculate this
    Thanks

    1. comment-author
      Rishabh Ranjan

      Hi Aremu,

      Leave policy varies from company-to-company. Suggest you contact your HR to understand your company’s leave policy in detail.

  2. comment-author
    Sarvesh Upadhyay

    Hi, Can a Company reduce accumulation of Earned Leave/Privileged Leave i.e. accumulation below 30/45 days (as may be prescribed under Factories Act or Shops and establishment Act).

    Can A company club by way of its policy Sick Leave and Casual Leave. E.g. If Company provides 6 CL and SL, Can Company make it CL-SL of 1 days making employees eligible for 12 days either for CL or SL?

    Thank you

    1. comment-author
      Rishabh Ranjan

      Hi Sarvesh,

      Leave policy varies from company-to-company. Suggest you contact your HR to understand your company’s leave policy in detail.

  3. comment-author
    VIJAY KUMAR

    I have taken three leave till Friday and also my Saturday and Sunday are officially off, but due to some crises i could not attend the office on Monday, because of this HR dept. settled my earn leave 6 days with this, weather i am unable to take my officially off when he has deducted my earn leave?

    1. comment-author
      Rishabh Ranjan

      Hi Vijay,

      Leave policy varies from company-to-company. We suggest you contact your HR to understand your company’s leave policy in detail.

    1. comment-author
      Rishabh Ranjan

      Hi S.S.Shikarwar,

      I suggest you contact your HR to get clarity as leave policy varies from company to company.

  4. comment-author
    Balaji

    If an employee finished his Casual leave and he wants half day or full day leave, whether he eligible to get earned or privileged leave?

  5. comment-author
    Sahil

    Can a company decide to disallow any carry forward of earned leaves at all to the next year, and also refuse to encash them? I understand 50% of leaves credited in a year lapsing, if an employee has not utilized them, but what if one has accumulated say 20 days over many years of service? Can the company refuse to carry forward or encash them?

    1. comment-author
      Rishabh Ranjan

      Hi Sahil,

      Leave policy differs from company to company. Some employers provide leave encashment whereas others encourage employees to avail leaves. The carryforward is restricted to certain days and varies from state to state.

  6. comment-author
    Jas

    If someone is to go to office only on tue thu and sat and he takes CL on thursday and there is public holiday from saturday to monday, will CL be continued till monday if he doesnt join on friday??

    1. comment-author
      Rishabh Ranjan

      Hi Jas,

      Leave policy varies from company-to-company. We suggest you contact your HR to understand your company’s leave policy in detail.

  7. comment-author
    Vivek Kashyap

    Hi
    Please tell me about EL leave. If anybody not take EL or earned leave then it’s payable or not. Our HR not knowledge about that. We are also not know. Please tell us Govt. Policy. In future EL is payable or not if any body not take EL.

    1. comment-author
      Rishabh Ranjan

      Hi Vivek,

      In typical scenarios, the total earned or paid leaves that can be carried forward is (upto) 40. Also, the leaves can be encashed at the time of resignation. Of course, the leaves come with limits wherein anything above 40 will lapse if not utilised/availed.

      Please bear in mind that most companies have the stipulations mentioned above in their leave policies. I urge you to reach out to the concerned HR team to find every detail related to carryforward, encashment etc.

  8. comment-author
    Ramnath dangui

    I took cl from wednesday to friday, joined on saturday morning and took half cl on saturday, and from monday took el. Its ok?

  9. comment-author
    Brite Rosario

    How many days a maximum company will pay for earned leave at the time reliving from the employment?
    Ex: i have 41 days EL do company will encash me for entire 41 days are their have any limit for encash EL?

    1. comment-author
      Rishabh Ranjan

      Hi Brite,

      It depends on company policy and minimum. Typically, EL carryforward is permitted for up to 40 days which can be encashed at the time of resignation.

  10. comment-author
    Sheikh Durvesh Mohideen N

    Hi Ranjan,

    Based on above statements & comments, I understood that EL/PL as per Factory act is 18 days permissible. But, just to know apart of this is there is SL/CL available as per factory act or there is no other leaves than this 18 days.

    This is for factory works & in Tamil Nadu

    Thanks in advance.

  11. comment-author
    Vishal S

    Hello Sir

    As an employer…. If earned leave is encashed and paid to employees once a year…. Does it attract Esi and PF

    1. comment-author
      Rishabh Ranjan

      Hi Vishal,

      For the PF, leave encashment will not attract PF deduction.

      As for ESI, it will not attract PF deduction if the leave encashment is paid either on a quarterly, half-yearly or yearly basis.

  12. comment-author
    Bhanwar Lal

    Respected sir
    I pharmaceutical sales employe.
    I have joined my first pharmaceutical company in 2011 and leave after 5 year and 2 months and joined other company.
    I have not settled my privilege leave with my previous employer.
    Sir plz tell how many days after I claim my privilege leave by govt policy.

    1. comment-author
      Rishabh Ranjan

      Hi Bhanwar,

      Settlement of PL is based on company policy; you can check your (Full and Final) FnF statement or approach your employer to know the status of the same.

      In general, PL will be settled along with Full and Final (FnF) settlement.

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