Of all the HR policies, the leave policy grabs the maximum attention right from day one. Since employees go on leave all the time, your organization's leave policy is put to the test daily.
In this expert guide, all aspects of the leave policy design are explained. It also suggests best practices for the HR practitioner.
A leave policy is a document that lays down the rules and regulations related to various types of leaves that an employee can avail of.
A leave policy sets out the various types of leaves for different situations like a vacation, sickness, maternity, grief, etc. It specifies rules for various aspects like granting of leave, eligibility, availing, encashment, etc.
The leave policy reflects the company’s professionalism and culture through its language, tone, and friendliness quotient.
Leave is the right of an employee and is a statutory obligation of employers.
In India, the Factories Act and the state-level Shops and Commercial Establishment Acts govern the business of leaves.
Outside of work, there is a lot that happens in the lives of employees and their families. Birth, death, sickness, a loved-one needing care: all of these circumstances require an employee to take time out from work.
Leaves are also essential for employees to attend to personal matters, such as banking transactions, family events, etc. Employees also need some downtime for vacations, travel, which helps them rejuvenate and return to work with renewed vigor.
Paid leaves support employees in their time of need without having to worry about the loss of pay. Paid vacations let employees unwind and recharge. Research shows that an employee-friendly leave policy drives employee satisfaction, loyalty, and higher productivity.
Having a defined leave policy and consistent implementation signals the professionalism of the company. By providing clear rules and transparency, you foster employee trust and satisfaction. All of these also help you to build a strong employer brand.
To formulate a leave policy, you need to decide on the following points:
Paid leave is provided to employees over and above the public holidays as per the governing statutes.
If an employee exhausts all their paid leave, an option is also provided for employees to leave without pay.
Organizations have the following types of leave apart from public holidays:
Apart from leave types (EL & SL) mandated by the labor laws, it is up to the organization to decide on the leave types.
At one extreme, some organizations allow only those leaves that are required for statutory compliance and not a day more.
At the other extreme, you may have organizations that have a one-line policy that says, "take leave whenever you need it!".
Once you have identified the types of leave an employee can take, you need to define various rules for each leave type.
For Sick Leave, Maternity Leave, etc., additional documentation to be maintained. HR needs to ensure that all documents are available.
The various decisions to be made while defining the policy depend on the unique needs and culture.
You need to consider the following as far as grant rules are concerned:
For leave types like annual leave (AL/PL), sick leave, etc. the state government's rules are to be followed. For example, in Karnataka, the government mandates granting 18 days of paid leave annually. It also mandates 12 days of sick leave to be granted each year.
However, for other leave types, it's up to the organization to decide the quantum of leaves to grant. For example, if the company has a Marriage Leave policy, they may grant leave for anywhere between 3 days to 15 days.
Leaves can be granted to employees on a monthly, quarterly, half-yearly or annual basis. The most preferred are either monthly or annual grants.
There are pros and cons for each type of grant. When annual leave is granted in lump sum at the start of the year, it allows employees to avail it through out the year. For example, if 18 days of leave is granted in January, the employee can take a 2-week vacation in April. However, in the case of monthly grants, the employee would have accumulated just 6 days of leave by April and not have enough balance. In such a situation, you can allow leaves to be availed in excess of eligibility.
The expiry period can vary for each leave types. Again, this is mandated by the government rules for certain leave types.
Annual Leave (also called Earned Leave) balances can be carried to the next year up to a certain limit. For example, in Karnataka, the government mandates 30 days to be carried forwarded. Earned leaves that cannot be carried forwarded are either encashed or lapsed.
Other types of leaves like sick leave or casual leave are not allowed to be carried forward to the next year nor can they be encashed. The leave balances lapse at the end of each year.
Leave granted as compensatory off for having worked on a non-working day usually has a very short expiry period varying from 3 to 8 weeks.
For some types of leave, grants are conditional. For example, a leave type like Marriage Leave may be granted only once during the entire employment period. Some other leave types may be granted only for women or based on employee status.
On a discretionary basis, the company may grant additional leaves to employees. These types of grants are not automatic or policy driven but are decided by the management case by case.
For leave balances that are granted annually at the start of the leave period, there is a need to have a pro rata policy too for new employees who join the organization all year long.
Let us say, an organization grants 18 days of Annual Leave per year every January. When someone joins the organization on the first of July, they should not be granted 18 days of leave but should get only 9 days of leave grant.
Leave granted based on the proportion of eligible work days in a year to the total days is called as pro-rata leave grant.
The pro-rating of grant can be based on either date of joining or the confirmation date.
A mathematical consequence of prorating is that you end up with fractional leave days that appear odd. For example, what does it mean when you say the leave balance is 1.398 days? So, you now need a policy to round-off these leave days to the nearest half-day or full day.
Companies can either have simple pro-rata policies that end up being generous in granting the leaves or have elaborate policies on how to pro-rate grants and the round-off logic to be used.
Simpler policies are preferable to hard-to-understand and hard-to-implement policies that do not yield any undue advantage to the employees.
Not all employees are eligible for all leave types. For example, maternity leave is meant only for women and paternity leave is meant only for men. There are many conditions for an employee to be eligible for a leave type:
OK, you have a leave policy that describes all the leave types an employee is eligible for and the quantum of leaves granted per year. The employee has a leave balance in their account. Even then, there are certain rules on how and when to avail a leave.
The simplest rule is that the manager and the team is informed before taking any leave, unless there is an emergency. The manager needs to approve the leave. Further, long leave for a week or more will need to be approved a couple of weeks in advance.
But when the corporate honchos have unbridled power to enact the rules, they get carried away and complicate the leave policies with intricate set of rules. Here are some rules related to availing of leaves:
Leave Encashment is the process of surrendering accumulated Earned Leave balance in leui of monetary compensation. When encashed, an employee will receive money and the leave balance will reduce by the quantum of leaves encashed.
Leave Encashment is usually done at the end of the leave year when leaves cannot be carried forwarded to the next year. Another common scenario is at the time of Full & Final settlement of employee dues during employee separation.
Apart from the rules on how many days of leave can be encashed, we need to define the salary component on which the leave is encashed.
In India, the Basic salary component is what is used for encashing a leave. In rare cases, some companies allow it to be on the basis of the Monthly CTC figure.
The rules covering encashment are:
Like financial accounting, leave accounting also requires the books to be closed for an year. This is the time most of the accumulated balances are either lapsed (reset) or carried forwarded to the next year. Most of the year-end policy rules is concerned on how the balances are managed.
A weekend policy states the days when employees can take their weekly off. Again, there are labor laws that mandate the minimum requirements. Paid weekly offs are relevant for leave computation.
Every organization needs to declare a list of holidays for a given calendar year. This list may vary from one location to another, and an organization may have multiple lists for their employees in different places. Again the holiday list is relevant for leave computation.
Once we have decided on the leave policy dimensions, we need to communicate it to stakeholders in a written form. A leave policy document usually has the following key sections in it:
The HR Head must distinguish clearly between a policy and a procedure while structuring the leave policy. The policy is "the what and the how many," and the process is “the how-to."
A well-designed leave policy incorporates the following features:
More than the types and number of leaves, the process of availing leaves determines the employees’ perception of how ‘friendly’ the leave policy is.
Remember that a well-structured HR policy is also a tool to communicate the company’s values and expectations. Leave policy is not just about granting leaves; it is about helping employees to know about their entitlements and to make it easy for employees to avail them effectively.
The ultimate measure of a good leave policy is the outcomes it produces: happy and engaged employees who have decent work-life balance.