Privilege leave: Meaning, rules, and reasons to avail them

Employees in India are offered various types of leave to help maintain a healthy work-life balance. Privilege Leave (PL) is one such leave that allows employees to take time off when needed. This type of leave is mandated by labour laws and should be included in your company’s leave policy.

This article will explain what privilege leave is, its duration, and what labour law says about it, helping you create the perfect leave policy for your company.

Privilege leave meaning

Privilege Leave (PL) is a paid leave that employers provide to employees as a benefit for their service over the year.  The amount of leave earned is based on the company's leave policies and the employee’s designation.

PL is typically offered to reward employees with time off to recharge and enjoy personal time, whether for vacation or family. Also known as earned leave, PL is credited at the start of the calendar year, often ranging from 15 to 20 days in India.

Privilege leave rules in India

Privilege leave is regulated by the Ministry of Labour and Employment under various labour laws. Here are some key regulations that govern the applicability and duration of privilege leave in India:

The Factories Act, 1948

The Act mandates that every worker who has completed at least 240 days of work in a factory within a calendar year is eligible for paid leave in the following year.
For adult workers, this paid leave is calculated at the rate of 1 day off for every 20 days worked in the previous year.

The Mines Act, 1952

According to this Act, every person working in a mine who has completed a full year of service is entitled to paid leave in the following year. The amount of leave depends on their type of work:

• For employees working below ground, they receive one day of leave for every 15 days worked.
• For all other employees, they receive one day of leave for every 20 days worked.

The Shops and Establishments Act

This is a state-specific law in India, so the rules about privilege leave can vary depending on the state. However, here are some common provisions regarding PL under this Act:

1. Employees are typically entitled to PL after completing a certain period of continuous service, usually one year.
2. The Act often specifies the minimum number of PL days that must be granted annually, such as 12 days in many states, depending on the number of days worked in a year.
3. Unused PL can often be carried forward to the next year, subject to the state-specific maximum accumulation limit.
4. Some states allow or require employers to encash unused PL when an employee resigns, retires, or is terminated.

It’s important to check the Shops and Establishments Act of the specific state where the business operates, as the rules and limits vary widely across states. For example, the provisions for PL in Maharashtra might differ from those in Tamil Nadu or Karnataka.

Eligibility criteria for privilege leave

The eligibility criteria for PL varies, depending on the company policies. However, the common factors that typically influence an employer’s approval of a PL application include:

1. Tenure: Employers often consider an employee's length of service before granting PL. For instance, some employers may require employees to complete a specific period of continuous service—ranging from 240 days to one year—before becoming eligible for PL.
2. Employment type and work status: PL is usually granted to full-time, permanent employees, while part-time, temporary employees may not be eligible. Employees on probation period may need to wait until their employment is confirmed to access this benefit.
3. Company policy: The number of PL days and the terms for availing them are defined by each company’s leave policy. For instance, some employers require employees to submit leave requests at least 15 days in advance.
4. Accrual period: PL is often accrued over time, with the accrual method varying by company. Employees may need to wait until they have accrued enough PL before they can use it. For example:
   • Some companies credit the full year’s PL at the start of the calendar year.
   • Others opt for a monthly accrual system, where leave is earned incrementally.
5. Performance: In some organisations, PL eligibility may be tied to performance. High-performing employees might be rewarded with PL, while others could face restrictions.
    

Privilege leave calculation

Step 1: Calculate total working days

Consider the total number of days an employee works during a year while calculating PL. This includes all working days and any days the employee was on paid leave.

Step 2: Calculate leaves earned

Leave days are earned based on the total days worked. Typically, this is calculated as a percentage of the days worked, aligning with the proportion of time the employee has been present in the organisation.

Step 3: Determine the leave balance

To calculate the leave balance, subtract the number of leaves taken by the employee from the leave earned. Depending on the company's policy, unused leave may be carried forward to the next year, encashed at the end of the year, or paid out when the employee exits the organisation.

Reasons for availing privilege leave

Privilege leave is granted to employees for various reasons, including vacations, rest, medical treatments, family events like weddings, or personal commitments.

To ensure smooth operations, PL is typically planned in advance, allowing employers to manage business operations by reassigning tasks to available team members during the employee’s absence.

What happens to unused privilege leave?

In India, there are two common ways employers manage unused privilege leave (PL): Encashment and carry forward.

Privilege leave encashment

Indian labour laws mandate leave encashment for privilege leave when an employee resigns, retires, or is terminated. However, the number of days eligible for encashment depends on the company’s leave policy, as determined by the employer.

Most organisations set a limit on the number of days eligible for encashment, and this limit varies across companies. Employers calculate leave encashment based on the employee’s basic salary and dearness allowance (DA). The calculation involves:

• Summing up the basic pay and DA.
• Dividing this amount by the number of days in a month to determine the daily rate.
• Multiplying the daily rate by the number of unused leave days.

The final amount reflects the employee’s unutilized leave compensated at their regular salary rate.

Privilege leave carry forward

Employers may allow unused PL to be carried forward to the next calendar year. However, the number of days that can be carried forward depends on the company’s leave policy. Typically, organizations impose a cap on the number of leaves that can be carried forward, which are then added to the employee’s leave balance for the following year.

Need for privilege leave policy for an organisation

Including privilege leave in your organisation’s leave policy can benefit you in several ways:

• Increased job satisfaction

Having ample leave promotes a healthy and positive work culture, improving employee morale and job satisfaction. Granting this leave shows employees that they are valued, contributing to a workplace where they feel supported.

• Improved productivity

Employees who can take planned time off often return to work more motivated and focused. By including adequate earned leave in your policy, you can improve employee performance, leading to higher organisational productivity. Additionally, a well-structured leave policy can help you retain skilled talent, giving your business a competitive edge.

• Legal compliance

Providing PL is a statutory requirement under labour laws. By adhering to these regulations, employers can avoid legal risks and build a strong reputation for compliance. A legally compliant leave policy not only ensures smooth operations but also enhances your brand image, making your organisation the employer of choice for candidates.

Difference between casual leave and privilege leave

Read in-depth about casual leave, its meaning, and rules here.

A quick summary

Privilege leave is earned leave that employees can plan and use for vacations or personal commitments. Employees need to complete a specific tenure with the organization before becoming eligible. With Zoho Payroll, tracking PL balances becomes effortless. Monitor leave earned, used, and remaining for each employee, ensuring transparency and easy leave management. You can also choose to encash or carry forward unused leave in just a few clicks while accurately deducting tax on the leave encashment amount.

Frequently asked questions on privilege leave