Firms modify leave policy2 min read . Updated: 29 Aug 2020, 08:33 AM IST
While some are keen to ensure their employees don’t burn out, others are reviewing encashment policies to reduce their liability towards higher leave encashments that will pile on this year
New Delhi/Mumbai: A growing number of companies are encouraging their employees to take time off work. With most employees continuing to work from home, few have taken leave—either due to worries about losing their job or for fear of travelling.
While some are keen to ensure their employees don’t burn out, others are reviewing encashment policies to reduce their liability towards higher leave encashments that will pile on this year.
“While policy around leave encashment cannot be scrapped abruptly because fewer employees are taking leave, organizations are updating them to reduce the number of leaves which can be encashed by 15-20%. This promotes a healthy working practice and helps address the burnout issue as well," said Pankaj Bansal, co-founder and CEO, PeopleStrong, an HR technology solution provider.
Agreeing with him, Navneet Rattan, director - performance & rewards, Aon India Consulting, said that organizations have been reducing current leave balance, not allowing for leave encashment, or putting a cap on it this year.
In April, according to a media report, consultancy and IT companyCapgemini temporarily tweaked its leave policy in India and reset the earned employees’ leave to 15. Capgemini said the change was an interim measure and would only apply till Q2 end.
Some companies, particularly in the tech sector, are encouraging employees to take their leaves now so that a flood of leave encashments does on impact cash outflow at the end of the year.
“For MNCs, the common practice of taking leave in December cushions the effect of unused leaves. Since many encash leave at basic pay and not full pay, I estimate the value of leave encashment at 4-5% of salary," said Amit Gopal, India business leader-investments at Mercer.
According to Anandorup Ghose, partner, Deloitte India, most actions are taken by organizations from the perspective of reducing leave liabilities. “Due to the reduction in leave utilization, the leave liability is increasing for most companies. Companies where leave encashment was on an annual basis are moving towards encashment on retrenchment/resignation," said Ghose. Although moving leave encashment to retrenchment or resignation may not provide immediate cash flows to the companies, it helps in deferring liabilities.
The number of leaves taken by employees has gone down significantly. As per PeopleStrong’s leave transaction data, employees have applied for nearly 40% fewer leaves during the April-June period.
All organizations have to provide a certain minimum number of leaves to their employees under the Shops and Establishment Act 1961 and the rules differ from state to state. However, it’s not mandatory for all organizations to offer leave encashment.