Accrued Leave

Definition of Accrued Leave

Accrued leave refers to the amount of leave an employee earns over a period of time but has not yet taken. Employees accumulate leave based on company policy, and the balance carries forward until it is used. This leave can be accrued monthly, quarterly, or annually, depending on the employer’s policy. For example, if a company offers 12 days of leave annually, an employee would accrue 1 day of leave per month.

Key Features of Accrued Leave:

• Earned Leave: Employees earn leave based on their time with the company.
• Carry Forward: Unused leave is carried forward and can be used at a later time.
• Company Policy-Driven: The rate at which leave is accrued varies from company to company.
• Liability for Employers: Employers need to account for accrued leave as a liability, since employees can request compensation for unused leave in some cases.

How Accrued Leave Works

Accrued leave is usually calculated according to a company’s HR policies. Most organisations allocate a fixed number of leave days per year. Employees gradually accrue these leaves each month. For instance, in a company offering 24 days of annual leave, employees will accrue 2 days per month.

In India, some organisations allow carry forward of unused leave, while others may have policies that limit the carry forward to a specific number of days or require employees to utilise leave within a certain period. Understanding company-specific leave policies is essential for employees to maximise their benefits.

Types of Accrued Leave

Employees may accrue different types of leave, depending on their employment contracts or company benefits:

• Sick Leave: Time off earned specifically for illness.
• Paid Time Off (PTO): General leave that can be used for personal or holiday purposes.
• Maternity/Paternity Leave: Some companies allow parents to accrue leave for family care after childbirth.

Legal Considerations

In India, accrued leave is governed by company policies and local labour laws. Most companies are required to provide a minimum number of leave days to employees under the Factories Act, 1948, or the Shops and Establishments Act, depending on the sector. Employees should be familiar with their rights under these laws and how leave is accrued, carried forward, or compensated upon resignation or retirement.

How Employers Can Manage Accrued Leave Efficiently

Employers often use digital HR management systems to track leave accrual and usage efficiently. This ensures compliance with company policies and helps avoid the accumulation of large amounts of unused leave, which can become a financial liability. Automating this process through an employee benefits platform like Plum helps streamline leave management and improve transparency for both employees and HR.

Frequently Asked Questions (FAQ)

Q. Can accrued leave be encashed if not taken within a specific period?

A. Yes, many companies allow employees to encash unused accrued leave, especially when they leave the organisation. However, whether this is allowed within a specific period depends on company policy. Some organisations encourage employees to take their leave instead of encashing it, because this promotes work-life balance. Others may offer an option to encash leave at the end of the financial year or during employment termination. It’s essential to review your company’s HR policy or employment contract for specific terms regarding leave encashment.

Q. Is there a limit to how much accrued leave can be carried forward each year?

A. Many companies set limits on how much accrued leave can be carried forward. This ensures that employees use their time off instead of accumulating large amounts of unused leave. Some employers allow carry forward up to a certain number of days, and any excess may either be forfeited or encashed. These limits vary by company policy, so it’s important to be aware of your employer’s specific rules regarding leave carry forward.

Q. What happens to accrued leave during maternity or paternity leave?

A. Accrued leave policies during maternity or paternity leave depend on the company's guidelines. In most cases, employees continue to accrue leave during their maternity or paternity break. This is because the time off is still considered part of their employment tenure. However, it's best to consult your employer's leave policy to confirm how accrual works during extended periods of absence. Many companies maintain accruals to ensure employees return with their full benefits intact.