What is Leave Balance? Types, Calculation & Importance
Table of Contents
What is Leave Balance?
Leave balance refers to the accumulated amount of time off, which an employee can use for vacation, personal reasons, health-related reasons, or emergencies. This leave balance is usually in the form of a statement, containing the details about remaining leaves and used leaves.
Knowing leave balance and various types of leave is important for employers, as different companies have different leave policies regarding encashing, taking leave, or carrying forward (using the leave in the next month or year).
For reference, only 47% of regular salaried employees were not eligible for paid leave in India.
What are the Types of Leave Balance?
These types are derived from the purpose or the nature of the time. For example, sick leave is used for addressing health-related issues. Let’s look at some common types of leave.
Privilege Leave: (PL Leave)
Privilege Leave, also known as earned leave, is a leave that is earned by employees based on the days worked. Such leave is typically available for vacations or recreation. Notice period for privilege leaves can vary. However, usually a 15-30 day notice is required to avail such leaves. Many acts, such as the Factory Act (1948), specify the basic terms and conditions for privileged leave.
Annual/Vacation Leave
It refers to a set number of paid leaves that are granted by the company annually for rest and recreation. Almost every employee is eligible for annual/vacation leave. Laws like the EU’s Working Directive mandate 4 weeks of paid annual leave.
Sick Leave (SL)
Sick leave is a type of paid leave that is provided to employees due to short-term incapacity to work because of health-related issues or injury. The number of sick leaves offered varies in different regions due to different regional regulations and firm-specific policies.
Casual Leave (CL)
Casual leave is a leave provided to employees for a short duration to address any unforeseen emergency. This leave is separate from other types of leave, such as sick leave and vacations. Eligibility rules may vary based on company policies and regional regulations related to employee classification.
Maternity/Paternity Leave
Maternity leave is provided to female employees who are pregnant or have given birth recently. Paternity leave is offered to male employees to support their partners in taking care of their children. Different laws and regulations mandate different provisions for maternity/paternity leave.
For example, in India, the Maternity Benefits Act provides for 26 weeks of leave for the first two children and 12 weeks for 3rd child onwards. Paternity leave is not available to private employees in India. However, Civil Services Rules (1972) provide 15 paid paternity leaves.
Compensatory Off
In Compensatory Off, it is defined as “leave given in lieu of monetary overtime compensation.” The rules related to accrual and carrying forward of compensatory off-days vary according to different regional legislations and leave policies.
Loss of Pay (LOP)
Loss of Pay is a type of unpaid time off requested when other accrued paid time off is exhausted. This leave is also known as leave of absence.
How is Leave Balance Calculated?
Leave balance calculation typically depends on two main factors, accrual rate and carry-forward policy. This article discusses important terms related to leave management in the key terms section of this blog.
The formula to calculate leave balance is:
Leave Balance = Total Entitled Leave – Leave Taken
Here is a short table illustrating a few hypothetical calculations based on the above formula.
| Employee | Year | Total Entitled Leave | Leave Taken | Leave Balance |
|---|---|---|---|---|
| Employee A | 2024 | 30 days | 7 days | 23 days |
| Employee B | 2024 | 24 days | 4 days | 20 days |
| Employee C | 2024 | 36 days | 12 days | 24 days |
Although calculating leave is a simple process, accurately tracking the leave balance of multiple employees would be difficult. HR professionals find it challenging to track leave in a spreadsheet, which can lead to more errors. Organizations should utilize leave management software, as manual methods can be time-consuming. The software can automatically track and update employees’ leave balances and allows for approval workflows.
Accrual vs. Allotted Leave Balance
These are two different types of leave balance. In the accrual leave balance, employees earn their leave and are not allowed to take all their leave upfront. For example, in accrual leaves, employees cannot take 30 days of leave at once. In contrast, in allotted leave, employees are given their leave entitlements upfront at the beginning of the leave year.
What is the Importance of Leave Balance for Employees and Employers?
For employees:
- Knowing leave balance can help employees plan for recreational activities and tours.
- It also promotes work-life balance by allowing them to spend quality time with their families.
- Providing employees access to their leave balance ensures they are not abused or exploited, and that they receive leave entitlements legally due to them.
For employers:
- Maintaining records related to leave balance is useful in complying with regional regulations. For example, the Shops and Establishments Acts in India provide for different leaves as per state regulations.
- Employee time tracking also helps employers avoid workforce disruptions.
- Strategically implemented leave policies can assist in attracting and retaining new talent as well.
- Providing employees with leave for recreation can help them be more productive and can increase the overall productivity of an organization.
- Proper leave policies also improve employee morale and satisfaction, along with the brand’s reputation.
What are the Key Terms Related to Leave Balance?
Carry Forward and Expiry Rules
A carry-forward or carry-over policy specifies whether or not an employee can avail of unused leaves in the next period. For example, next month or next year. Expiry rules stipulate the deadline by which carry-forward leaves are to be availed.For example, some firms have a policy in which leaves are to be availed before the end of the leave year.
Encashment Options
Encashment options are flexible options provided to employees to compensate them monetarily for accrued but unused leaves. These options vary as per company policies.
Minimum/Maximum Accrual Limits
These are accrual caps that specify how many leaves can be accrued and how many leaves need to be taken before the next accrual cycle.
Policy Differences for Various Leave Types
There are various payroll policies for different leave types, as per regulations, and these differ from region to region.
What Happens if Leave Balance Runs out?
Generally, there are four possible outcomes after an employee’s leave balance runs out.
- Employees might need to take unpaid leave known as Loss of Pay.
- They might rely on other types of leaves, such as sick leave, compensation leave, or any other special type of leave, as needed and specified.
- They borrow leave against future accrual leave in a negative leave balance.
- For a contractual employee, they can renegotiate their agreement to avail of some extra leaves in case of an emergency.
Leave Balance Management in HR Software
Organizations can benefit from managing leave with HR software. An HRMS can simplify leave management with automated calculations. It can also track and provide real-time access to leave balance. Most importantly, it facilitates digital record-keeping, which ensures that companies are ready for internal and external audits. Here are the top 7 HRMS features for the leave management module.
Auto-Updates to Leave Balance
A leave management software can automatically update employees’ leave balances. This makes sure that their leave balance is accurate and they can access any changes in real-time.
Integrated Leave, Payroll and Time-Management Modules
The leave management system can integrate with the attendance, time management, and payroll module. This helps in three ways:
- Organizations can track employee time off accurately and avoid absenteeism-related issues.
- Employees can be paid fairly.
- HR professionals wouldn’t need to update leave balance calculations manually, as the software automatically transfers data from one module to another.
Automated Approval Workflows
Managers often need to approve multiple leave requests at once. This could be difficult, as managers need to sift through hundreds of emails and requests. A digital solution would enable them to approve leave requests in bulk and save valuable time.
Team Leave Calendars
In an increasingly remote and hybrid work environment, employees could take leave at any time due to emergencies and unforeseen situations. In such scenarios, the workforce could face disruptions. A team leave calendar ensures that managers and team members are able to plan, as it shows the number of absent employees per department.
Employee Self-Service Portals
These portals allow employees to apply for leave from anywhere and at any time. This markedly improves employee satisfaction. Such self-service portals also let employees check their leave balance and leave application status online and foster an environment of transparency.
FAQs on Leave Balance
How do I Ask for Leave Balance?
You can contact your HR or managers to check your current leave balance. However, advanced leave management systems can help you to access leave balance in real-time as well.
What is the Meaning of 1.25 Leave Balance?
The meaning of 1.25 leave balance is used to express the unused leave of one day and two hours. Here, 025 or .25 is a fraction. Practically, an employee can avail one day and two hours of leave when they have a 1.25 leave balance.
Can I Use My Leave Balance in Notice Period?
There isn’t any specific legislation that prohibits the use of leave balance. However, whether or not you can use your leave balance in the notice period solely depends on your firm’s leave policy.
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