According to Indian labour laws, employees should not work seven days a week. According to the factory's act, employees must work 48 hours per week and/or get one or two days off. If an employee works more than 48 hours, they are entitled to double the standard amount of overtime compensation. In exceptional cases, employees may be required to work on weekends, national holidays, and weekly rest days. Workers who lost their weekly rest days as a result of an organisation receiving an exemption under section 52 of the Factories Act shall be given compensated rest days within the next two months.
Did you know?
According to the factory's law, the employer must ensure that no employee works more than ten days straight without a 24-hour break period.
What is Compensatory Leave?
Compensatory time, commonly referred to as compensatory leave, is an overtime payoff granted to employees in return for working overtime. Under certain situations, paid time off should be given at a rate equal to 150% of the additional hours (generally referred to as time and a half). In other cases, the leave could be similar to the number of hours worked. For example if an employee has to work on Public holidays and weekends, he/she is entitled to a compensatory leave day. There is, however, generally a limited amount of time under which the employee can avail this leave. This limit depends on company to company. There is no prescribed amount of days required for this by the Indian government; the organisation determines the cap. The majority of businesses favour offering compensatory time off for up to 30 days.
Also read: Gross Salary Vs Net Salary - Important Differences Between Gross and Net Salary
Is Compensatory Leave Legal?
The situations by which the compensatory leave may be employed are specified in the factory's law. When extended to eligible workers, compensatory time is lawful. Usually (depending on various state legislations), private businesses are not allowed to substitute compensatory time for overtime compensation for non-exempt workers.
Eligibility for Compensatory Leave
There are four primary groups of workers that are qualified for compensatory leave under the factory’s law:
- Public sector workers. These include the ones employed by the central or state governments.
- Salary-paying (exempt) personnel.
- Non-exempt workers who put in fewer than 40 hours a week, such as during a vacation week when they are compensated for leave but don't take one, are not free from overtime pay.
- Workers in some states of India (Andhra Pradesh, Maharashtra, Karnataka, Uttar Pradesh, Rajasthan, Tamil Nadu, Gujarat, West Bengal).
Compensatory Leave Usage
Compensatory leave has advantages for both workers and businesses. Employees could like the option of working long shifts one week while saving up more paid time off for a future date. Employers could appreciate the improvement in employee morale. This also allows workers to plan extra hours during busy periods.
Here are a few typical instances of how compensatory time is used.
Instead of receiving overtime compensation, central and state government workers may be eligible for compensatory time off. State rules differ, but central law (section 52 of the Factories Act) mandates that for every 1 hour of overtime worked, employees must be given 90 minutes of compensatory time within the next 2 months. The compensatory time must be used during the same payroll period as the overtime is accrued according to the law.
The policy for compensatory leave may vary from company to company. As there is no central law mandating compensatory off on private businesses, they can frame their own policies on compensatory leave. As long as the policy is applied fairly throughout the business, each firm can decide how to implement it.
Also read: Salary Advance Loan - Comparison, Meaning, Pros & Cos of Advance Salary Loan
Staff who work on a corporate holiday, whether exempt or not, may occasionally take a day off instead of pay. In essence, this converts paid time off for holidays into compensatory time.
How to Draft your Compensatory Leave Policy
Before adopting compensatory time, a compensatory leave policy must be established. It is easier for both employers and employees to grasp expectations when policies are written and conveyed.
When drafting compensatory leave policies, public companies must meet additional criteria. For instance, the organisation and the association must agree to the compensatory time policy if a union is included. Otherwise, the compensatory time policy must be agreed to before the overtime hours, not after they have been worked.
As you decide who qualifies for compensatory leave, take into consideration the existing legal limitations. All exempt workers who put in more than 40 hours a week will receive compensatory time from you. Will these workers require permission in advance to clock in compensatory time? Will non-exempt employees' qualifying requirements be different from those of exempt employees?
Establish the payment method for the compensatory leave. Will you provide compensatory time at an hourly rate or another price? How you'll record compensatory time is a further concern in this situation. Is it a component of your computerised HR software? Do specific supervisors keep tabs on it for their immediate supervisor?
Set restrictions on how you utilise the compensatory time. How long may workers use their compensatory time? Would there be a limit on how many hours of compensatory time someone may accumulate? Exist any limitations on when compensatory time may be used?
Review and Training:
To be sure you effectively achieved the goal within the legal parameters of your jurisdiction, record your policy and go through it with legal assistance. To guarantee that the approach is used effectively and equally throughout the company, educate your management on it.
How to Calculate Compensatory Leave
The policy you create will significantly impact how compensatory leave is determined.
Public sector workers who work for the central or state administrations will collect compensatory time at a rate of 1.5 times the number of extra hours they put in. For instance, an employee who puts in 10 hours of overtime is subject to 15 hours of compensatory time.
compensatory time may be granted to exempt workers who are not generally eligible for overtime compensation by business policy. Companies can choose how they will compensate employees for overtime hours performed, whether it be an hour for an hour or a time and a half.
Also read: Learn About Game Developer Salary in India With Roles & Responsibilities
The compensatory-off structure functions effectively in terms of mental health and medical treatment. The notion of receiving leave as compensation for excessive effort is frequently a source of positive incentive for the employee. The fact that the employees are content and productive also helps the company's credibility. This promotes an excellent work-life balance and encourages workers to be more productive throughout the workday. Contrary to the statistical analysis, compensatory offs have several advantages. Due to increased worker productivity, companies are spared from paying additional overtime wages. By receiving an extra day off, the individual may continue to balance their personal and professional lives.
Follow Khatabook for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.