What is LOP (Loss of Pay) And How to Calculate LOP in Salary?

Payroll processing and human resources management remain one of the most important yet challenging tasks that organizations execute. As much as employees remain the backbone of an organization, they also shoulder the responsibility of helping the business achieve the expected ROI. 

 

One of the critical tasks of the human resources department is to keep track of the attendance and different types of employee leaves. Accurate payroll systems promote mutual trust between employees and management. They help reduce employee burnout and boost their morale and productivity.

It is important to understand what loss of pay is to understand its implications and adapt the best strategies to calculate loss of pay in salary. Read the blog to understand LOP (Loss of Pay), the factors determining LOP, and how to calculate the same from the basic salary. You will also gain an overview of the type of holidays and leaves followed in the Indian payroll system. 

What is LOP (Loss of Pay)?

The LOP full form is “Loss of Pay.” It refers to the permitted absence of an employee from work despite utilizing all the paid leaves to his/her credit. For such excess leaves, the salary is not usually paid. 

Loss of Pay is usually accounted for based on the calendar days, and mostly, it is authorized. In some organizations, if employees take leave without reporting for sick leave or vacation leave and violate the leave policy of the company, it is considered LOP days meaning the employee will not be paid for the absence.

Type of Leaves in the Indian Payroll System

Organizations offer employees various types of leaves to ensure that the employees enjoy a proper work-life balance. Such leaves help them unwind and spend time with their family so they remain more efficient and productive at work. 

There are different types of leaves offered to employees that they can avail according to personal requirement. The following are the types of leaves the employees are entitled to in the Indian payroll system.

 

1. Sick Leave

Sick leave is granted to employees who are ill and may not be able to turn up to work until they recover.  Most organizations offer sick leave only after an employee has worked with the company for a stipulated period. 

As sickness cannot be foreseen, availing of sick leave does not require prior intimation. The amount of paid leave depends on the leave policy of that individual organization. Some organizations demand a medical certificate to testify about their illness if the break is prolonged for an extended period of time, say beyond three days or so. This helps avoid misuse of sick leaves. 

In some organizations like RazorPay, sick leave is rebranded as ‘wellness leave’ to encourage employees to prioritize mental health as much as their physical health. 

2. Casual Leave

Employees are entitled to take casual leaves when they have to go on a vacation, travel, participate in a family event, visit their children’s school, complete their chores, etc. Casual leaves remain the most commonly used type of leave in an organization. The number of casual leaves varies with the organization’s leave policy though most of them offer one to two days a month or eight to fifteen days a year, 

The ultimate aim of offering casual leave is to ensure that the employees enjoy a proper work-life balance and take enough time off from work to spend for themselves. Casual leaves cannot be carried forward, and employees cannot combine casual leave with other leave types.  

3. Maternity Leave

Childbirth is a crucial part of a woman’s life, and to ensure that they enjoy the privilege of joyous, stress-free motherhood, firms offer maternity leaves. Maternity leave policies are based on the Maternity Benefit Act of 1961.

Female employees in India can take 26 weeks of maternity leave before and after childbirth, depending on their needs. During this period, they are entitled to full payment of salary. This duration can be extended up to 16 months without termination. How much of this will be paid and unpaid is usually left to the discretion of the individual employer.  

As per the Maternity Benefit Act, women who underwent miscarriage or abortion can also avail of maternity leave, but the duration is much shorter in those cases.  

4. Paternity Leave

Paternity leave is offered to the male employees of an organization who are soon to become fathers. Indian male employees are entitled to take 15 days of paternity leave, which must be availed towards the end of pregnancy or within the first six months of childbirth. 

Paternity leave is at an evolving stage and is not very common in Indian organizations. A JobsForHer’s Diversity Survey shows that around 57% of large firms offer paternity leaves, while it is only 31% when it comes to startups and SMEs,  So, if you are looking for employment in an Indian firm, thoroughly examine their leave policies to understand if they offer paternity leave. 

5. Earned Leave or Privilege Leave

As the name suggests, the privilege leaves are paid leaves earned by employees working in an organization. Such leaves are usually granted to employees after working with the organization for a certain duration. Employees are typically offered 18 days of earned leaves, which varies with organizations. Employees are offered privileged leave without salary deductions. 

Employees should get prior approval from their managers to take an earned leave. The employees can accumulate their earned leaves, and if they do not use the leave fully, they are eligible for encashment. 

6. Study Leave

Study leave, or sabbatical leave is granted to employees to upskill and reskill themselves to strengthen their contribution to the organization. Usually, it is a long-term leave and unpaid. 

An employee should plan such leaves in advance. Employees use sabbatical leave to upskill and advance their careers, deal with family problems or health issues, travel for long periods, or take a career break. 

Apart from the type of leaves mentioned above, there are other types of leave, including bereavement, marriage, quarantine, etc. 

Types of Holidays In India

In India, there are three types of holidays: national, weekly, and religious. Learn about each of these holidays in the following section. 

1. National Holidays

National holidays are generally offered to celebrate occasions and events of national significance. India offers three national holidays, including republic day on the 26th of January, independence day on the 15th of August, and Gandhi Jayanthi on the 2nd of October.

2. Weekly Holidays

Organizations offer one or two days of leave at the end of every week. Most businesses remain closed on Sundays, while banks and some private organizations remain closed on the second and fourth Saturdays of every month. Doing so depends on the leave policy of organizations. 

3. Religious Holidays

India is a secular country, offering leave on major festivals celebrated by all religions. As some festivals are state-specific, holidays vary with states and are usually published in the state gazette. Diwali, Holi,  Christmas, Eid, etc., are notable religious festivals. This way, you can ensure that your employees get time to spend with the family and celebrate the festival together. 

How To Calculate LOP In Salary?

It is important to be aware of how to calculate LOP in salary. The following are some factors that organizations consider while calculating the LOP in an employee’s gross salary. 

1. Length of Employment Contract

LOP calculations are usually done based on the organization’s policy and the nature of the employee contract. If an employee works based on an annual contract, the LOP leave calculations are made on the annual income. 

2. Scale of Pay

While calculating the LOP for an employee, their pay scale is considered. Employees in managerial positions who have a high basic salary are not always considered to be eligible for LOP leaves.

3. Employment Tenure

Employees working during the probation period are not permitted for LOP leaves unless there is a valid justification.

4. Nature of Work

Employees who work in critical sectors and perform hazardous jobs are usually not considered for LOP leave. 

While deducting the LOP for an employee’s leave, you should pay extra attention to the number of days you consider for the given period. 

What Is The Loss of Pay Calculation Formula?

Loss of pay is usually calculated as the one-day basic salary based on the number of days in a month, and this is then multiplied by the number of days the employee has taken leave.  

LOP = One-day effective salary * Number of days the employee has taken leave

One-day effective salary = Total employee’s salary for the month / Number of working days in that month. 

Example: If the salary is Rs. 60,000 INR, then 

LOP when the number of days is 30 is 60,000/30 = INR 2,000. 

When Loss of Pay is calculated without accounting for the weekends, it is as follows. 

Number of days on the weekend = 4*2 = 8 days in a month

Effective days = 30-8 = 22 days. 

When accounted for the weekend, LOP will be 60,000/22 = INR 2,727.

What Is Leave Encashment?

If the employee has accumulated paid leaves without availing them, it can be exchanged for money. This amount of money the employee receives in exchange for the leaves accumulated is called the leave encashment. 

The leave encashment policies vary from one organization to the other. Some account for the unused leaves in the next calendar year and compensate accordingly. At the same time, others let them carry forward the unused leaves to the next year. They compensate the employee at the time of resignation or retirement from the service. 

The employer is expected to compensate the unused paid leaves, called leave encashment. 

If the employee continues to work in the organization after receiving the encashment, it is treated as a salary and not exempted from taxes. The organization will deduct the tax at the source. On the other hand, when the encashment is provided to the employee at retirement, they become eligible for tax exemptions. 

How To Avoid LOP in Your Salary Slip?

LOP in attendance may adversely impact your monthly income and financial stability. To avoid LOP in your salary slip and receive your full salary, follow the given steps carefully. 

1. Communicate Your Leave

Ensure you communicate your leave well in advance to the manager and seek their approval. Doing so would help them make alternative arrangements, and you can also avoid Loss of Pay in your salary slip. 

2. Compensate for Lost Time

If you have to take leave with a Loss of Pay, compensate for the lost time by working extra hours on weekdays or weekends. Doing so would help you offload the burden and avoid the Loss of Pay. 

3. Track Your Leave

Invest some time in the beginning to understand the organization’s leave policy. Keep track of the available leaves and use them properly. If you have a leave balance, you can take a break and unwind your mind. This helps improve your productivity at work and achieve a proper work-life balance. 

4. Avoid Unnecessary Leaves

Avoid taking leaves often, as it impacts your productivity at work. Doing so will also help you maintain the stability of your salary and avoid the Loss of Pay. 

Conclusion

Human Resources Management is no more a support function in an organization. It has evolved beyond the traditional role of managing the resources to become the backbone and a critical component of a business’s functioning. 

As the HR department has gained strategic prominence in the increasingly globalized world, managing resources without the right tools is impossible. The policies and pay benefits vary from one organization to another. So, as an employer, it is important that you focus on working out a policy that works well for your domain and helps you build and maintain a talented pool of human resources. 

Maintaining employee attendance, tracking their leaves, managing the LOP reversal, monitoring their pay and health care benefits, and managing payroll processes are some of the HR department’s key roles. Doing them without HR software and a leave management system may prove to be ineffective, so make sure to harness technology to the maximum!