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What is LOP (Loss of Pay)? How to calculate LOP in salary?

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Payroll is a vast process and each step involved in the entire cycle plays a significant role. Employees are the base of every ongoing activity in an organization.

Being the biggest asset of a business set up, employees owe the expected ROI. Achieving that ROI is not the sole responsibility of an employee but teamwork.

While employees are engaged in their tasks, HR’s task is to manage the employees. Managing the resources is not as easy as it seems.

It’s a whole avalanche of tasks to be accomplished. One of them is tracking leave and attendance of employees.

While calculating the ‘net-salary’ of employees, the leave and attendance information plays a vital role. 

Keeping track of leaves and attendance of employees is a daunting task.

One of the significant challenges of the employers is to manage the time of employees effectively so that everyone in the organization is productive.

Employee leave & attendance management involves keeping records of sick leaves and holidays, as well as ensuring that the payroll gets done in an error-free manner and on time.

Type of Leaves in the Indian Payroll System

1. Sick leave

Sick leave is time off given by the company to allow employees to recover from an illness and take care of their health.

Usually, an employee is entitled to sick leave only after a stipulated period of employment in an organization.

2. Casual leave

Casual leave is taken by an employee for travel, vacation, rest, and family events. T

here are different rules for the number of days that casual leaves can be taken at a stretch varying between three to five to seven days.

Giving the employee paid casual leave will allow them to prioritize their private life when required, making them feel appreciated in the company.

3. Maternity Leave

This provision is especially available for those women employees who plan to have a baby.

The duration of paid maternity leave is 12-26 weeks and this can be further extended with 16 months of unpaid leave.

No deductions can be made from the leave account of the female employee.

4. Paternity leave

Paternity leave is granted to new fathers, husbands or partners of a pregnant woman. Unlike maternity leaves, new fathers usually get 2 weeks of leave to take care of their child post-delivery.

5. Earned Leave or Privilege Leave

The type of leave which the employees earn as they work for an organisation for a specified number of days.

The privilege leave is sanctioned to the employees without any salary deductions. The number of privilege leaves admissible may vary on the basis of industry and region.

6. Study Leave

An employee may be granted a study leave to enable him to update his knowledge and experience in a way that he will be of greater use to the Institute after rejoining.

Types of Holidays in India

1. National Holidays

These are the fixed holidays that we have in India on the 26th of January, 15th of August, and 2nd of October every year.

2. Weekly Holidays

There are either one or two weekly holidays at the end of the week for all the employees depending upon the organizational policy.

3. Religious holidays

Diwali, Christmas, Eid, Holi – your employee is sure to place importance on religious holidays that they celebrate and would want the day off to spend time with their family and observe the festival.

What is LOP (Loss of Pay)?

In payroll, LOP stands for “Loss of Pay,” which refers to the situation where leave is taken by the employee when he/she does not have leave balance in his/her account but is given permission to remain absent.

How to Calculate LOP in Salary?

Calculation of the number of days for a given pay period has a significant impact when deducting salary for Loss of pay due to leave or other reason.

LOP Calculation Formula

Ex: Loss of pay when days = 30
→ INR 30,000/30 = INR 1,000

Loss of Pay when days are calculated excluding Weekends: let’s say there are 8 Saturdays and Sundays in month
Effective days = 30-8=22 days
→ Loss of Pay = INR 30,000/22 = INR 1,364/

What is Leave Encashment?

Leave encashment refers to an amount of money received in exchange for a period of leave not availed by an employee.

Encashment of accumulated leave can be availed by an employee at the time of retirement, during the continuation of service or at the time of leaving the job.

The leave encashment policy varies from employer to employer.

Some employers pay for the un-availed leaves in the next calendar year. Some let the employees carry forward the balance leaves in a year to the next year.

And the employer pays for the un-availed leaves at the time of leaving the job.

Income tax treatment of the amount received towards leave encashment depends on the type of employment – private or government – and time of – in-service or at the time of retirement.

Conclusion

HR is not anymore just about overseeing resources; the department acts as an accelerator in organizations with a growth mindset.

When the HR department is majorly equipped with tools like paper forms, emails, and excel sheets, the growth of HR is exceptionally troublesome and there is zero chance HR can play a significant role other than resource management.

While processing payroll, data plays an imperative role; leave and attendance data is a significant element of payroll calculation.

Navigating the leave management minefield without a leave management system is a tricky challenge.

Even small stumbles can cause disasters like resource crunch, payroll processing errors, and legal complications.

An organization must reduce the effort and implement leave and attendance management software for smooth functioning.


FAQ:

Q1) How do you keep track of time and attendance virtually?  

There are many virtual time and attendance tracking solutions. Some of them aretime and attendance tracking systems, tracking employee hours via mobile apps, and GPS clock-in apps. Using a streamlined process for tracking time and attendance makes payroll processing and compliance easier. 

Q2) How do you manage leaves? 

To manage leave, employers will have to consolidate all the leave requests into one single place. These can be recorded in emails, notes, excel, or a leave management system. After this, add up their sick days and holidays. Continuously track their time-off requests while adding the employee information. Some companies use spreadsheets to track leaves. However, this is really messy, time-consuming, and prone to errors. Information like this is not easy to share to the payroll management as well. Fortunately, a leave management system tracks everything easily under a single dashboard. It also provides department-wide insights into employee leaves. All of this makes it easy for payroll.  

Q3) What are the 4 types of leaves? 

Different types of leave can be divided into four categories – paid, unpaid, voluntary, and involuntary.  Paid leave is granted by the employer without any payment deduction. Unpaid leave is when an employee takes time off without pay. Voluntary leave is planned by the employee in advance to go on a vacation and such. Involuntary leave is when an employee cannot work because of medical condition or other unforeseen circumstances. 

Q4) What is the difference between leave without pay and loss of pay?  

When an employee doesn’t have enough leave balance, but if his leave request is completely authorized by the employer, it is called leave without pay (LWOP). The employee here is on leave without salary/wages. In Loss of Pay (LOP), the absence of the employee may or may not have been approved by the employer. Any leave availed in violation of leave policies is called LOP. The employee is subject to monetary consequences.  

Q5) How is the leave encashment calculated? When is it paid?

Leave encashment is calculated using the following formula:  
[(Basic salary + Any allowance)]/30 * Number of earned leave  
Leave encashment is taxable. The taxable conditions differ from sector to sector and from one company to another. Leave encashment policy also varies from one company to another. Some companies are liable to compensate for the accumulated paid leave at the time of resignation or retirement. Other companies may compensate at the end of year or as per their encashment policy.

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    Meet the author

    Keka Editorial Team

    A bunch of inspired, creative and ambitious youngsters- that’s Keka’s editorial team for you. We have a thirst to learn new subjects and curate diverse pieces for our readers. Our deep understanding and knowledge of Human Resources has enabled us to answer almost every question pertaining to this department. If not seen finding ways to simplify the HR world, they can be found striking conversations with anyone and everyone , petting dogs, obsessing over gadgets, or baking cakes.

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