Loss of Pay (LOP)

LOP is short for loss of pay, and it is the salary an employee does not receive for days of unpaid absence in the month. It usually appears twice on a payslip: as a count of LOP days next to the paid days, and as an amount, shown either on its own line or already netted off the earning heads.

Calling it a deduction causes most of the confusion. An ordinary deduction takes money out of pay that was earned. With LOP the pay was never earned at all, because pay follows attendance and no leave was available to cover the gap. A fine is a separate thing again, with its own procedure and its own ceiling.

An absence becomes LOP only once the leave system has been applied to it. Casual leave, earned leave, a compensatory off or an approved regularisation will each stop it. LOP is what is left over.

The LOP amount is a day of pay multiplied by the number of unpaid days. The multiplication is the easy part. The argument is always about how a day of pay is arrived at, because the Code prescribes no divisor and three of them are in common use.

• Calendar days in the month, so a day is worth less in a 31 day month than in February.
• A fixed thirty days, so the per-day rate is the same all year.
• Actual working days, which strips out weekly offs and holidays and so gives the highest per-day rate.

Take a gross salary of 45,000 rupees, a month of 31 calendar days with 26 working days, and one day of unpaid absence.

The same absence is worth 1,451.61 rupees or 1,730.77 rupees depending only on which line of the payroll policy applies, a difference of about 280 rupees. Across a workforce and a year that adds up, and it is a common reason employees dispute a payslip. Whichever basis is chosen should be written into the payroll policy and applied to everyone in every month. An employer who pays on calendar days but deducts on working days is taking more than the absence is worth, and Section 20 does not allow that.

Which earnings the rate is built from matters just as much. LOP belongs on the heads that are paid for attendance, so it is normally applied to gross earnings and not to basic alone. Reimbursements settled against a claim are not attendance pay and should not be scaled down with it.

Absence from duty is one of the purposes for which wages may be deducted at all, under Section 18(2) of the Code on Wages, 2019, and Section 20 sets the limits on it.

• The deduction may be made only for absence from the place where the employee is required to work.
• It must be proportionate. The deduction may not bear a larger proportion to the wages than the period of absence bears to the total period the employee was required to work.
• Where ten or more employees absent themselves in concert without due notice and without reasonable cause, the deduction may include an amount not exceeding eight days wages due to the employer in lieu of notice.
• An employee who is present but refuses to work in pursuance of a stay-in strike is treated as absent.

Two further limits apply. Total deductions in any wage period may not exceed fifty per cent of wages, under Section 18(3). And the wage period is fixed by the employer as daily, weekly, fortnightly or monthly under Section 16 and may not exceed a month, which is what makes the month the unit LOP is measured against.

Proportionality is the rule that gets breached in practice, usually by accident: a working-days divisor used for the deduction while pay is computed on calendar days, or half a day of absence rounded up to a full day. Section 45 gives the claims authority power to award compensation in addition to the amount claimed, extending to ten times the claim.

Yes, because LOP reduces the wages actually payable for that month, and the monthly statutory amounts are computed on what is payable.

• Provident fund contributions for the month fall, since they are computed on the reduced wages.
• The employee state insurance contribution follows the same reduced figure.
• Tax deducted at source falls, because the projected annual salary drops when a month is short.
• Gratuity and leave encashment are computed on last drawn wages rather than on a month that happened to carry absence, so a spell of LOP does not by itself change them.

Two situations need watching. A long spell of unpaid absence can push a month low enough to change the contribution position for that month. The coverage itself does not end. And a month in which nothing at all is payable still needs a payroll record and a wage slip, because the employment continues.

These three describe the same missing day as three different systems see it, which is why they get used interchangeably.

Approved leave without pay produces LOP. So does an unapproved absence. The pay treatment is identical, and what differs is whether anything else follows. The payslip alone will not say which of the three it was, so the attendance record has to answer for every LOP day.

Most LOP complaints are about timing or visibility, not about the law, and the fixes are procedural.

• Publish the attendance cutoff date, and keep the regularisation window open until it. An employee who cannot correct a wrong absence before payroll locks will raise it after.
• Show the LOP days on the payslip and not only the amount, so the employee can check the count against their own record.
• Reverse a wrongly applied LOP as arrears in the next cycle instead of reopening a closed month. The wage slip already issued then still matches what was paid.
• Keep the muster roll, the attendance record and the payroll register saying the same thing. Section 50 of the Code requires those registers to be maintained and a wage slip to be issued, and an inspection reads them together.
• Say in the appointment letter or the payroll policy which divisor is used, so the basis is agreed before anyone needs it.