Hi,
Please tell me how do we calculate leave encashment. For example: Monthly gross salary is Rs. 10,000/- Out of which, Basic=5000, HRA=2500, Medical=1250, Conv=800, Misc Allow=450. Then, how much would be the leave encashment for 5 days? Is the leave encashment calculated based on the last earned basic or is it calculated on the basic for the period during which the leave was earned?
From India, Delhi
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5Please tell me how do we calculate leave encashment. For example: Monthly gross salary is Rs. 10,000/- Out of which, Basic=5000, HRA=2500, Medical=1250, Conv=800, Misc Allow=450. Then, how much would be the leave encashment for 5 days? Is the leave encashment calculated based on the last earned basic or is it calculated on the basic for the period during which the leave was earned?
From India, Delhi
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Dear Palak,
It is mostly calculated based on the last drawn Basic Pay, but can vary from one organization to another. If the employee falls under the purview of any Act, such as the Factories Act, Shop and Establishment Act, Mines Act, etc., which includes Leave Encashment provisions, then that rule must be followed.
Regards,
SC
From India, Thane
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It is mostly calculated based on the last drawn Basic Pay, but can vary from one organization to another. If the employee falls under the purview of any Act, such as the Factories Act, Shop and Establishment Act, Mines Act, etc., which includes Leave Encashment provisions, then that rule must be followed.
Regards,
SC
From India, Thane
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Dear Palak,
What is your company's leave policy? Is it calculated based on the monthly gross salary or the monthly basic salary?
Let's consider an example: XYZ earns 10,000 per month. They are entitled to 24 days of Paid Leave (PL) in a year, which equals 2 days per month. At the end of the year, they have 20 days of PL remaining and would like to encash it. What does your policy state about this? What is the maximum number of days a person can encash their leave? Let's assume it's 15 days per year.
Now, for the calculations:
- Gross Salary per month: 10,000
- PL days left in the year 2006: 20
- Number of days for encashment: 15
- Leave Encashment Amount: 10,000 * 15 / 30 = 5,000 INR (TDS applicable)
I hope this explanation helps you. Take care.
From India, Mumbai
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What is your company's leave policy? Is it calculated based on the monthly gross salary or the monthly basic salary?
Let's consider an example: XYZ earns 10,000 per month. They are entitled to 24 days of Paid Leave (PL) in a year, which equals 2 days per month. At the end of the year, they have 20 days of PL remaining and would like to encash it. What does your policy state about this? What is the maximum number of days a person can encash their leave? Let's assume it's 15 days per year.
Now, for the calculations:
- Gross Salary per month: 10,000
- PL days left in the year 2006: 20
- Number of days for encashment: 15
- Leave Encashment Amount: 10,000 * 15 / 30 = 5,000 INR (TDS applicable)
I hope this explanation helps you. Take care.
From India, Mumbai
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Hi All,
I just want to comment that the calculation of 15 days of paid leave encashment done above is incorrect. I am in the HR department of a reputed University in Abu Dhabi, and I check the Payroll calculations each month.
15 days' paid leave salary should be calculated as follows:
= (10,000 x 12) / 365 = per day salary x 15 days. Therefore,
= (10,000 x 12) / 365 = 328.77 x 15 days = 4,931.50
We cannot do 30/2 to get 15 days of pay as some months of the year have 31 days. We need to get the earned leave salary per day and then multiply it by the leave balance.
Regards,
Amrita
From United Arab Emirates, Abu Dhabi
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I just want to comment that the calculation of 15 days of paid leave encashment done above is incorrect. I am in the HR department of a reputed University in Abu Dhabi, and I check the Payroll calculations each month.
15 days' paid leave salary should be calculated as follows:
= (10,000 x 12) / 365 = per day salary x 15 days. Therefore,
= (10,000 x 12) / 365 = 328.77 x 15 days = 4,931.50
We cannot do 30/2 to get 15 days of pay as some months of the year have 31 days. We need to get the earned leave salary per day and then multiply it by the leave balance.
Regards,
Amrita
From United Arab Emirates, Abu Dhabi
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Hi,
Thanks to both of you for the reply. My issue is that my company's policy is to encash Gross salary, which comprises Basic, HRA, Medical, Conveyance, and Misc Allowance. As per my understanding, this is not the common practice for leave encashment. Additionally, if we encash the full gross salary, the company's expenditure for leave encashment becomes substantial. Therefore, I would like to propose changing the policy to encash only the basic part of the salary. Could you please advise on the pros and cons of this approach? Is it appropriate to encash leave based only on the basic part of the gross salary? Also, should it be calculated on the last drawn basic salary?
Thank you,
Palak
From India, Delhi
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Thanks to both of you for the reply. My issue is that my company's policy is to encash Gross salary, which comprises Basic, HRA, Medical, Conveyance, and Misc Allowance. As per my understanding, this is not the common practice for leave encashment. Additionally, if we encash the full gross salary, the company's expenditure for leave encashment becomes substantial. Therefore, I would like to propose changing the policy to encash only the basic part of the salary. Could you please advise on the pros and cons of this approach? Is it appropriate to encash leave based only on the basic part of the gross salary? Also, should it be calculated on the last drawn basic salary?
Thank you,
Palak
From India, Delhi
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Dear Palak, Usually, Leave encashment for both government and non government sectors is done on GROSS SALARY (that includes last Basic + HRA + Transport Allowance + VDA / DA). Regards, Amrita
From United Arab Emirates, Abu Dhabi
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From United Arab Emirates, Abu Dhabi
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Dear Amrita,
I just want to comment that the calculation of 15 days of paid leave encashment done above is incorrect.
The above statement is not correct. It depends from Organisation to Organisation. In statutes, the number of working days is taken as 26, which I feel is correct in view of the weekly off, and the smaller the denominator, the greater the benefit. Tell me something, as per your logic, should you divide by 366 (Three Hundred Sixty-Six) days in Leap Years? Do you do it?
Dear Palak,
Before looking at the pros and cons, you must first realize that changing the leave pay from gross to Basic will result in a reduction of Annual Earnings of Employees, which is something an Organization cannot do.
The first step would be to compensate for the loss in earnings either by introducing a new allowance or clubbing it with an existing allowance.
The next step would be to pay all leave due to all employees on gross pay till date, thereby bringing the leave balance to zero.
The new policy can be introduced after the above two steps are strictly adhered to, and this will ensure that there are no legal complications in the future.
Regards,
SC
From India, Thane
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I just want to comment that the calculation of 15 days of paid leave encashment done above is incorrect.
The above statement is not correct. It depends from Organisation to Organisation. In statutes, the number of working days is taken as 26, which I feel is correct in view of the weekly off, and the smaller the denominator, the greater the benefit. Tell me something, as per your logic, should you divide by 366 (Three Hundred Sixty-Six) days in Leap Years? Do you do it?
Dear Palak,
Before looking at the pros and cons, you must first realize that changing the leave pay from gross to Basic will result in a reduction of Annual Earnings of Employees, which is something an Organization cannot do.
The first step would be to compensate for the loss in earnings either by introducing a new allowance or clubbing it with an existing allowance.
The next step would be to pay all leave due to all employees on gross pay till date, thereby bringing the leave balance to zero.
The new policy can be introduced after the above two steps are strictly adhered to, and this will ensure that there are no legal complications in the future.
Regards,
SC
From India, Thane
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Hi Amrita :) Good that you are working in a reputed firm, so am I. We have been calculating this way all around the world for many years, and till date nobody has told me that we were wrong. Thanks for your input.
Hi SC :) I totally agree with you, and thanks for your support and input.
Hi Palak :) Hope you got it all clarified.
Take care...
From India, Mumbai
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Hi SC :) I totally agree with you, and thanks for your support and input.
Hi Palak :) Hope you got it all clarified.
Take care...
From India, Mumbai
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Hi Palak,
All our friends in this forum have given you an optimal solution, albeit collectively. You were also asking about the pros and cons of regularizing it. The pros are all there, but the only con in legalizing (or regularizing) the leave encashment (by cheque) in your company is that according to a judgment passed as of 1st May 2005, leave encashment will attract PF deduction from both sides, i.e., 12% from employees' as well as employers' side.
As an HR Manager, I would suggest you make this very clear to your employers. Look at it this way, the employees are anyways going to get the leave benefit, whether the employer pays by cash or cheque, but due to the regularization of this head, the employer attracts an additional liability which turns out to be a recurring liability from the day you enforce it till time.
Best of luck.
Bhavesh B. Agrawal
getbhavesh@gmail.com
From India, Mumbai
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All our friends in this forum have given you an optimal solution, albeit collectively. You were also asking about the pros and cons of regularizing it. The pros are all there, but the only con in legalizing (or regularizing) the leave encashment (by cheque) in your company is that according to a judgment passed as of 1st May 2005, leave encashment will attract PF deduction from both sides, i.e., 12% from employees' as well as employers' side.
As an HR Manager, I would suggest you make this very clear to your employers. Look at it this way, the employees are anyways going to get the leave benefit, whether the employer pays by cash or cheque, but due to the regularization of this head, the employer attracts an additional liability which turns out to be a recurring liability from the day you enforce it till time.
Best of luck.
Bhavesh B. Agrawal
getbhavesh@gmail.com
From India, Mumbai
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The enhancement is calculated on the last earned basic. How you will receive it depends on your organization's policy. Some organizations may pay the full gross amount less medical reimbursement.
Regards,
Rakesh
From India, Mumbai
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Regards,
Rakesh
From India, Mumbai
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Dear All,
I am a very new member of this forum (just joined this morning) and I became a member because I would like to learn how to calculate leave encashment. Thanks to all of you, I now have an idea of how to calculate it.
Best regards,
MoeKyaw
From United States, Fremont
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I am a very new member of this forum (just joined this morning) and I became a member because I would like to learn how to calculate leave encashment. Thanks to all of you, I now have an idea of how to calculate it.
Best regards,
MoeKyaw
From United States, Fremont
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is it menditory to calculate the leave encashment on basic salary.If no than If any company calculate the leave encashment on basic +D.A than what will ne legal action on company. Thanks Braj Bhushan
From India, New Delhi
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From India, New Delhi
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is there any supreme court judgement on the subject that earned leave will be encash on gross salary and/or by calculating on the basis of working days or paid days, anil sharma
From India, Delhi
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From India, Delhi
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Dear Friends' When this encashment of EL is done? Is there any last date ?
From India, Ahmedabad
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From India, Ahmedabad
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Dear All,
Regarding Leave Encashment, yes, the existing company policy with respect to Earned, Medical, or Casual Leave, which is written and/or practiced, will be the determining factor regarding the maximum number of days as well as the salary components applicable thereon.
As for the method of calculation, I hope there is a consensus that the amount pertaining to applicable monthly salary components should be divided by a standard figure of 26, as applicable in the case of gratuity or other statutory benefits calculations, to arrive at the per day earning, which should be common to all organizations.
Is this the right way and the only way to calculate the days earning of the employee? Does this stand the test of any laws governing employment in both the private as well as government organizations?
Request your clarification.
Shridhar
From India, Bangalore
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Regarding Leave Encashment, yes, the existing company policy with respect to Earned, Medical, or Casual Leave, which is written and/or practiced, will be the determining factor regarding the maximum number of days as well as the salary components applicable thereon.
As for the method of calculation, I hope there is a consensus that the amount pertaining to applicable monthly salary components should be divided by a standard figure of 26, as applicable in the case of gratuity or other statutory benefits calculations, to arrive at the per day earning, which should be common to all organizations.
Is this the right way and the only way to calculate the days earning of the employee? Does this stand the test of any laws governing employment in both the private as well as government organizations?
Request your clarification.
Shridhar
From India, Bangalore
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Hi team,
I understand the review you all have given in the conversation. But I just wanted to know if the above calculations are applicable for the Radio Cab Company. As I am working as an HR Executive, please tell me how to calculate the paid leaves of an employee who has a gross salary of $16,800, a net salary of $16,600, and has taken 34 paid leaves till date. What will be the final amount payable to that employee?
Please reply to me quickly as I need to work on this promptly.
From India, Pune
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I understand the review you all have given in the conversation. But I just wanted to know if the above calculations are applicable for the Radio Cab Company. As I am working as an HR Executive, please tell me how to calculate the paid leaves of an employee who has a gross salary of $16,800, a net salary of $16,600, and has taken 34 paid leaves till date. What will be the final amount payable to that employee?
Please reply to me quickly as I need to work on this promptly.
From India, Pune
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An organization will either fall under the Factories Act or the Shop and Establishment Act. The term "basic salary" is not recognized by the above acts. The term "basic salary" is used by Income Tax and PF authorities. The above acts recognize the term "wage," which is inclusive of all allowances, including food grain subsidy! The Payment of Wages Act defines "wage."
Please let me know if you need any further assistance.
From India, undefined
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Please let me know if you need any further assistance.
From India, undefined
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Dear Palak! leave encashment is calculated on the basic means 5000 . (Basic + DA)/26 * Privilege leave
From India, Bareilly
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From India, Bareilly
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Hi, I am working as an HR professional in a Telecom firm. I wanted to know the legal implications if we restrict PL encashment or carry forward to only 2 leaves in a year. Since we have a lot of work-from-home (WFH) options, can we go ahead with such changes in the leave policy?
From India, Bangalore
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From India, Bangalore
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Can we adjust notice period with balance leaves ( EL) at the time of F & F of an employee ?
From India, New Delhi
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From India, New Delhi
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I have an urgent question. An employee has a maximum cap of leaves at 90 days. The Earned Leave (EL) balance at the time of resigning is 31 days, which is 91 leave balance minus notice period recovery days (60 days). Can we not pay the employee for leave encashment on this basis, which will be 31 * Basic salary / 30? Is it necessary to show leave encashment separately and notice period recovery separately?
From India, New Delhi
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From India, New Delhi
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ENCASHMENT OF LEAVE
1.0 OBJECTIVE:
SCOPE
The rules for encashment of leave shall cover all regular employees of the company, excluding those on deputation from Government/other organizations and company employees on deputation to others.
3.0 SANCTIONING AUTHORITY
The authorities who are competent to sanction leave shall be the sanctioning authority for approving encashment of leave under these rules.
ENCASHMENT BENEFITS
The encashment of leave shall be regulated on the basis of the last pay drawn, which includes basic pay, dearness allowance, personal pay, if any, non-practicing allowance for doctors, deputation allowance in respect of employees of the company on deputation, allowance admissible to EDP and other staff working in Finance & Accounts department.
4.2 The encashment benefit shall not be reckoned as wage/salary while working out overtime, Gratuity, Provident Fund, bonus under the Bonus Act, etc.
CLARIFICATION
The leave to be encashed under these rules would be Earned Leave only and not any other kind of leave. The encashment benefit will be regulated based on the last pay drawn, which should be the monthly rate of pay of the employee immediately before proceeding on leave. A month will generally be a calendar month of 30 days. Illustration: Last pay drawn X no. of days for which encashment allowed. Illustration: Last pay drawn X no. of days for which encashment allowed/30.
Regards,
Amit Gaur
From India, Jaipur
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1.0 OBJECTIVE:
SCOPE
The rules for encashment of leave shall cover all regular employees of the company, excluding those on deputation from Government/other organizations and company employees on deputation to others.
3.0 SANCTIONING AUTHORITY
The authorities who are competent to sanction leave shall be the sanctioning authority for approving encashment of leave under these rules.
ENCASHMENT BENEFITS
The encashment of leave shall be regulated on the basis of the last pay drawn, which includes basic pay, dearness allowance, personal pay, if any, non-practicing allowance for doctors, deputation allowance in respect of employees of the company on deputation, allowance admissible to EDP and other staff working in Finance & Accounts department.
4.2 The encashment benefit shall not be reckoned as wage/salary while working out overtime, Gratuity, Provident Fund, bonus under the Bonus Act, etc.
CLARIFICATION
The leave to be encashed under these rules would be Earned Leave only and not any other kind of leave. The encashment benefit will be regulated based on the last pay drawn, which should be the monthly rate of pay of the employee immediately before proceeding on leave. A month will generally be a calendar month of 30 days. Illustration: Last pay drawn X no. of days for which encashment allowed. Illustration: Last pay drawn X no. of days for which encashment allowed/30.
Regards,
Amit Gaur
From India, Jaipur
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Greetings! The Leave Encashment must happen on all the components of the salary. Taking care of labor, the daily wage of employees should be paid. This means it would be a basic salary plus DA plus other components, if any, must be considered. Therefore, it must be paid on gross. However, many times companies do not agree and pay only on basic to save some money. By rules, this is not the right thing to do. If an employee gets into a dispute on a basic payment matter with the employer, then the employer may have to pay the employee on gross. If you wish us to handle your HR matters, do connect with us by searching 'Salahkaar Consultants' on the internet.
From India, Pune
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From India, Pune
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LEAVE ENCASHMENT NOT INCLUDED IN WAGES FOR P. F. CALCULATION.pdf
Leave Encashment & Salary Calculation.xls x