Human Resource And Industrial Relations
Hr Executive
Manpower Planning Assistant
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Palak Singh
Hr Professional
Anushree Bhakat
Hr Executive
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Thread Started by #palak singh

Hi, Please tell me how do we calculate leave encashment. For Eg: Monthly gross salary is Rs.10,000/- Out of which, Basic=5000, HRA=2500, Medical=1250, Conv=800, Misc Allw=450, Then how much would be leave encashment of 5 days?? Is the leave encashment calculated on last earned basic or it is calculated on the basic for the period during which the leave was earned?
9th July 2007 From India, Delhi
Dear Palak,
It is mostly calculated on last drawn Basic Pay, but can vary from one Organisation to another.
If the employee falls inside the purview of any Act like Factories Act, Shop and Establishment Act, Mines Act, etc. which has Leave Encashment provisions then that rule must be followed.
9th July 2007 From India, Thane
Dear Palak,
Whats is your company leave policy on it? It can be either calculated on the monthly gross salary or on your monthly basic salary!
Lets take an example :D
XYZ is earning 10,000p.m S/he is entitled to have 24 days as PL in a year, which is 2 days a month. At the end of year she has 20 days PL left and s/he would like to encash it! Now again what is stated in your policy? What is maximum number of days that a person can encash his/her leave. Lets take it as 15 days a year!
Now the calucations:-
Gross Salary pm - 10,000
PL left in year 2006 - 20
No. of days of encashment - 15
Leave Encashment Amt - 10,000*15/30 = 5000 INR (TDS applicable)
I hope that this has helped you :)
Take care....
10th July 2007 From India, Mumbai
Hi All,
I just want to comment that the calculation of 15 days of paid leave enchashment done above is incorrect. I am in the HR dept. of a reputed University in Abu Dhabi and I check the Pay Roll 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.
10th July 2007 From United Arab Emirates, Abu Dhabi
Thanks to both of you for the reply. But my problem is: my company's policy is that we encash Gross salary which comprises of Basic, HRA, Medical, Conveyance and Misc Allowance. As per my knowledge this is not the general trend followed for leave encashment. Also, if we encash full gross salary, the expenditure for company for leave encashment is huge. So I want to change it to encashing only the basic part of the salary. Please tell me what would be the pros and cons of this policy. Is it right to encash leave only on basic part of the gross salary??? And is it the last drawn basic???
10th July 2007 From India, Delhi
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
10th July 2007 From United Arab Emirates, Abu Dhabi
Dear Amrita,

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 smaller the denominator greater the benefit. Tell me something as per your logic you should divided by 366 (Three Hundred Sixty Six) days in the Leap Years. Do you do it?

Dear Palak,

Before looking for the pros and cons you must first realise that changing the leave pay from gross to Basic will result in reduction of Annual Earnings of Employees. Which is something an Organisation cannot do.

The first step would be to compensate the loss in earning 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 is no legal complications in future.


10th July 2007 From India, Thane
Hi Amrita :) Good that you are working in a reputed firm, so am I. We have been calculated this way all around the world for may years and till date no body 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...
10th July 2007 From India, Mumbai
Hi Palak.
All our friends in this forum have given you an optimal solution, though collectively. You were also asking about the pros and cons of regularising it.
The pros are all there, but the only con in legalising (or regularising) the leave encashment(by cheque) in your company is that according to a judgement passed as of 1st May 2005, LEAVE ECASHMENT will attract PF DEDUCTION from both sides i.e. 12% from employee's as well as employer's side.
As a HR Manager, I would suggest you to 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 regularisation of this HEAD, the employer attracts an additional liability which turns out to be a recurring liability FROM THE DAY YOU ENFORE IT till time.
Best of luck.
Bhavesh B. Agrawal

11th July 2007 From India, Mumbai
The enchasment is calculated on last earned basic. How will u get , that depends upon the policy of ur organisation. Some organisation may pay the full gross amount less medical reimbursement.
30th June 2008 From India, Mumbai
Dear All,
I am a very new member of this forum (only this morning) and I became member because I would like know how to calculate leave encashment. Now because of all of you, I got an idea how to calculate it.
1st August 2008 From United States, Fremont
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
12th April 2010 From India, New Delhi
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
15th May 2010 From India, Delhi
Dear Friends' When this encashment of EL is done? Is there any last date ?
1st March 2013 From India, Ahmedabad
Dear All,
Regarding Leave Encashment, yes, the existing company policy with respect to Earned or Medical or Casual Leave which is written &/ practiced will be the determining factor regarding the Max no of day as well salary components applicable thereon.
As regards the method of calculation, I hope there is a consensus that the amount pertaining to applicable monthly salary components be divided by a standard figure of 26 as applicable in case of gratuity or other statutory benefits calculations to arrive at the per day earning, which should be common to all organisations.
Is it the way right & the only way to calculate the days earning of the employee?
And does this stand the test of any Law governing employment in both the private as well as govt. organisations??
Request your clarification.
8th May 2013 From India, Bangalore
Hi team,
I understand the review you all given in the conversation.
But I just wanted to know is the above calculations are applicable for Radio Cab Company...?
as I am working as a HR Executive please tell me how do I calculate paid leaves of Employee
who have
Gross salary 16800
Net salary 16600
and paid leaves till date are 34
what will be the final amount is payable to that employee..?
Please reply me fast as I want to work on same
7th January 2015 From India, Pune
An organisation will either fall under factories act or shop and establishment act.
The term basic salary is not recognised by above acts. Basic salary term is used by Income tax and PF authorities.
The above acts recognise term WAGE which is inclusive of all allowances including foodgrain subsidy ! The payment of wages act defines WAGE
1st April 2016 From India, undefined
Dear Palak! leave encashment is calculated on the basic means 5000 . (Basic + DA)/26 * Privilege leave
8th April 2016 From India, Bareilly
I am working as HR in Telecom firm, wanted to know legal implications if we restrict PL encashment / carry forward to only 2 leaves in a year. Since we have lot of WFH options, can we go ahead with such changes in Leave policy?
28th December 2016 From India, Bangalore
Can we adjust notice period with balance leaves ( EL) at the time of F & F of an employee ?
28th September 2017 From India, New Delhi
I have an urgent question.. Employee has maximum capping of leaves at 90 days. EL balance at the time of resigning is 31 days , which is 91 Leave balance minus notice period recovery days 60 . Can we not pay employee for leave encashment on this basis which will be 31 * Basic salary/ 30? Is it necessary to show Leave encashment seprately & notice period recovery separately??
28th September 2017 From India, New Delhi
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
The authorities who are Competent to sanction leave shall be the sanctioning authority for approving encashment of leave under these rules.
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
The leave to be encashment under these rules would be Earned Leaveonly and not any other kind of leave.2. The encashment benefit will be regulated on the basis of the last pay drawn which should be the monthly rate of pay of the employee immediately before proceeding on leave.A month will generally 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
Amit Gaur
22nd February 2019 From India, Jaipur
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