Is Leave Encashment A Part Of CTC? - CiteHR
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Hi, I belong to an HR outsourcing company. We have have been offering contract staffing services to a large manufacturing company and my question is related to the leave encashment.
As a part of contract, our employees working in the organisation are entitled for 21 leaves annually. Although, we have not bifurcated the leaves into PL/CL/SL, our employees can avail leave on prorata basis, depending on the days worked. I need clarification on the following
1. Since, availing or not availing the leave is entirely an employee\'s prerogative, I am little confused, whether a provisional amount pertaining to leaves accumulated should be made in monthly CTC or not as the same has to be billed to the client.
2. Should the leave pay be calculated on Basic wages or Gross salary? Again, how should we bill the proportionate amount to the client?
Your contribution to the same will be highly appreciated.

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Dear Dheeraj,
Earned Leave or PL is a benefit that you have to provide to the employees as mandated by the law. And acumulated Earned Leave has to be encashed at the time the employee leaves the organization.
Since encashment is a cost it would ideally form part of the Cost to Company. However since encashment is on the basis of what Leave is unutillized there is a bit of ambiguity of how to account for it in the CTC. Also you would need to bill the client for the leave ancashment paid.
There are 2 possible solutions which you can choose from.
1. In your contract with your client provide for billing the client for Leave Encashment Whenever it is paid.
2. Provide for Leave Encashment thru LIC and bill the client for the premium paid to LIC for provisioning for Leave Encashment.
Dear Savio, Thank you for your valuable inputs. However, I am a unclear about the relation between LIC and the leave encashment. Request you to please elaborate the same. Regards Dheeraj
Dear Dheeraj,
LIC Has an insurance cover to underwrite your Leave encashment. You will have to send them the employee data and they will do an acturial valuation of your leave encashment liability and will provide you a cover for a premium. This acts as a benefit in 2 ways
1. it reduces your immediate liability. you pay smaller ammounts every year as compared to the ammounts you would pay out as leave encashment.
2. The acturial valuation of leave encashment can be transfered to your book of accounts as a cost.
They also have a similar policy for Gratuity.
Dear sir,
as you are giving 21 days leave with pay per annum, you can show the 21 days amount in ctc. Irrespective of he is availing or accumulating.
For leave encashment you have to pay gross salary not the basic, because if he avails, we have been paying full salary.
D.gurumurthy & ir consultant
Leave encashment is a incentive for not availing the leave and contributing the vital man-hours in the growth of the company. It is a privilege to the employee by law. So it is always an expense, wheather employee avail it or not. If He avails leave it is the loss of productivity to the company, but company pays for it. Means double expenses. If employee do not avail leave, he contributes to the man-hours and gets the encasement. Means single expenses to the company. So company, in effect, gains if employee deso not avail leave but opt for its encashment
What is the exact Number (e.g - CL - 2 / or EL - 2) which is encashable in a Year (Statewise) ? 1. AP 2 UP 3. Haryana 4. Punjab 5. Karnataka 6. Maharstra 7. West Bengal
Mr Bhanot,
i beg to differ:
while i was working with HCL, 6 billion group, we used to follow COPC norms and we had attendance allowance (10% of monthly pay) which helped us in minimising "unscheduled leaves".
kindly note that as per COPC/ MBNQA, only unscheduled leaves affect bottomline (not coming late or leaving early)..
at zamil group, 4.5 billion, we used to allow sick leaves strictly on hospital advise (manipulation reduced).
we were the fore runners in implementing "no attendance marking"..
encashment of leaves are not encouraged in any leading company worldwide cos it drives medical costs.
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