Labour Law & Hr Consultant
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Harsh Kumar Mehta
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Respected seniors, Please tell me weather leave encashment paid on manthly basis is to be consider for ESI deduction or not, Regard Devesh
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Considering the definition of wages u/s 2(22) of the ESI Act,1948, if leave encashment is paid monthly, it will be wages; if paid annually, it will not count for deduction.
Sir.... how many month's gap should be in Leave encashment payment to exclude it from ESI deduction...for Eg. Leave encashment of april. Pls let me know in which month it should be paid to be exclude from ESI,
As per the courts decision, any payment that is made once in two months, on regular basis is considered a part of salary. It is possible therefore, that the payments made once in a quarter will not be a part of salary for ES I C.
In reality, it is actually a question of fact. If the payment is being made on regular basis, then it is not actually leave encashment, but a part of the salary under a different disguise. Therefore it will be a part of ESIC and couurts are likely to declare it as such.
Hi, sir if Leave encashment of april & may paid in june then it will be excluded from ESI deduction... is it correct, Your view pls...
The matter depends on the facts of the case and how the ESIC and courts will take it.
If you are paying leave encashment every month or every second month, then it's a part of ESIC.
if you are paying monthly, but paying it late, it would still be in ESIC.
If you are paying once a quarter, then may be the courts will not include it in ESIC.
However, compulsory encashment of leave every month leads to a host of other violations, so it's best avoided. It's better to allow workers to take their leave as per rules and any unused leave can be encased at the end of the year.
1. Sir, so far as I understand, the term "leave encashment" means the payment of wages to the employee in lieu of earned leaves which he/she has earned in a selected period i.e. at the close of a year or at the time of retirement or leaving of job etc. In general, leaves of the type called "earned leaves" only are allowed to be encashed by organisations. In Central Govt., accumulated earned leaves or half pay leaves are allowed to be encashed at the time of retirement upto some limit and the same also forms part of retiral benefits. In some PSUs, encashment of leaves are also allowed once in a block of 2 or 4 years when the employee avails Leave Travel Concession (LTC).

2. The accumulation of such earned leaves may be as a result of statutory provisions of the Factory Act, the Shop and Commercial Establishment Act (of the concerned State) or service rules of the establishment. I think, in all such enactments/rules, the encashment of leaves are allowed lump-sum after close of a period viz. year mentioned by me above. I have not come across a situation in which the unavailed leaves accumulated every month are allowed to be encashed every month. If this is the situation, there will be no leave due when on any future date the employee will actually need leave. I am also doubtful whether such practice of allowing leave encashment every month or quarter is allowed in labour laws as mentioned above. I will request the initiator of this thread to kindly indicate more details on such leaves, viz.period of such leaves, nature of such leaves etc.which are to be encashed on every month or in a quarter for which comments are sought from seniors and experts of this forum to suggest ways to avoid payment of ESI contribution on such wages of encashment of leaves.
Hi Experts,
Can you please suggest me if incentive
Paid after three month will be excluded for
Esi & PF deduction,
Eg. Incentive of April, may, june, paid in july
Then it will be excluded from ESI & PF deduction or Not,

Devesh chauhan
PF AND ESI have to be deducted on the incentives(depending on the working days).
This is a common practice followed by contractors.
They deduct wages for all absent days and give additional pay of 1.5 days a month as leave encashment.
The workers are happy because they get more take home pay.
According to me this is illegal and can definitely put the company and the principal employer in trouble. But this is rarely investigated by the authorities who also are happy that workers get paid more and are unlikely to protest
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