Labour Law & Hr Consultant
Rahul Chhabra
Hr Professional
Ravi Khandelwal 90746
Assistant Manager Ir
Compliance Manager
+2 Others

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Hi All, Can anyone guide me in knowing that under which head Leave Encashment is calculated? Is it Basic or Gross?
From India, Delhi
leave encashment is calculated on basic (+DA). Regards Rahul
From India, Delhi
I wish to differ from the view of our learned friend Rahul. He may be correct based on the conventional practice followed in private sector Enterprises or the Leave Policy of such institutions. My personal view is based on the logic behind the sanction of leave encashment to Government employees. That is, what all the components of regular salary included in leave salary have also to be paid in respect of leave surrender for cash benefit.
From India, Salem
There are two ways of doing the calculation and in most private sectors as Mr Rahul has pointed out it is Basic [+DA] though no one pays DA as such in private companies. Leave encashment during employment is usually calculated on the Basic salary of the employee though it will be better if you have them as a policy else employees may insist on gross salary. This calculation of leave encashment on basic salary is done to discourage employees from accumulating too many leaves and not availing them during the employment period. Employers want the employees to enjoy their vacation and come refreshed than toiling all through the year. One of the reasons why it has been mandated to avail a minimum of 5 ELs in a year is also for the same reason. Shops & Establishment Act also has the provision to avail 8 days of EL in a year for encashment after deducting the mandatory 5 days. If you want to go for basic salary encashment, first have a policy and circulate it before enforcing. Of course no employee would have any grudge if you happen to pay full pay for leaves.
Thanks and Regards

From India, Hyderabad
Shop & Establishment acts discusses encashment of Earned leaves upon cessation of service, and
for example Punjab S&CE act says that:
"14. (b) if an employee is discharged or dismissed from or leaves service during the course of
the year he shall be entitled to leave with wages or wage in lieu of un-availed leave at the
rates laid down in clause (a)."
and wage here is as defined in the Payment of wages act 1936. Wages as per the said act is only basic pay (+Da) and doesnt include any allowances, reimbursement or retirals; hence encashing leaves on gross is totally not mentioned in the act. Thus underlying principle is to encash leaves on basic (+da) alone; however an organization may choose to do it on gross too. The industry practice is private organization is to do it on Basic alone.
Hope this clarifies.

From India, Delhi
Dear Aks ji, Please guide me on what sections of Shop & Commercial establishment act discusses mandatory availing of Earned leaves. Regards Rahul
From India, Delhi
Dear all, Leave encashment will be paid on gross salary, because leave encashement always paid on total earning. Thanks Ravi Khandelwal Assistant Manager-IR +917566204983
From India, Bhopal
Hi, In private sector leaves are encash on the basic salary, it may be differ if organisation’s policy are allowed on gross salary.
From India, Delhi
So, my question to this thread is this. Since private companies don't generally have DA as a component, why is any Earned Leave not paid out based on fixed components (Basic+HRA=Med Reimb, etc.)??
To be fair to employees, things such as HRA, medicals, etc are all baked into the fixed component. It just seems silly to hide behind "Basic" only and say that employees are encouraged to take leave to come back refreshed. Deep in our hearts, we all know it is just a nice way to save money by companies. Some companies allow employees to encash unutilized leave accumulated beyond 10 days (as an example). Am I being too simplistic to ask this- do companies feel employees require to be paid HRA only if they 'take' the leave but not if they encash their leave?

From New Zealand, Auckland
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