Thread Started by #1234DD1234

Please help understand if the leave encashment during separation should be calculated on Gross salary or basic salary.
3rd December 2018 From India, Mumbai
During separation the leaves [privilege/earned] are calculated on the gross and not basic. It is not the same as encashment during your period of employment.
Thanks and Regards
3rd December 2018 From India, Hyderabad
Dear Aks
Would appreciate, if you can support your calcification here above with legal provisions etc.
Shailesh Parikh
99 98 97 10 65
3rd December 2018 From India, Mumbai
Dear Friends,
Leave encashments are calculated on basic salary only. It is at the discretion of the employer to do it on Gross salary too; however provisions and acturials for leave encasement are done on the assumption that leaves at the time of separation will be encashed on basic salary alone.
If there is any circular or law that says Leave encashment at the time of exit should happen on Gross salary, please share.
3rd December 2018 From India, Delhi
Leave and holidays with wages and Insurance Scheme for Employees
30. Leave :- (1) Every employee who has served for a period of two hundred and
forty days or more during a continuous period of twelve months in any establishment
shall be entitled during the subsequent period of twelve months, to leave with wages
for period of fifteen days, provided that such leave with wages may be accumulated
upto a maximum period of sixty days.
Every employee who has served for a period of not less than two hundred and
forty days during a continuous period of twelve months in any establishment shall be
entitled for encashment of eight days of leave with wages that has accrued to him
under sub section (1) during the subsequent period of twelve months. The employer
shall pay to the employee the wages for the leave so encashed by the employee within
a week of receipt of the application for such encashment from the employee
Leave with wages is supposed to be full salary and not basic unless it is specified as such.
Hope this answers Mr Parikh. This is taken from Shops and Establishments Act of AP and even Telangana follows the above. Page 16/17 of the Act.
Thanks and Regards
3rd December 2018 From India, Hyderabad
Dear Aks17,
please check the definition of wages in section 2 of the same act. Wages doesnt include any allowance, reimbursement or other benefits; while gross salary comprises of allowances, reimbursements, OT etc.
Hope this clarifies.
3rd December 2018 From India, Delhi
The points mentioned by you pertains to the work actually done - OT, any other allowance etc during a particular period. If you calculate that it becomes double payment for the same work, which is not the way it is intended to be.
Also where does it mention that the leave has to be calculated on the basic salary?
Gross salary may include allowances but that does not make excluding them into basic salary. Salaries for encashment includes all that is payable as if an employee works under normal circumstances.
You do not get OT and/or reimbursement under normal circumstances, it is job/work specific.
Thanks and Regards
3rd December 2018 From India, Hyderabad
As i mentioned earlier that usually leave encashment is done on Basic (+da if it applies) salary ; however it is at the discretion of employer to do it on gross too. However going by the definition of wages, section 2(23).e(v),(vii) of the aforesaid act mentions that wages doesnt include any special allowances or house rent allowance. Hence going by the law; leave encashment can't be done gross if it includes special allowance or HRA. yet the law doesnt forbid employers on passing additional benefit to the employees.
3rd December 2018 From India, Delhi
Leave Encashment is only eligible to Leave which are Paid named as Earned Leave/Privilege Leave/Paid Leave.
The amount should be calculated on Gross Salary, as per the Shop & Establishment. It is clearly mentioned that it is calculated on full wages and wages definition is defined as Minimum Wages Act, 1948.
Normally under shop & Estabilishment act maximum leave to encashed is 40-45 depends upon state to state.
And under Sales Promotions Employee Act maximum leave to be encashed is 120 days.
It is calculated on last Gross salary drawn.
3rd December 2018 From India, Hyderabad
Dear friends,
"Wages" is a comprehensive term including the entire package of compensation payable to an employee for the work done by him at the end of the predetermined wage period. Therefore, it would generally include the allowances given in the form of fringe benefits. Whenever the employer has the necessity to compensate the employee for any given period in lieu of his work or any work done by him in excess of his normal working hours, logically and legally, he has to pay the entire components of the actual wages minus only such components compensating the defrayal of the special expenses likely to be incurred by the concerned employee. Encashment of leave and payment for OT work, therefore, would require the same treatment. One may argue why then the difference in the definition of the same term in certain Enactments. It is only because of the nature of the benefit sought to be given under the Act rather than bringing in a uniform interpretation of the term. The exclusion would come in to play only in respect of the computation of that particular benefit and not in respect of all others. The actual practice, if any, contrary to the above legal position, in spite of its ubiquitousness, would not pass legal scrutiny.
6th December 2018 From India, Salem
El's Are Calculated on BAsic+Da( If Applicable)
19th December 2018 From India, Hyderabad
Dear friend from Hyderabad,
If your employee goes on earned leave for 15 days after due approval, will you pay him only basic and D.A for those 15 days?
19th December 2018 From India, Salem
If the EL balance is more than 15 we can pay for the rest Ex ;-29-15=14 el's
21st December 2018 From India, Hyderabad
There is no legislation on leave encashment during the service of an employee.Permitting leave encashment and its computation in such cases is the discretion of the employer. Logically the same compnents of wages that is considered for paying the employee when he avail leave should be taken for its encashment also.
For encashment at the end of service consider the definition of wages and other provisions of the respective Acts governing the same.
Varghese Mathew
Tvm 9961266966
22nd December 2018 From India, Thiruvananthapuram
leave encashment should always be calculated on gross salary.
sumit kumar saxena
11th January 2019 From India, Ghaziabad
To my understanding, EL is on Basic Pay. Thanks Guru
20th January 2019 From India
Is leave encashment to be calculated dividing it by 360 or 240?
My settlement is pending and my previous employers is calculating it by 360. Although Gujarat shops and establishment act shows earned leave based on 240.
Not clear on encashment calculation. Please help.
21st January 2019 From India, Ahmedabad
Dear Mayankmantri,
I am not able to understand your query.
Leave Accrual and Leave Encashment pertaining to E.L are different.The former is yearly basis and the latter is on remainder basis.
So where is the question of computation of leave encashment on the basis of 360 or 240 days?
22nd January 2019 From India, Salem
Dear Sir,
Thank you for your quick response
My question is for remainder while calculating leave encashment amount. My previous employer is calculating it dividing by 360. Is it correct as per the law or Gujarat shops and establishment act?
For example. 10 leaves i have as per my full and final settlement. So, will it be calculated like below-
(Gross pay/360)*10= leave encashment amount
22nd January 2019 From India, Ahmedabad
Dear friend,
I think that your query relates to the calculation of surrender value of the Leave salary. Under the Shops and Establishments Acts, the employees are entitled to paid weekly holidays, National and Festival Holidays, PL,SL and CL. Therefore, their salary being monthly rated, daily rate should be arrived at by dividing the monthly salary by 30 only. As such, the easiest formula to calculate the surrender value of EL would be - The last drawn monthly salary/30 X No.of days of EL surrendered.
22nd January 2019 From India, Salem
Thank you so much Sir!
I saw calculation in another post or portal as divided by 26 as well. I have confusion just because I will not be able to take leave on weekly holidays and shouldn't it be divided by working days of the month?
22nd January 2019 From India, Ahmedabad
As per Statutory Act it will be deducted from BASIC SALARY only....
31st January 2019 From India, Bangalore
Dear Friend,
ITS ON STATUTORY GROUNDS " ITS SHOULD BE PAID ON BASIC SALARY". My clients are paying on the Basic Salary only.. As per the Act / Policy..
13th February 2019 From India, Bangalore
Of course, I haven't come across any regulation to stipulate the Leave encashment process. There were discussions in this link on the subject-
To some extent the attached AP HC judgment provide some guidelines tagging the IT act provisions in respect of leave encashment which I hope throw some light in the matter.
14th February 2019 From India, Bangalore

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