Hi,
Leave encashment in my company is done, for example, the arrears paid leave encashment of 5.5 days. Details are as follows:
As per the formula: 50% of your gross or 3 times of your basic, whichever is less.
1. 50% of your gross is Rs. 22,200/-
2. 3 times of basic - Rs. 5,000 x 3 = Rs. 15,000/-
3. So, 15,000 / 31 x 5.5 days = Rs. 2,661/-
Is this right? We have employees asking for leave encashment like this, i.e., ((15,000 x 12) / 365). Although, I know the difference is very little!! Is this correct? How is it calculated in the IT industry?
Please let me know ASAP.
Regards,
Anuradha
From India, Pune
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22Leave encashment in my company is done, for example, the arrears paid leave encashment of 5.5 days. Details are as follows:
As per the formula: 50% of your gross or 3 times of your basic, whichever is less.
1. 50% of your gross is Rs. 22,200/-
2. 3 times of basic - Rs. 5,000 x 3 = Rs. 15,000/-
3. So, 15,000 / 31 x 5.5 days = Rs. 2,661/-
Is this right? We have employees asking for leave encashment like this, i.e., ((15,000 x 12) / 365). Although, I know the difference is very little!! Is this correct? How is it calculated in the IT industry?
Please let me know ASAP.
Regards,
Anuradha
From India, Pune
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Hi Anuradha,
I have not seen this formula. Could you refer to the act/rule where it has been defined? Normally, leave encashment is done by two types:
(a) Mostly - Basic/26 * number of days leave to be encashed
(b) Very less - Gross salary/30 * number of days leave to be encashed
Regards,
Dabas
From India, Delhi
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I have not seen this formula. Could you refer to the act/rule where it has been defined? Normally, leave encashment is done by two types:
(a) Mostly - Basic/26 * number of days leave to be encashed
(b) Very less - Gross salary/30 * number of days leave to be encashed
Regards,
Dabas
From India, Delhi
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Anuradha, I feel the following method will be good to implement:
Encashment may be based on the emolument one is getting. Emolument means Basic plus DA (if applicable). All other allowances should not be taken into consideration while calculating the leave encashment.
Regular employees may be given encashment in the following format:
emolument X No. of days to be encashed
----------------------------------------------
30 (days)
Ajay
From Brazil, Maceió
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Encashment may be based on the emolument one is getting. Emolument means Basic plus DA (if applicable). All other allowances should not be taken into consideration while calculating the leave encashment.
Regular employees may be given encashment in the following format:
emolument X No. of days to be encashed
----------------------------------------------
30 (days)
Ajay
From Brazil, Maceió
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Ajaysimhan, We also calculate in the same way in our organisation.One more thing is PF calculated on the amount such arrived at ? Regards, Padmini.
From India, Thana
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From India, Thana
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Dear Anuradha, The below formula is correct. Basic/26*no of days leave to be encashed and more over PF also deduct form this amount Mohan
From India, Hyderabad
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From India, Hyderabad
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The normal practice to encash the Leaves is as under. Basic / 26 * No. of Days. Hope this would suffice your requirement. regards, NELLY_BAVA
From United States, Lynchburg
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From United States, Lynchburg
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HI, NORMALLY THE CALCULATION PART OF EL ENCASHMENT INVOLVE THE FOLLOWING BASIC/26 * NO OF DAYS. MOSTLY COMPANIES FOLLOW THIS PROCEDURE ONLY. KIRAN
From India, Gurgaon
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From India, Gurgaon
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Hi everybody,
In our company, we calculate as follows: If you have 5 days balance of leave, the basic salary plus DA equals the total per day salary and total payable amount. Additionally, there is a deduction of 12% for PF, resulting in the net payable amount of 927.39.
To illustrate with an example:
- Basic + DA = Total
- Per day salary
- Total payable
- PF 12%
- Net payable is 927.39
Therefore, using numbers for clarification:
- 5000 + 1534 = 6534
- 210.77 per day
- 5 * 210.77 = 1053.85
- PF deduction of 126.46
Regards,
Reena
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In our company, we calculate as follows: If you have 5 days balance of leave, the basic salary plus DA equals the total per day salary and total payable amount. Additionally, there is a deduction of 12% for PF, resulting in the net payable amount of 927.39.
To illustrate with an example:
- Basic + DA = Total
- Per day salary
- Total payable
- PF 12%
- Net payable is 927.39
Therefore, using numbers for clarification:
- 5000 + 1534 = 6534
- 210.77 per day
- 5 * 210.77 = 1053.85
- PF deduction of 126.46
Regards,
Reena
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Dear Anuradha, The above procedure is correct & PF also has to be deducted on the same. Regards, Pooja
From India, Pune
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From India, Pune
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Hi Anuradha,
Yes, I believe Krishnamohan is right. Leave encashment is done based on the basic number of leaves, either 26 or 22 days, depending on whether the company works for 5 or 6 days in a week. We also have to deduct the PF from the same.
From United States
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Yes, I believe Krishnamohan is right. Leave encashment is done based on the basic number of leaves, either 26 or 22 days, depending on whether the company works for 5 or 6 days in a week. We also have to deduct the PF from the same.
From United States
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HI All Can someone all tell me if there is any law guiding the maximum or minimum leave that can be encashed ? Radha
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Hi Anuradha, As per the law the formula for calculating the EL Encashment is:- (Basic + DA)* Total No of Balance EL/26 PF is also payable on this amount. Abhishek
From India, Delhi
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From India, Delhi
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Hi Pooja,
Most of the companies follow the following formula in the calculation of EL encashment: Basic + DA/30 * no. of days for EL encashment. In EL encashment, PF is not deducted. EL encashment is not part of the salary.
Thanks,
Basant
From India
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Most of the companies follow the following formula in the calculation of EL encashment: Basic + DA/30 * no. of days for EL encashment. In EL encashment, PF is not deducted. EL encashment is not part of the salary.
Thanks,
Basant
From India
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Dear Anuradha,
Actually, all the above procedures are correct. However, sometimes it is subject to your management policies - some companies have the procedure of calculating 3 times their basic salary or 2 times their gross salary.
The universal leave encashment formula is as follows: Basic + D.A / 26 (in some companies 30 days also) * number of leaves = Total - PF = Net amount payable (PF should be deducted).
Harish
From India, Bangalore
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Actually, all the above procedures are correct. However, sometimes it is subject to your management policies - some companies have the procedure of calculating 3 times their basic salary or 2 times their gross salary.
The universal leave encashment formula is as follows: Basic + D.A / 26 (in some companies 30 days also) * number of leaves = Total - PF = Net amount payable (PF should be deducted).
Harish
From India, Bangalore
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Dear Anuradha Mohan is right. I totally agree since we too follow the same practice. Regards Annie
From India, New Delhi
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From India, New Delhi
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Hi, Can anyone explain, If we made any cash payment on leave with wages (i.e leave encashment). Is there any deductions we have to be made over on this amount under Factories Act.
From India, New Delhi
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From India, New Delhi
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Hi Reena,
I want to add one point. PF on leave encashment can be limited to 6500 in a month. In whatever month you pay leave encashment, you add the leave encashment Basic (or Basic & Da as applicable) with that month's actual payable basic, and you can make PF deduction up to the 6500 limit.
Let us take an example: Say the monthly basic is Rs. 5000, and say leave encashment basic is 2500. You will be liable to pay PF on leave encashment up to 6500 only and not on the entire 2500.
With regards,
AM
From India
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I want to add one point. PF on leave encashment can be limited to 6500 in a month. In whatever month you pay leave encashment, you add the leave encashment Basic (or Basic & Da as applicable) with that month's actual payable basic, and you can make PF deduction up to the 6500 limit.
Let us take an example: Say the monthly basic is Rs. 5000, and say leave encashment basic is 2500. You will be liable to pay PF on leave encashment up to 6500 only and not on the entire 2500.
With regards,
AM
From India
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Normally, the method followed is Basic Salary / 26 * leave days. Recent trends of salary decided in CTC per annum form lead to earning being paid and deducted in gross method divided by 30 days, as the salary for a day in a year is committed. Any other combination might not be comprehensively applicable.
From India, Mumbai
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From India, Mumbai
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Dear Friends,
In terms of Section 2, subsection b, the definition of Basic Wages reads as "Means all emoluments which are earned by an employee while on duty, on leave, or on holiday with wages in either case, in accordance with the terms of the contract of employment and which are paid or payable in cash to him."
As such, PF deductions are to be made from the Leave encashment whenever it is encashed, and matching contributions are to be given by the employer. Leave encashment is taxable, but PF will reduce the burden of tax.
Regards,
SC MAHTO
GAIL, Chandigarh
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In terms of Section 2, subsection b, the definition of Basic Wages reads as "Means all emoluments which are earned by an employee while on duty, on leave, or on holiday with wages in either case, in accordance with the terms of the contract of employment and which are paid or payable in cash to him."
As such, PF deductions are to be made from the Leave encashment whenever it is encashed, and matching contributions are to be given by the employer. Leave encashment is taxable, but PF will reduce the burden of tax.
Regards,
SC MAHTO
GAIL, Chandigarh
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Hi, Pooja is absolutely correct. Leave encashment now attracts PF contribution as per the recent amendment. Generally Leaves are encashed on the basis of Basic and DA only Amit Goyal
From India, Delhi
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From India, Delhi
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There is no limit on the PF deduction on Leave Encashment. It is the Basic Wage on which PF is deducted and Leave encashment alos comes under the definition.
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Hi,
This is Nishu working in Ltd. company, and we calculate leave encashment as follows:
Last Basic salary Drawn * No. of PL Balance / 24 or 26.
I have written 24 or 26 based on the weekly off.
Our Branch Offices are closed only on Sunday, and the Corporate office is closed on the Second and Fourth Saturday, so that's why the number of days worked varies.
Kindly tell me, is it correct...
From India, Gurgaon
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This is Nishu working in Ltd. company, and we calculate leave encashment as follows:
Last Basic salary Drawn * No. of PL Balance / 24 or 26.
I have written 24 or 26 based on the weekly off.
Our Branch Offices are closed only on Sunday, and the Corporate office is closed on the Second and Fourth Saturday, so that's why the number of days worked varies.
Kindly tell me, is it correct...
From India, Gurgaon
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Hi all,
After referring to all of your valuable suggestions on Leave Encashment (i.e., on Basic + DA), I have a query on calculating LOP. I have observed that most companies calculate LOP based on one day's gross salary. In this case, how can we justify Leave Encashment being paid only on Basic + DA without referencing one day's salary?
I welcome debates or justifications on the above topic with illustrations or any relevant case law.
Regards,
Suresh Ramalingam
From India, Mumbai
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After referring to all of your valuable suggestions on Leave Encashment (i.e., on Basic + DA), I have a query on calculating LOP. I have observed that most companies calculate LOP based on one day's gross salary. In this case, how can we justify Leave Encashment being paid only on Basic + DA without referencing one day's salary?
I welcome debates or justifications on the above topic with illustrations or any relevant case law.
Regards,
Suresh Ramalingam
From India, Mumbai
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I need the contact numbers for Hr people for city of ahmedabad-gujarat which would enable me to contact them...for the recruitment related quarries .....
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Hi all,
Recently, our management proposed to provide leave encashment facility to its staff and workers. Now, I have to deduct PF if leave encashment is given. Please provide details of the PF account number, i.e., how I can post the employer's contribution in accounts 1, 10, 2, 21, and 22.
With regards,
Avi
From India, Mumbai
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Recently, our management proposed to provide leave encashment facility to its staff and workers. Now, I have to deduct PF if leave encashment is given. Please provide details of the PF account number, i.e., how I can post the employer's contribution in accounts 1, 10, 2, 21, and 22.
With regards,
Avi
From India, Mumbai
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Can you please explain why we do calculation by 26 not by 30? Is it a part of any act / law?
From India, Mumbai
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From India, Mumbai
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Hello Everyone, For leave encashment according to law there is only one formula i.e Gross Salary/26* No. of EL’s and yes u need to deduct PF from the outcome amount. Regards Vijeta
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Hi Vijeta, Thanks a lot for your reply. But in my co., the formula applied is: (Last Basic * No. of EL) / 30 Is there any Rule / Act which mentions this that we need to take it 26. Rgds Jyoti
From India, Mumbai
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From India, Mumbai
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The granting of leave encashment depends on the rules framed by the organization in this regard. Normally, basic pay and DA are taken into consideration, and other allowances like HRA, CCA, conveyance allowance, and other allowances are not considered as per rules. The monthly sum can be divided by 30 to ascertain the average salary and can be multiplied by the number of days of leave encashment, and the resultant disbursement can be made to the employee. I may mention that it is the mathematical convention to treat the month as 30 days.
DEEPAK THUKRAL
CHANDIGARH
From India, Chandigarh
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DEEPAK THUKRAL
CHANDIGARH
From India, Chandigarh
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Can you told me What is the rate applicable for Leave encashment? (As per rule) a) Basic . Or b) Groass.
From India, Coimbatore
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From India, Coimbatore
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Hi,
It is calculated based on gross. Leave encashment is provided as an alternative for compensatory off in situations where it is not feasible to grant leave, such as excessive workload or a lack of qualified staff.
Regards,
GS
From India
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It is calculated based on gross. Leave encashment is provided as an alternative for compensatory off in situations where it is not feasible to grant leave, such as excessive workload or a lack of qualified staff.
Regards,
GS
From India
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Hi, Normally the Leave encashment is calculated on basic salary of an employee (where DA is nor applicable), however the PF deduction on the amount is mandatory. S S Sinha
From India, New Delhi
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From India, New Delhi
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Hi All, Leave encashment iscalcuated on Basic + City compensatery allowans\ce and theproductivity Incentive, is this according to the law? If not how Law affetcts? Shweta
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Can yoiu tell me in which nrules mention that Basic + DA should be considered for the calculartion of leave encashment?
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Leave encashment is to be made according to a formula formulated by the company. In the absence of any specific formula, Basic wages + Dearness Allowance shall be divided by 26 to get the daily average salary, which shall be multiplied by the number of days to get the sum payable.
Remember that provident fund should not be deducted from the leave encashed amount since the amount an employee receives by encashing his leave will not form part of wages, as decided by the Supreme Court in Manipal Academy of Higher Education's case.
Regards,
Madhu T.K
From India, Kannur
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Remember that provident fund should not be deducted from the leave encashed amount since the amount an employee receives by encashing his leave will not form part of wages, as decided by the Supreme Court in Manipal Academy of Higher Education's case.
Regards,
Madhu T.K
From India, Kannur
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Dear Madhu, In my company which is newly established MNC the formulae is only Basic salary. Do we also need to pay PF over and above Basic as per your view. Please clarify. REgards, Navneet
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Mr. Navneet,
The thread relates to leave encashment, and in some postings, I find views supporting the deduction of PF from the amount paid by way of leave encashed. My posting was to shed light on the recent SC verdict on PF deduction on leave encashment. My post was in no way related to basic salary and contribution to PF.
If you do not have a DA system, then the basic salary alone will qualify for the deduction of PF. In the case of leave encashment also, the sum payable will be decided according to the basic salary only.
Regards,
Madhu.T.K
From India, Kannur
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The thread relates to leave encashment, and in some postings, I find views supporting the deduction of PF from the amount paid by way of leave encashed. My posting was to shed light on the recent SC verdict on PF deduction on leave encashment. My post was in no way related to basic salary and contribution to PF.
If you do not have a DA system, then the basic salary alone will qualify for the deduction of PF. In the case of leave encashment also, the sum payable will be decided according to the basic salary only.
Regards,
Madhu.T.K
From India, Kannur
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Hi Anuradha,
Every company follows its rule for leave encashment. But in general, it is as follows:
Encashment will be done in two cases:
i) At the time of separation or retirement from the company.
ii) When an employee has earned leave exceeding the specified limit.
In our company, we follow the following method:
1) During service - Monthly Salary (Basic + D.A.) / 30 days * Leave Balances.
Note: Any excess of 30 days will be considered as leave balance eligible for encashment.
Illustration:
Basic Salary Rs. 10,000 + D.A. Rs. 5,000, i.e., Rs. 15,000/-
(Deduct the P.F. amount if any)
The denominator will be 30 days, and if there are 5 days over the 30, it will be considered for leave balance calculation:
=> 15000/30*5 => Rs. 2,500/-
Note: The denominator is generally taken as 26 days for 6 working days a week and 22 days for 5 working days a week. However, this practice is not common in Indian companies.
For any further queries, please reach me at my personal email id: mannupauri@yahoo.com.
Kind Regards,
Mannu Negi
From India, Delhi
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Every company follows its rule for leave encashment. But in general, it is as follows:
Encashment will be done in two cases:
i) At the time of separation or retirement from the company.
ii) When an employee has earned leave exceeding the specified limit.
In our company, we follow the following method:
1) During service - Monthly Salary (Basic + D.A.) / 30 days * Leave Balances.
Note: Any excess of 30 days will be considered as leave balance eligible for encashment.
Illustration:
Basic Salary Rs. 10,000 + D.A. Rs. 5,000, i.e., Rs. 15,000/-
(Deduct the P.F. amount if any)
The denominator will be 30 days, and if there are 5 days over the 30, it will be considered for leave balance calculation:
=> 15000/30*5 => Rs. 2,500/-
Note: The denominator is generally taken as 26 days for 6 working days a week and 22 days for 5 working days a week. However, this practice is not common in Indian companies.
For any further queries, please reach me at my personal email id: mannupauri@yahoo.com.
Kind Regards,
Mannu Negi
From India, Delhi
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PF deduction on leave encashment.doc
PF Contribution on Leave Encashment - Clarification by EPFO.pdf