Dear All,
I know my query is old one as EL encashment should be done on Gross or Basic.....
When leave availed is being paid on gross then why encashment on Basic?
Also my organization is 38 years old, we used to pay on Gross but since 2020 post Covid period it has been made to Basic. Making changes has made the CTC of employee lesser & all are at stress & demotivated. Is this step is correct, kindly share your view points.
Rgds
Mukesh Badal
From India, Delhi
I know my query is old one as EL encashment should be done on Gross or Basic.....
When leave availed is being paid on gross then why encashment on Basic?
Also my organization is 38 years old, we used to pay on Gross but since 2020 post Covid period it has been made to Basic. Making changes has made the CTC of employee lesser & all are at stress & demotivated. Is this step is correct, kindly share your view points.
Rgds
Mukesh Badal
From India, Delhi
If you are in the 'workman' category as per the ID Act 1947, then there cannot be any unilateral withdrawal of any customary practice. If done so, it would be íllegal change' with the consequential effects.
If it is otherwise, then many of the organisational previleges and benefits got substantially affected due to the pandemic. Even many state governments did not implement DA revision which they had to implement otherwise. The organisation has discontinued due to the adverse circumstances and hopefully will be restored once the situation improves.
To feel stressed or demotivated on the marginal drop in CTC is a bit of overreaction, if I may be permitted say so.
From India, Mumbai
1530If it is otherwise, then many of the organisational previleges and benefits got substantially affected due to the pandemic. Even many state governments did not implement DA revision which they had to implement otherwise. The organisation has discontinued due to the adverse circumstances and hopefully will be restored once the situation improves.
To feel stressed or demotivated on the marginal drop in CTC is a bit of overreaction, if I may be permitted say so.
From India, Mumbai
Surrender Leave salary should be equivalent to the salary payable if the employee goes on leave minus any allowance payable to defray special expenses relating to the normal performance of his job.
From India, Salem
From India, Salem
Hello Friend,
As per Law, Leave Encashment is on basic salary .The company is giving the right in a legal way. If your company was given on gross for so many days, then your company gave it in good faith. But due to covid, if they have been reduced to basic then you have to accept it and no need to get demotivated.
You asked that, Why leave encashment is on basic. My view on this...
There is no Gross word mentioned in any labor law. Any calculation mentioned in law i.e on Basic & DA.
1. EPF Act
2. Leave Encashment
3. Bonus Payable
4. Gratuity Payable...
From India, Mumbai
As per Law, Leave Encashment is on basic salary .The company is giving the right in a legal way. If your company was given on gross for so many days, then your company gave it in good faith. But due to covid, if they have been reduced to basic then you have to accept it and no need to get demotivated.
You asked that, Why leave encashment is on basic. My view on this...
There is no Gross word mentioned in any labor law. Any calculation mentioned in law i.e on Basic & DA.
1. EPF Act
2. Leave Encashment
3. Bonus Payable
4. Gratuity Payable...
From India, Mumbai
Mr. Ravi
Please tell me under which act and which clause / section is the encashment of leave salary to be made at Basic rate?
Your contention that Gross Wages is not in any act is wrong.
Sec 59 of Factory Act specifies that payment of Overtime must be made at "Ordinary Rate of Wages" which is then defined in the section as gross wages.
(2) For the purposes of sub-section (1), "ordinary rate of wages" means the basic wages plus such allowances, including the cash equivalent of the advantage accruing through the concessional sale to workers of foodgrains and other articles, as the worker is for the time being entitled to, but does not include a bonus and wages for overtime work.
I agree with Umakhanta-ji that the payment must be made at gross rate excluding any allowance specifically given to defray the expenses connected with work. Any amount deducted as allowance must be actually and really linked with the cost of doing the work and not just a restructuring of salary into allowances made to reduce statutory dues. Therefore, any amount paid to everyone and any amount that is paid when a person is absent or on leave, will be included in computation of encashment value of leave wages
From India, Mumbai
Please tell me under which act and which clause / section is the encashment of leave salary to be made at Basic rate?
Your contention that Gross Wages is not in any act is wrong.
Sec 59 of Factory Act specifies that payment of Overtime must be made at "Ordinary Rate of Wages" which is then defined in the section as gross wages.
(2) For the purposes of sub-section (1), "ordinary rate of wages" means the basic wages plus such allowances, including the cash equivalent of the advantage accruing through the concessional sale to workers of foodgrains and other articles, as the worker is for the time being entitled to, but does not include a bonus and wages for overtime work.
I agree with Umakhanta-ji that the payment must be made at gross rate excluding any allowance specifically given to defray the expenses connected with work. Any amount deducted as allowance must be actually and really linked with the cost of doing the work and not just a restructuring of salary into allowances made to reduce statutory dues. Therefore, any amount paid to everyone and any amount that is paid when a person is absent or on leave, will be included in computation of encashment value of leave wages
From India, Mumbai
For staff not falling in the category of workmen, the salary breakdown is agreed at the time of appoitment and may comprise of large number of components like
Basic
DA
HRA
Medical Allowance
CEA
Phone allowance
Newspapers /periodical allowance
Entertainment allowance
Transport Allowance
Etc etc
All these allowances, except Basic and DA are also not considered for calculation of Gratuity.
If a person is encashing accumulated leave, other allowances , which are for his everyday working should be omitted.
If there is any statutory Act which states otherwise is not known to me.
It also differs from one organization to another
My post was based on tax applicability on leave encashment wherein it is mentioned that it is calculated on Basic plus DA
"*Salary for this purpose includes basic salary, dearness allowance and commission based on fixed percentage of turnover secured by employee** Specified amount of Rs 3,00,000 is the aggregate amount allowed as exemption irrespective of frequency of leave encashment received by employee by various employers. If an employee has utilised Rs 2,00,000 already at the time of first resignation, he is only entitled to use balance of Rs 1,00,000 for the exemption computation next time. Hence, overall employee is allowed total exemption of only Rs 3,00,000 with respect to leave encashed from all employers."
( https://cleartax.in/s/leave-encashment-tax)
I request members to offer comments
Col.Suesh Rathi
From India, Delhi
Basic
DA
HRA
Medical Allowance
CEA
Phone allowance
Newspapers /periodical allowance
Entertainment allowance
Transport Allowance
Etc etc
All these allowances, except Basic and DA are also not considered for calculation of Gratuity.
If a person is encashing accumulated leave, other allowances , which are for his everyday working should be omitted.
If there is any statutory Act which states otherwise is not known to me.
It also differs from one organization to another
My post was based on tax applicability on leave encashment wherein it is mentioned that it is calculated on Basic plus DA
"*Salary for this purpose includes basic salary, dearness allowance and commission based on fixed percentage of turnover secured by employee** Specified amount of Rs 3,00,000 is the aggregate amount allowed as exemption irrespective of frequency of leave encashment received by employee by various employers. If an employee has utilised Rs 2,00,000 already at the time of first resignation, he is only entitled to use balance of Rs 1,00,000 for the exemption computation next time. Hence, overall employee is allowed total exemption of only Rs 3,00,000 with respect to leave encashed from all employers."
( https://cleartax.in/s/leave-encashment-tax)
I request members to offer comments
Col.Suesh Rathi
From India, Delhi
So, the leave wages can’t be paid at basic only. At least, that is what I understand from the above
From India, Mumbai
From India, Mumbai
Dear Colonel,
I am afraid that your reference to payment of Gratuity and calculation of income tax on the sub-head of income received by way of leave encashment is whether relevant to the calculation of salary payable in lieu of leave. Even otherwise, the income tax rule you quoted suggests the taxable component of leave salary only.
Application of leave encashment to superior Cadre employees i.e., other than workman Cadre is one of the conditions of employment based on mutual consent of the employer and employee concerned. So, the contention leave encashment should be on the sum of basic + D.A can be correct for it is only an extra benefit under the contract of service.
On the contrary, in case of periodical surrender of EL for cash benefit or on the termination of employment in respect of employees covered by such a provision of any labor law, it should be equal to the actual leave salary payable if he would have gone on authorized EL. The logic for example is that of HRA for leave of absence.
In any case, the primary objective of leave encashment is that of encouragement of full attendance of employees to work so that both the employer and the employees get mutual benefits.
From India, Salem
I am afraid that your reference to payment of Gratuity and calculation of income tax on the sub-head of income received by way of leave encashment is whether relevant to the calculation of salary payable in lieu of leave. Even otherwise, the income tax rule you quoted suggests the taxable component of leave salary only.
Application of leave encashment to superior Cadre employees i.e., other than workman Cadre is one of the conditions of employment based on mutual consent of the employer and employee concerned. So, the contention leave encashment should be on the sum of basic + D.A can be correct for it is only an extra benefit under the contract of service.
On the contrary, in case of periodical surrender of EL for cash benefit or on the termination of employment in respect of employees covered by such a provision of any labor law, it should be equal to the actual leave salary payable if he would have gone on authorized EL. The logic for example is that of HRA for leave of absence.
In any case, the primary objective of leave encashment is that of encouragement of full attendance of employees to work so that both the employer and the employees get mutual benefits.
From India, Salem
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PF Contribution on Leave Encashment - Clarification by EPFO.pdf
EPFO Circular Leave Encashment.jpg