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Dear seniors and experts, We have a plan for paying the E.L. and C.L. encashment on a monthly basis if someone does not avail of those leaves for the month. we are planned to issue these leave wages separately by monthly but not included in the salary.
My query is, if we pay separately those amounts, are we liable to deduct P.F & E.S.I or not? Please clarify team members.

Pandian P

From India, Madurai

Normally the EL is encashed annually and not monthly. Annual encashment or surrender of leaves is not salary for the purpose of ESI or PF deduction. At the same time, if you pay leave surrender every month it would be treated as an allowance for not taking any leave in that month and as such it would attract ESI on the presumption that any allowance paid to a covered employee as part of service condition and in an interval of not more than two months would be part of wages attracting ESI contribution. You can exclude it from PF qualifying salary but you cannot exclude it for ESI. But if you encash it on an yearly basis, then you can very well exclude it.

Now coming to the legal side of your decision to encash leave in every month, I would say that it will be unfair and you will not get legal support if an employee demands that he should be permitted to accumulate the leave to be used when he requires it. That is why the law does not support encashment of leaves during the service periods though an employee is permitted to surrender his unavailed leaves when he leaves the organisation. Leave is for the welfare of employees and he should be given leave as and when he requires it. It can be accumulated subject to certain limits as prescribed under the Acts (let it be Factories Act, Plantation Labour Act, Mines Act or Shops and Commercial Establishments Act) and the employer cannot refuse to grant it under normal circumstances. If a leave is refused the number of leaves so refused would add to the maximum leaves that can be accumulated. all these suggests that you are not permitted to pay cash equivalent to the leave every month and make the workers work without taking any leave. This would be sensed as bonded labour. I would say that this element is more important than its inclusion for ESI or PF.

From India, Kannur


Added to the above vivid clarifications by Mr.Madhu, please note that there is no need to encash CL. Unavailed Casual Leave should be lapsed at the end of the year. EL encashment on once in 2-3 years or at the time of separation is the standard practice.

From India, Madras

Dear Madhu T.K sir, well understood and get clear, thanks for your suggestions also. So we will plan according to the act which was said by you. many thanks sir. Regards Pandian P
From India, Madurai

Dear Vmlakshminarayanan sir, Noted with thanks. Regards Pandian P
From India, Madurai
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