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For leave encashment amount we should consider basic or total salary (including allowances)? What law suggest?


Section 80 of Factories Act reads as follows

80. Wages during leave period.(1) For the leave allowed to him under 1 [section 78 or section 79,as the case may be,] a worker 2 [shall be entitled to wages] at a rate equal to the daily average of his total full time earnings for the days on which 3 [he actually worked] during the month immediately preceding his leave, exclusive of any overtime and bonus but inclusive of dearness allowance.

In my opinion, if you consider full time earnings (Gross wages) for the period of leave availed by him/ her. You can follow the same logic for leave encashment too (Gross wages).

Having said that, Section 79 limits carry forward of unavailed leave, to the suceeding year subject to a maximum of thirty days in case of an adult. This means that any earned leave accumulated beyond thirty days will lapse.

In such a case,

if you consider Gross wages for Leave Without Pay (LWP) computation, you can follow the same for leave encashment.

However, if your LWP computation is on Basic + DA alone, then in my opinion you can restrict leave encashment payment to Basic + DA.



From India, Madras

Normally the emoluments what the employer would have paid if he would have availed leave should be the basis for encashment of leave. Which also means exclusions such as allowance linked to the attendance in work places such as project/daily, night shift allowance, risk allowance, attendance bonus, incentives, OT, uniform allowance which already included in a month's salary.
From India, Bangalore

CCS(Leave) Rules, 1972 applicable to Central Government employees provides that cash equivalent to earned leave (at the time of cessation of employment) is to be calculated based on the pay last drawn plus dearness allowance.
From India, Kochi
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