Leave Encashment Dilemma: Should It Be Based on Basic or Gross Salary? Seeking Advice!

Dear all,

We are preparing leave encashment. We have to decide whether leave encashment should be on basic or on gross. We have tried to convince employees about leave encashment on basic, but employees are not convinced. Please guide.

Regards,
Pratap M. Kamble
9689901446

Dear Partap,

You may receive different answers to your query, as observed in the recent past. It is clarified that there is no provision for encashment of leave during the service period. Encashment of EL is done at the time of full and final settlement. Some individuals may have settlements with the employees regarding this matter. If an employee takes leave during the service period, they are paid salary based on their full earnings and not just on the basic salary. Therefore, it is arguable why one should be given encashment benefits based only on their basic salary. In my opinion, there is no justification for encashing leaves based on basic salary.

Opinion submitted as requested.

Regards,
R.N. Khola
Sr. Associate
Skylark Associates, Gurgaon
09810405361

Thank you for the comment.

I have feedback from CiteHR friends that it can be basic, and most of the companies follow the basic rule. I tried it in my company, but employees were not happy with the arrangement. Then we discussed the matter with a management consultant. He reviewed the definition of wages in the Payment of Wages Act and asked us to make payments according to the definition in the act. We have to go for that which states on gross salary. However, some friends believe that it is justified on basic. Can you provide more comments?

Regards, Pratap Kamble 9689901446

Dear Partap,

There may be a practice for giving encashment on only Basic. The employees can very well deny receiving encashment of leaves on basic, but at the same time, you can also deny encashment of leaves as there is no provision for encashment of leaves under various laws. You will certainly know that an employee can accumulate leaves up to a certain limit. I have given the justification for payment on gross salary. Both sides cannot compel each other for their stand. Now you are to see what is to be done in the matter.

Regards,

R.N.Khola
(Labour Law & Legal Consultants)
09810405361