Is It Mandatory to Cash Out Unused Paid Leave? Understanding Salary Components Involved

Hi,

Is encashment of unavailed PL compulsory? If yes, what salary components are considered to calculate the due encashment?

We have 21 days as EL in a year (April-March).

Regards,
Gauri

Hi Gauri,

Encashment occurs only after the retirement, resignation, or termination of an employee. However, it depends on the organization whether they accumulate, lapse, or encash every year. The encashment calculation is as follows: basic + da + vda / 26 * number of PL balance.

If you have any queries, please let me know via email at edcjai@ymail.com.

Hi,

Encashment of EL or PL is compulsory when an employee is leaving the organization. It is not mandatory while in service, unless the company's leave policy states otherwise. The encashment can be done based on the basic or gross salary as per the company policy.

Regards,
Harshad

Hi Gauri,

The unavailed PL has to be encashed at the time the employee is leaving the service or if the employee dies during service. The encashment of PL every year is not compulsory. The employer may draft a scheme for the purpose of ensuring the continuity of work and for securing the attendance of the workers, and the management may encash the unavailed earned leave at the end of every calendar year.

Following shall be the salary components while calculating the encashment of leaves:

Sec. 80. Wages during leave period.
(1) For the leave allowed to him under section 78 or section 79, as the case may be, a worker shall be entitled to wages at a rate equal to the daily average of his total full-time earnings for the days on which he actually worked during the month immediately preceding his leave, exclusive of any overtime and bonus but inclusive of dearness allowance and the cash equivalent of the advantage accruing through the concessional sale to the worker of food grains and other articles:

Provided that in the case of a worker who has not worked on any day during the calendar month immediately preceding his leave, he shall be paid at a rate equal to the daily average of his total full-time earnings for the days on which he actually worked during the last calendar month proceeding his leave, in which he actually worked, exclusive of any overtime and bonus but inclusive of dearness allowance and the cash equivalent of the advantage accruing through the concessional sale to the workers of food grains and other articles.

(2) The cash equivalent of the advantage accruing through the concessional sale to the worker of food grains and other articles shall be computed as often as may be prescribed on the basis of the maximum quantity of food grains and other articles admissible to a standard family.

Explanation 1. 'Standard family' means a family consisting of a worker, his or her spouse, and two children below the age of fourteen years requiring in all three adult consumption units.

Explanation 2. 'Adult consumption unit' means the consumption unit of a male above the age of fourteen years, and the consumption unit of a female above the age of fourteen years, and that of a child below the age of fourteen years shall be calculated at the rates of 0.8 and 0.6 respectively of one adult consumption unit.

Goodbye.

Dear Gauri Kulkarni,

Is encashment of unavailed PL compulsory? - Yes, at the time of separation. If yes, what salary components are considered to calculate the due encashment? - Fixed Salary.

Hope this will meet your requirement.

Regards,
Pankaj Chandan

Dear Friends,

Can anyone please clarify this matter?

1. Is it necessary to deduct PF from encashment leaves?
2. Number of days to be calculated on EL. Is it 26 days or 30 days?

Regards,
Anil

Hi,

As far as I know, deducting PF from leave encashment was a common practice. However, I recall that the Supreme Court had ruled against this practice (correct me if I am mistaken, seniors).

Currently, I am not deducting any PF amount from leave encashment. The calculation of the amount depends on whether you are paying a fixed monthly salary or daily wages. If it's a monthly salary, calculate based on 30 days; if it's daily wages, calculate based on 26 days.

This is my understanding of leave encashment. Please correct me if I am wrong.

Regards,
Madhu

Gauri,

Leave management is totally at management discretion other than a few legal things which you have to follow, which are the minimum statutory requirements. 21 PL days are compulsory for any factory or establishment; you can encash them or make it compulsory to avail them (else they will lapse). Here, again legally, Basic & DA components are required to be considered.

Regards,
Sandeep Kulkarni

Dear Anil,

It is not necessary to deduct PF from Leave Encashment. As rightly said by Madhu, for salaried employees, it is 30 days, and for daily wage earners, it will be 26 days.

Sandeep Kulkarni

Dear Manoj,

Any employee who has worked for 4 years and 240 days is eligible for gratuity under the Payment of Gratuity Act. Gratuity is payable on basic wages, including dearness allowance. The amount of gratuity payable is calculated as Basic Wages/26*16*number of years actually worked. This gratuity amount must be paid to the leaving/retiring employee within 21 days of his date of leaving the organization.

Thanks,

Amit Anand Gera

Gratuity shall be payable to an employee on his termination or on his superannuation, retirement, or resignation from his employment after he has rendered continuous service for not less than five years.

*Continuous service.*

An employee shall be said to be in continuous service for a period if he has, for that period, been in uninterrupted service, including service that may be interrupted due to sickness, accident, leave, absence from duty without leave (not being absence in respect of which an order treating the absence as a break in service has been passed in accordance with the standing order, rules, or regulations governing the employees of the establishment), lay off, strike, lock-out, or cessation of work not due to any fault of the employee, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act. Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement.

The employer shall pay gratuity to an employee at the rate of fifteen days' wages based on the rate of wages last drawn by the employee concerned.

In the case of a monthly-rated employee, the fifteen days' wages shall be calculated by dividing the monthly rate of wages last drawn by him by twenty-six and multiplying the quotient by fifteen (e.g Last drawn Basic Wages/26*15*no of completed years).

Thanks,

Paul