Leave Encashment Confusion: Should It Be Based on Basic or Gross Salary?

Hi all,

I need more clarity on whether the leave encashment should be done based on the basic salary or gross salary. :confused: Is there a specific reference where one can find this information?

Dear,

The law is not clear on whether this should be paid based on basic or gross. Therefore, you can establish your own policy in this regard, but most companies typically pay it based on the basic salary.

Thank you.
J.S. Malik

Thank you so much for your quick response. I needed one more clarification. When an employee goes on leave, we do not deduct from the basic salary. Then why is the leave encashment calculated based on the basic salary?

Dear,

I told you the law is not clear on this. You can create your internal policy, and some companies pay leave encashment on the full salary as well. But as you asked for justification: if someone goes on leave, we give them full salary, whereas if they take encashment, we pay them on the basic.

Why should the company pay allowances when HRA is already being paid to the employee? Why is the employee required to pay again in encashment? Employers take advantage of the act as it is not clear.

Thank you.
J.S. Malik

Hi Dear,

I do agree with Mr. Malik completely as there is no rule and law for leaves; it is internal company policy. Like in my previous company, it used to be calculated on basic, and here in my present company, it is calculated on CTC, so again it depends.

Hope it's clear to you.

Anu

Hi Dear Malik Sir,

I have attached a challan copy preparing Excel sheet. Is it correct or not? Please reply to me. Also, in a year, how many leaves do we calculate? Actually, I have no knowledge of the leave information.

Your,
Jogindra

We can have better clarity if we refer to the Bombay Shops and Establishment Act, 1948, specifically in Chapter VII regarding Leave with Pay and Payment of Wages - Section 35(2) on Leave and Section 36 on Pay during leave.

Thanks & Regards,
Asitosh Sharrma

Hi all, isn't there a recent Supreme Court ruling that the leave encashed on resignation is to be paid in full and not based on basic salary? Does anyone have any idea about this?

Dear All,

In our establishment, we are following leave calculations based on basic salary. The calculation is derived as shown below:
= Basic/30 * No. of Days.

Thanks,
Jana

Saugi - Mr. Malik has rightly clarified that the basis of paying leave encashment (and also recovering notice period) is the company's prerogative. There is no binding of any law here. Hope this helps.