Understanding Earned Leave: How Do You Calculate and Encash It Correctly?

Hi, please help me.

1. How to calculate earned leave?
2. Whether we have to encash them every year for this?
3. Whether EL is calculated on basic salary or gross salary?
4. Even if it is basic or gross, whether it is monthly basic CTC or yearly basic CTC?
5. How to calculate EL on a monthly basis and whether the working days are 26 or 30 per month?

Please try to answer each question separately. It would be grateful if explained with example sheets (i.e., both salary calculation including all contents and EL calculation).

Kindly help me.

Thank you.

Hi Gnash,

The EL calculation part differs from organization to organization because some companies will give 1 EL for each 18 working days, some will give 15 working days, and some organizations will have a lump sum type of leave process. However, you can work out that for every 20 working days, one EL is granted, subject to a minimum of 240 working days in a year. To reach the 240 days, you should also consider ELs availed, but EL will be based on actual working days. A half-day and any further fraction can be considered as one leave. Normally, the leave is based on the calendar year, with leave being credited to the employee's account on Jan 1st.

The encashment part also varies from company to company. The accumulation will range between 240 - 30 days, and any excess will be encashed and paid along with the salary payable for the month of January.

Most companies pay based on Basic + DA + VDA (if DA and VDA are not applicable, then only on basic - very few companies pay on gross).

I am unable to understand the monthly and annual CTC - the Basic (Basic + DA + VDA / Gross) salary in the month of January will be calculated.

Normally, the calculation will be salary / 30 days, or the number of days in that month. In some companies, they divide the salary by 26 and pay. You can choose any method, but for gratuity, it should be divided by 26 days.

With best regards - Kameswarao

Hi Gnash,

PL/EL depends upon the applicable laws, e.g., the industry/location, Factories Act if yours is a factory, Local Shops and Establishment Act if it's an establishment. For more details, please let me know the kind of industry you are referring to and the location. Likewise, the encashment of leave will also vary depending on these factors.

Best Regards,
Govil

Hi Gnash,

I think Mr. Kameswar Rao has explained very clearly, and now everything is clear to you. Please note that EL is being calculated on Basic + DA and not on the gross salary.

Regards,
Sivadasan