Why Do We Only Pay Basic Salary for PL Encashment? Seeking Advice on Employee Query

Hi,

One of our employees has questioned me why, when encashing PL, we pay only the basic salary and not all the components of CTC.

In our organization, when settling F&F, we pay PL to employees based on the following formula: Basic Salary/30 * Number of days of PL (maximum of 90 days).

I would appreciate your suggestions on a suitable response. Thank you.

Dear J S Malik,

Your formula for calculation needs a little rectification. The basic should be divided by 26, not by 30 as you have mentioned. Regarding whether to pay it on basic or CTC, it is a company policy, and no act specifies whether it should be paid on basic or gross. Therefore, company policy will prevail.

Best regards,
J S Malik

Hi,

It depends on what practices the company has followed in such cases in the past. Normally, Basic + Dearness Allowances are considered for Leave Encashment.

Secondly, the upper limit for PL accumulation differs from company to company based on their policies. You can encash the PL up to that limit only and not more than that.

Thanks.
Shantanu:)

Hi,

I supplement Mr. Shantanu and add that PFable salary, i.e., Basic + Dearness Allowance (Fixed or Variable) + High Cost, are considered for the calculation of the amount for Leave Encashment.

With respect to Mr. MalikJS, I understand that the formula for dividing the monthly salary by 26 days is only applicable in the case of Payment of Gratuity under the Payment of Gratuity Act, 1972 - (Vide..Sec.4-Payment of Gratuity - Sub Section(2) - explanation inserted by Act No. 22 of 1987 w.e.f. 1.10.1987 which reads as - "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.)

Therefore, your formula by dividing 30 will be okay.

Regards,

J. N. Pathak