Are Leave Deductions Based on Gross or Basic Salary? Seeking Clarity for All Levels

Hi all,

Firstly, I take the opportunity to wish my Cite HR Team a colorful and bright Holi celebration :)

Recently, we had excess leave deductions in our office where the leaves were deducted based on the gross salary. One of our associates asked me whether companies generally consider basic salary and then deduct leaves accordingly. Is this rule followed by all levels in the same manner, including managers, technical heads, project in charges, junior software engineers, and trainee software engineers, with respect to leave deductions?

Please address my two queries.

Regards,
Srilatha

Hi,

As far as my knowledge goes, leave deduction is done in the same manner across all levels of employees in the organization. Leave deduction is done on gross, whereas leave encashment is done on basic.

Hope this will be of some help to you.

As a norm, leave encashment is done on basic, and deduction is on the Gross. However, from an HR point of view, the employee, due to his work pressure, will abstain himself from enjoying the earned leave eligible to him and work in the interest of the company. Then, why should the company pay him only his basic? Suppose he goes on excess leave, then his entire gross would be deducted.

I feel this is not fair. In my company, I have strongly put this point to my management, and they have accepted it as a motivating tool for all those who give extra mandays.

A. Pinto
Fin & HR

Hi Sush,

Happy Holi to you too, though it is a bit late for this Holi.

Regarding your query, in most organizations, deductions are made on the basic and then applied to the gross by deducting proportionate other components such as DA, CCA, etc.

Bye,
Raj

Hi all,

I am an MBA-HR student. Can someone explain the entire leave deduction process, including how leave deductions and encashments are done in an organization? I am eagerly awaiting your replies.

Regards,
Akshay

Hi everybody,

When we recruit a person, we expect him to work, and in return, we pay him a salary and some other benefits. If the person is absent (i.e., he is neither present, nor off, nor on holiday, nor on leave), he does not work for us on a day he should have been working. Therefore, why should we pay him anything? Word leave deduction is not correct. In fact, the employee is absent. He was recruited to work for the company and get paid. He was not recruited to be absent. Unauthorized absence from work is a misconduct inviting punishment.

Regarding Encashment of Leaves, good companies want their employees to take leave, enjoy, fulfill their social commitments, and take proper rest so that when employees come back to work, they are fresh and their batteries are charged up again. However, they provide for encashment because the law provides for it and it can also be a source of additional income for the employee. The argument that when we do not take leave, we work more is also incorrect because a sincere and responsible employee will finish his work before proceeding on leave, even if he has to sit late.

So, both situations are not exactly opposite of each other. This is why in the case of absence, we deduct on the basis of gross, while in the case of encashment, we pay only on the basis of Basic pay.

If we start paying for encashment based on gross, as suggested by Pinto, then employees will come to work even in situations where they should be taking leave, resulting in tiredness, lethargy, mental fatigue, etc. Company's productivity will go down, mistakes will increase, and ultimately the company will lose instead of gaining anything.

KKT

Thank you very much, Krishnan. Your post seriously put some things in perspective. It's funny how we sometimes overlook factors like lethargy and stress in employees. What are the maximum number of days that can be encashed in your organization or in general?

Warm regards,
Akshay

Thank you, Akshay, for your encouraging words.

Encashment is directly linked to accumulation. Leaves are allowed to be accumulated for two reasons:

1. Suddenly, an employee may have to go on a long leave (like in the case of sickness), and his annual entitlement may not be sufficient to meet this emergency.

2. There may be a sudden demand for money. In this case, encashment helps.

Therefore, generally, companies allow encashment of up to 50% only so that the balance leaves are in reserve for sickness, etc.

The minimum accumulation as per the Factories Act is 30 days.

KKT

Dear All,

In my company, management is deciding to deduct double salary per day for the number of extra leaves taken.

Do you think this is right? Please reply ASAP.

Regards,
Shveta

Hi Everybody, I am a newly joined member and I want to clarify one thing. For example, my CTC is 1.20 lakhs and the basic is 4000. If I work for 2 days, how will this be calculated?

Subject: Excess Leave Deduction

Hi Everybody, I am a newly joined member, and I want to clarify one thing. For example, my CTC is 1.20 lacs, and the basic is 4000. If I am absent for 2 days, how will this be calculated?

Regards, Naveen

Dear Mr. Krishan Kumar,

I would like to present to you the other aspects of the employee too. Not all employees have the same mindset. We may recruit a person to achieve the company's goal, but he may have a sudden and unexpected reason for not attending work. When it comes to the timeframe they take for work, the current scenario is totally different as no employee is given a specified part of work; it is a continuous process. (If your boss assigns you to complete a task when you are about to leave for the day).

So kindly consider the other set of employees who are genuine towards work, who can make use of the encashment. As HR professionals, we need to consider all aspects.

Thanks and Regards,

Sree Ramani