Earned Leave Encashment: Is Our Calculation Method Using Gross Salary Correct?

Can you please clarify about the yearly calculation of Earned Leave Encashment? We have taken the gross salary divided by 26 multiplied by the number of days. Is this correct?

Bottom line is:

Basic Salary / 26 * Number of Earned Leave Balance. But you can take Gross Salary instead of Basic if your company policy allows that.

Thanks,
Amit Jain
9873436660

In order to help you calculate the encashment of annual leave, I need you to provide the following information:

- According to your Company Policy, is your annual leave calculated in calendar days or working days? This distinction is crucial when calculating.

- Different positions may have varying annual leave entitlements.

- When calculating benefits and entitlements, do you use the basic salary or gross salary? This can make a significant difference.

- What is your organization's policy on carrying forward annual leave?

- I assume you carry out this exercise by 31st December.

- Please specify the date on which you begin the calculation.

- Total number of annual leave days earned.

Please send me this information, and I will provide you with the matrix for calculating your annual leave encashment.

Earned Leave Encashment Clarification

We are not supposed to encash the earned leaves yearly under any Act. However, if the employee does not have any objection and is interested in getting encashment of EL yearly, and if the employer also wants to pay, then in my opinion, your method of calculation is not objectionable.

Opinions/comments submitted as requested.

With Regards,
R.N.Khola

If the company has a policy of providing privilege leave or earned leave during the calendar year, they may opt for the same. However, the Factories Act does not insist that the employer pays such encashment. It is not a statutory obligation on the part of the employer to pay such encashment to the employee.

Regards,
Devarajan

For earned leave encashment, we should take the basic salary (not gross salary) for a month with 30 days. For example, a person who has worked a total of 120 days is eligible to receive 6 days for encashment. The basic salary for a day should be determined and then multiplied by 6 days.

Basic salary Rs. 800 X 6 days = Rs. 4800/-

Regards

Please refer to the Act which is applicable to your establishment. Then, refer to your policy that pertains to leaves. If there is no company policy on leave, refer to the model standing order.

Thank you.

Yours sincerely,
Koti

As per my knowledge, wages/26 * Number of Days (PL). Here, wages include Basic + DA + other special pays.

Regards,
P K Prasad

Dear Friend,

For staff and workmen, the formula to calculate the encashment amount is as follows:

Basic salary / 30 * Number of days encashment

For staff and workmen, the formula to calculate the encashment amount when considering basic salary, dearness allowance (DA), and variable dearness allowance (VDA) is as follows:

(Basic Salary + DA + VDA) / 30 * Number of days encashment

Thank you.

Dear Friends,

In the case of worker earned leave calculation, the simple formula is to add all twelve months' basic pay that one has earned in a year and multiply that by 8.33%. That is, annual due salary * 8.33% = Leave Salary.

Vashishtha

Hi,

Does anyone have a basic example format for calculations? Please share with us.

Nirav Parikh

Monthly Encashable Salary should be divided by 30 days to arrive at Leave Encashment payable per day. Division by 26 is correct only if the rate of salary is per day.

Thanks & Regards

Dear All,

Earned leaves are calculated like this: Gross Salary divided by Total EL Allotted multiplied by EL Left Over for the calendar year.

Regards,
Sanjay

Formula Clarification

The formula given by Mr. Sanjay is completely wrong. Take an example, and one will come to know what he is trying to find out—earned leaves? EL Encashment? God knows. I appeal to CiteHR members to post responsibly. Please post only if you are confident about the completeness and correctness of the information.

Thanks & Regards

If you deem fit, please let us know which law (Act & section) states that we are to consider basic salary for the calculation of the amount for encashment of earned leaves.

With Regards,
R.N. Khola

Quote from amitmahaan;1096435:
Bottom line is:
Basic Salary / 26 * Number of Earned Leave Balance.
But you can take Gross Salary instead of Basic if your company policy allows that.

Thanks,
Amit Jain
[Phone Number Removed For Privacy Reasons]

Earned leave will be calculated on the basis of Basic + DA / 30 * Number of days earned = EL payable.

Nagaraj. N. K
9448886290

When we calculate leave encashment, how is the PF amount contributed by the company to be adjusted?

Regards,
Gita

Earned leave will be calculated as: Basic/30 * No. of earned EL. There is no role of DA in the calculation of the total amount of earned leave.

Please let me know if you need any further assistance.

Dear All,

The calculation of Earned Leave should be based on the Gross Salary for 26 days. The formula for leave encashment is as follows: Gross Salary * Number of Earned Leave Days during the period / 26.

ANKUR RASTOGI

The Factories Act clearly states that wages, including all allowances, need to be paid. The labor acts do not recognize the term basic salary.

As per the Factory Act, EL is earned as follows: for every 20 work days, 1 EL is earned. It is applicable to avail the same in the next calendar year or after 240 days in the same calendar year. EL is accumulated up to 30 or more, depending upon state rules (different states have different numbers). It is encashed at the present basic salary.

There is no such universal rule. Normally, if someone is getting their EL encashed, it is calculated based on the basic salary, i.e. Basic salary/26 multiplied by the number of ELs.

Hi there,

I am sharing the details as per the current practice in my company. The calculation of Earned Leave (EL) is based on the salary eligible for EL, which includes Basic, Dearness Allowance (DA), and House Rent Allowance (HRA). The formula is: salary eligible for EL / 26 * number of EL days payable.

Hope this information is helpful to you!

Regards,
Prem Soni

Dear Soni,

You are lucky that your company has a practice of adding HRA to the salary for EL calculation. Otherwise, for EL calculation, the salary is meant to be Basic Salary + DA. The calculation should be: (Basic + DA / 26 * No. of EL).

Pramod Mishra

HR_Pramod - If a person is in service and avails EL, then he gets full/gross salary. Similarly, for full and final settlement, EL should be calculated per Gross/full salary. The above is per Chapter VII of the Factories Act.

The company's policy, procedure, or past practice does not have legitimacy over the Factories Act. Are you aware of any clause or court judgment to support payment of only the basic salary in lieu of earned leave? Request to share.

Regards,
Navin

Dear friend,

The earned leave calculation is regulated by the Factories Act of 1948 and its State Rules. If any organization wishes to provide additional benefits to its employees, the calculation and payment would be made according to the organizational policy.

Regards, V K Sharma