Leave Encashment Policy: How Do You Calculate Earned Leave, TDS, and PF?

I am trying to put a leave encashment policy in place in my organization. How are the calculations made for earned leave? How are TDS and PF calculated on the same?

Regards,
Nidhi

Unused earned leaves are to be encashed on a gross basis since it is a part of your salary and income, making it taxable. PF is not calculated on leave encashment.

Regards,
Santosh

Dear Nidhi, Please find herewith our leave encashment policy.

Leave Encashment Policy Overview

Our policy is to accumulate 30 days of leave in the account, and any leave exceeding 30 days is encashed. For example, if the total leave for any person on 1st January is 45 days, then they will receive an encashment for 15 days. The leave encashment policy is as follows:

- Basic Salary divided by 26 and multiplied by the number of days to be encashed. In the above case, it is 15 days.

Policy Details

- Personnel Policy No:
- Policy:
- Authorized by:
- Effective date:
- Supersedes Policy dated:
- Next Review date:

Purpose

To enable employees to avail leave to meet personal exigencies and recoup periodically by taking rest and being with the family.

Scope

All employees on the rolls of the organization shall be covered under this policy.

Policy Details as follows:

- Leave shall be determined for the calendar year (i.e., January to December).
- The leave will be credited to an employee's account on the 1st of January every year. In case an employee joins after the above date, leave will be granted on a pro-rata basis.
- No employee shall be entitled to leave during the probationary period (except due to sickness/personal exigencies). However, such a probationary period preceding confirmation will be taken into account while calculating leave entitlement.
- Intervening weekly offs and paid holidays will not be counted as part of availed leave.
- An employee cannot avail leave as a matter of right. The Management reserves the right to refuse, revoke, or curtail leave as per the exigencies of work.
- Leave cannot be availed by any employee unless and until the balance is available to one's credit. Exceptions can be made only by the Chief Operating Officer/Unit Head, and that too under extreme emergency only.
- The employee has to retain a minimum of their leave entitlement as a balance on the leave account on 31st December of every year. Any excess leave unavailed during the financial year will be automatically encashed (Based on one month's basic salary for 26 working days, subject to deductions as per IT rules).

Hope this helps.

Warm Regards,

Sandeep Kumar Dwivedi

[Phone Number Removed For Privacy Reasons]

Please do check older posts on leave records and documents attached therein in the "Leave Record Format."

I have developed an Excel sheet document that can assist you in calculating employees' total leave and also claiming for encashment by the end of the year. It's a very generic document with basic mathematical rules for calculation. As you develop your manual, do modify the calculation rules accordingly.

I hope this document will be useful for your purpose.

Good luck and regards.

Earned Leave for Probationers and Apprentices

I don't think Earned Leave is denied for a probationer. As per the Factories Act, we have to provide Earned Leave to all employees, including trainees, probationers, and contract laborers—irrespective of cadre, category, or grade. The maximum Earned Leave (EL) eligible is 15 days in a year (365 days - 52 Sundays - 9 National & Festival Holidays = 304 / 20 days = 15 days for those persons who are joining on 1st January). Others who are joining after this date will be eligible for EL on a pro-rata basis.

However, Government Act Apprentices are not eligible for Earned Leave (EL). They are eligible for leave as per the Apprentices Act—12 days of Casual Leave and 15 days of Medical Leave with payment of stipend. Extraordinary Leave (EOL) up to 10 days with or without payment of stipend may be granted at the discretion of the establishment.

Thank you,

K. Gopalakrishnan
Sriperumbudur

Encashment is not mandatory during the service period. It depends on the company policy. If the company's standing order states that more than 30 Earned Leaves (EL) will be encashed, then the company is bound to encash them. If the company specifies that more than 30 EL will lapse, employees cannot force the employer to encash them.

Regards,
Sunil Mandal

My company has recently changed the "leave encashment of earned leave" clause to state that "An employee is eligible for leave encashment only after serving for a minimum period of 2 years in the organization." This change was implemented as a strategy to save money, especially in light of terminating a few employees who may subsequently claim leave encashment.

My question is, is this change legally correct?

Hello,

Should the EL of 1 day and LOP of 1 day be the same? What is the formula to calculate EL and what is the formula to calculate LOP?