Leave Encashment Dilemma: Should It Be Based on Basic or Gross Salary?

Dear All,

Please tell me how to encash the leave of the employees:

Currently, we are encashing the balance leave at the end of the financial year based on Basic Salary. However, we have received some queries from employees that the leave encashment should be based on Gross salary.

Kindly advise on the basis your company provides leave encashment facility to employees.

Thanks & Regards,
Supriya

An employee is paid all the salary (Basic pay) and all other emoluments e.g. DA, HRA, etc. forming part of Gross salary during the period he proceeds on leave. During the leave period, the employee remains receiving the full salary. On the same analogy, when he gets his leave encashed, he should be paid the gross emoluments to which he is entitled. Basic Pay is only part of the salary, and not the entire salary. Therefore, the gross salary should be paid for leave encashment and not just the basic pay.

To sum up, the employee should receive the same amount for leave encashment as he would have received if he had proceeded on leave or availed his leave.

TR Chhabria

Earned leave encashment is company policy dependent. Both options (basic and gross) are possible.

Regards,

It's a simple calculation: (Basic + DA) / 30 x number of leaves balance = encashment amount. But just check that your leave calendar is the same as the financial calendar; otherwise, you can encash in January salary subject to Income Tax calculations.

Regards,
Nikhil
Pune

Calendar Year vs. Fiscal Year for Leave Records

The calendar year is generally better for maintaining leave records, although some companies opt for the fiscal year. It ultimately depends on company policy. Usually, most companies follow the calendar year.

Dear KVR,

For any statutory (except ESIC) and legal calculations like bonus, etc., Basic + DA is used to avoid confusion. Nowadays, Basic comprises Basic + DA.

When it comes to HR placement, the calendar year is more suggested than fiscal year because it is easier to maintain records. However, if you are maintaining a Leave Register, you must show records for Privilege Leave carried forward or encashed to ensure they are not lapsed. Casual leave can be encashed per management decision. It is also suggested that if you are encashing the leaves, you can pay with the salary of January every year.

Regards,
Nikhil

Dear friend,

Leave encashment normally falls under the company policy, and there is no law regarding leave encashment while in service. Your query is very good, and one must receive the normal wages for the leave encashment that could have been received at the time of the leave.

Hence, for information:

MN Wakodkar
9766422771