Leave Encashment Timing: Should It Be Paid at Year-End or Financial Year-End?

We follow a leave calendar from January to December. If at the end of the year employees want to encash their balance of earned leaves, when should it be paid – at the end of the financial year or at the end of the calendar year? Please answer.

Thanks!

Regards,
Nishu

After ending December, you can provide leave encashment benefits for your employees.

Regards,
Pulkit

After completion of the calendar year, you can pay the amount of leave in cash. If any employee resigns from service during the calendar year, you have to pay the leave amount in full and final settlement.

Regards,
Ashish Kumar
Delhi

Hi Ashish,

Thank you. Actually, we pay out all earned leave balances at the time of full and final settlement. However, we have a policy that allows encashing a portion of the earned leave balance, provided there is sufficient leave remaining after the encashment. I was not previously aware of when this encashment could occur, but after logically analyzing the situation, I believe that ideally, this encashment should take place at the end of the leave calendar. This way, only appropriate leaves will carry forward to the next calendar year.

Anyways, thank you all for your valuable suggestions.

Dear Nishu,

I have a suggestion. Probably you can send a notification to the employees who are eligible for leave encashment to opt if they would like to encash their leaves. They need to do this before the end of December so that your system gets updated accordingly. The number of days that get encashed can be paid in the month of February or March as this amount will be a taxable component.

Regards,
Anisha

The Leave Encashment for the year 2010 can be paid after the end of the calendar year and before the end of the financial year 2010-11. This means you can pay this by 31st March 2011. This attracts income tax, and these expenses should be booked in financial accounts within the current financial year.