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

Hi, can anyone help me out with the basis for the calculation of leave encashment? Currently, in our company, we are calculating leave encashment based on the basic salary only. Is this approach correct, or do we need to calculate leave salary based on the monthly gross entitlement of the employee? Are there any enactments related to this? I am awaiting some fruitful feedback.

Regards,
Subhabrata Basu

Dear Subhabrata,
Leave encashment and notice period are both similar for the organization. Hence, the basis for both remains the same. If an organization deducts notice period shortage from basic salary, the leave encashment is also done on basic salary but only in F&F.

Some organizations also apply this formula for any leave encashment allowed over and above a permissible limit to keep numbers.

Everything will depend on the organizational environment. If it has sufficient leaves provided and has no restrictions on leave approvals (business does not deny leave to employees), then it can fix restrictions to avoid misuse and unnecessary cash outflow.

For example, if the work pressure is not much and employees can take leave as and when wanted, the organization can fix limits on leave carry forwarded, and the encashment can happen only after a certain number of leaves accumulate or during the employee's exit.

It's the organizational need that dictates how it wants this cost to feature as empowering/restricting/controlling.

Regards,
Shridhar Bhagwat

Leave encashment policy depends upon the company policy. The minimum encashment is based on the basic salary of an employee. If you exceed this amount, such as on the gross salary, no government official will question why you are offering more, as all rules are designed for the benefit of employees. Therefore, please refer to your standing order or HR manual for further details.

For any queries, please feel free to reach out to us.

Regards,
Shaikh