Leave Encashment Dilemma: Should We Deduct ESI and PF?

Our company gives leave encashment to the employees. My question is, should we deduct E.S.I. & P.F. on leave encashment provided to employees?

Thank you.

Dear jadhavrahul, you need not pay contributions on leave encashment under both the acts.

For ESI

“Wages” means all remuneration paid or payable, in cash to an employee, if the terms of the contract of employment, express or implied, were fulfilled and includes any payment to an employee in respect of any period of authorized leave, lockout, strike which is not illegal or lay-off and other additional remuneration, if any, paid at intervals not exceeding two months, but does not include:

- (a) any contribution paid by the employer to any pension fund or provident fund, or under this Act;
- (b) any travelling allowance or the value of any travelling concession;
- (c) any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment; or
- (d) any gratuity payable on discharge.

For EPF

Refer to the attached files.

Regards,
S.Sethupathy,
Excellent HR Services,
Erode.

Sharing practical, not theoretical, experience. In general language, leave encashment is paid on an annual basis. Any amount that is not paid on a monthly basis doesn't come under any deductions. Also, this is not considered a salary/wage, so no deductions are to be made. However, you can make deductions (only ESIC, not PF) on incentives if they are paid on a monthly basis, as the payment gap is less than 3 months. PF deductions are made only on the basic salary and not on any other benefits provided to employees.

Any corrections to this are welcome.

Here I am trying to provide some practical experience in the encashment of leave. Based on the Company Policy/Standing Orders, you can choose either Basic+DA or the total components. For both cases, you have to divide it by 30 to arrive at the encashment for one day. Then you can multiply it by the number of days to be encashed. Please note that this encashment will attract IT as the case may be.

Hope it is clear.

Regards,
S. Sethupathy, Excellent HR Services, Erode.

Hi Mr. Sethupathy, thanks for the information. Somehow, our leave encashment formula is the same as you mentioned. Soon, I will get back to you on this topic.

[QUOTE=jadhavrahul12;1534528]
Leave Encashment and Deductions

Our company gives leave encashment to the employees. My question is, should we deduct E.S.I. and P.F. on leave encashment provided to employees?

Calculation of Leave Encashment

Dear HR Colleagues, please let me know how leave encashment is being calculated. Is it based on Gross Salary or Take-Home Salary?

Regards,
P K Sudarsan
Senior Executive HR
[Phone Number Removed For Privacy Reasons]
[Email Removed For Privacy Reasons]

Deduction of PF & ESI on Leave with Wages?

Dear Sir, Our company provides leave with wages at a rate of 6% to the employees. My question is, should we deduct E.S.I. and P.F. on leave with wages provided to employees?

Regards, Sudhir

My company/factory grants leaves from April to March (F.Y.). They pay leave encashment every year in April. Do you think they have to pay PF and ESIC on leave encashment as well? Is it correct as per the law to offer only 15 days of leave to total employees? Paid holidays are separate, and they will be declared every January. Please provide guidance.

Regards,
Thakur

Dear Sir,

I am paying leave encashment on a monthly basis for contract employees. Can I deduct ESIC amount on leave encashment? Is it applicable or not? Please suggest. My leave encashment formula is (Basic + DA * 5%).

Thank you.

Dear Sir,

If earned leave under the Factories Act is being adjusted due to the absence of the employee, do we still need to pay EPF and ESIC contributions for that period of leave?

Dear Sir/Madam,

I want to know, at pay leave encasement time, do we deduct ESIC or not? Is it necessary to deduct ESIC from leave encasement?

EPF and ESIC Contributions on Leave Encashment

As per the order of the Hon'ble Supreme Court of India, EPF contributions should not be paid on leave encashment. My question is, if a daily wage worker has worked for 25 days and has been given 2 days of leave encashment due to absenteeism, in this case, should contributions to EPF and ESIC be paid or not?

Additionally, if leave is being paid on a monthly basis to the employee, even if they do not require it, what would be the circumstances for EPF and ESIC contributions?

In my understanding, earned leave under the Factory Act or any other Act is at the discretion of the worker who has earned it; the employer cannot impose the payment of leave along with the monthly salary.

I kindly request all seniors and learned counsels to explain each point.

Regards,
Piyush Jain

Dear All,

Regarding Leave Encashment, we are clearing the amount every six months. We would like to know if it falls under ESI deduction. If yes, we will begin the encashment on an annual basis, hoping that ESI deduction will not be applicable in that case.

Kindly request your guidance on this matter.

Thank you all in anticipation.

Need clarity on ESIC-related issues. I tried to look through the thread but didn't find a resolution. Suppose an employee leaves on the 1st and has a leave balance of 10 days. In the full and final settlement, she receives payment for 1 day + 10 days (leaves) = Rs. 3000, for example. Now, while filing ESIC on the portal, when I enter the wages (gross), what should be the days counted? Should it be 1 or should it be 11? Please note, her last working day was the 1st.

Appreciate the response.

Hi Sethupathy,

I feel that the calculation of leave encashment, we have to divide the Basic + DA by 26 and not by 30 days. If it is wrong, please correct me.

Dear Genius HR people,

Is there any new rule or notification for leave encashment ESI deduction? Do we have to deduct ESI for leave encashment? Kindly suggest.

If leave encashment is being paid based on not less than quarterly, then there is no need to deduct ESI on such amount.

Respected All,

Can anybody guide me on whether paid leave included in the monthly salary, with the name of the leave specified, is applicable for PF deductions as per the new decision given by the Supreme Court?

Thank you.