How Do You Calculate Privilege Leave Encashment for an Employee with Extra Leave?

Privilege Leave Encashment Calculation

Kindly help in calculating Privilege Leave Encashment. We have 21 PL per year as per policy, and one of our employees has a 24 PL balance. How do we calculate his encashment amount if his gross salary is 20,000 per month?

Regards,
Deepthi Shetty.

Leave Encashment Policies

Some companies have policies for leave encashment. In our company, one has to avail of 1 week of Privilege Leave (PL) to be eligible for 2 weeks of PL encashment. PL encashment is normally calculated on the basic salary, and it is taxable income for the employees.

Regards

Encashment on CTC Basis

Some companies allow encashment on a CTC basis. In other words, if you follow the CTC method, it would be calculated as:

Annual CTC/12 x 21/30.

Though this method is very rare, mostly it is based on the Basic salary.

According to me, PL Leave Encashment calculation is Basic + DA * No. of days available / 26, not 30 days.

Regards,
Manjula

Manjula is absolutely right. It must be calculated by any of these two methods:

Method A:
- Mostly - (Basic + DA) / 26 * number of days leave to be encashed

Method B:
- Very less - Gross salary / 30 * number of days leave to be encashed (ALMOST PER DAY SALARY / 30 * UNUSED LEAVES)

Regards.

PL Encashment Calculation

Dear friends, if PL is 21 calendar days a year, it is suggested that the calculation should be done as (basic + D.A.)/30 * number of days to be encashed.

If PL is 21 working days a year, then the calculation should be (basic + D.A.)/26 * number of days to be encashed.

Regards,
Asis Ghosh

The correct method would be:

Calculation Method for Privilege Leave Encashment

Basic + DA/26 = amount payable for one day PL/EL to be encashed, i.e., Rs. 00000 x No. of days to be encashed or settled at the time of superannuation, resignation, etc. The amount so encashed is taxable as per the IT Act.

Regards

I believe that PL encashment is not taxable (up to a certain limit) in the case of retirement or resignation. The exemptions differ for government and non-government employees. The encashment typically occurs based on (basic + DA).

Regards,
Sudip

Privilege Leave Encashment Calculation

The encashment for the calculation of PL should be Gross salary/26 * number of leaves. Encashment should be done on gross salary because if an employee is absent without prior intimation, the deduction of salary should be from the gross amount, not just the basic. In the leave register, the column of total earnings is accompanied by net payable/gross salary, not just basic. There will be 26 working days because 1 leave should be credited to the employee's account after 20 working days. The calculation of encashment should be based on working days, not on paid days.

Thanks & regards,

Sumit Kumar Saxena

[Phone Number Removed For Privacy Reasons], [Phone Number Removed For Privacy Reasons]

I have gone through the comments of my dear friends and found the differences, but one thing is common: they are all insisting on paying leave encashments based on basic + D.A. Okay, as per the provisions, it may be affirmative. However, when an existing employee of the unit has taken the leave and availed the same, then on which salary is it worked out? The answer is on the gross salary. By this analogy, he could get encashment on the same when he is in your service.

The basic + D.A. formula would be followed only when the employee is leaving the job in any way. This is my personal opinion. I may be wrong, but to motivate the employees, it is essential to develop a healthy environment in the unit.

Warm Regards,
KIRAN KALE

Hi All, I want to express my gratitude to all my seniors for their contributions. However, I still have a lingering doubt about whether it is calculated based on Basic Salary or Gross Salary. Nevertheless, in our company, we have collectively decided to base it on Gross Salary. Mr. Kale, your suggestion of using both basic and gross seems interesting, but is it commonly practiced?

Regards,
Deepthi Shetty

Dear Kiran Kale,

Greetings for the day. Leave encashment is paid only on gross salary, not on the basic. The simple logic behind this is that if anybody is on leave without pay, then we not only deduct the basic but also the whole allowances. If in your case, the deduction of only basic is done, then it's fine.

Thanks & Regards,

Sumit Kumar Saxena

Regarding PL, the computation generally followed is on a financial year basis, and the calculation for encashment of PL is as follows: basic + DA / 26 x number of days of encashment. Many organizations don't allow all unutilized PL to be encashed except at the time of retirement, resignation, or termination.

Encashment of Leave

Encashment of leave is only on Basic & D.A. as per the Act. If the organization is willing to encash the whole salary, including allowances, then it is fine (up to the policy of the company). Keep in mind the calculation should be based on 26 days.

Regards.

Hello Friends,

Is there any written rule regarding Leave Encashment, whether it should be based on Basic+DA or on Gross Salary per month? Please share if you have this information in writing.

Privilege Leave Calculation

Privilege Leave is calculated as Daily Average Wages given in the last three months. Wages are defined under the Minimum Wages Act. The understanding is that the Gross Salary of an employee for the month is considered as wages. Only incentives or overtime should not be considered. Reference - http://spuwac.com/pdf/delhishopsnestablishmentsact.pdf Point no. 23.

For example, if an employee has a Gross Salary of 26,000, then his daily wages/salary will be 1,000. This is calculated by the formula - Gross Salary/26 = 26,000/26 = 1,000. Let's say his/her PL balance is 30; then his/her eligible amount will be 1,000*30 = 30,000 as his/her Privilege Leave Amount.

If my PL leave balance is 48, how can I calculate the leave amount encashment?

PL encashment is calculated based on Gross Salary. The formula for calculation is Monthly Gross Salary divided by 30 multiplied by the number of days of PL to be encashed.