Leave Encashment During Full And Final Settlement

I would seek reply from Babulalma
As per Factories Act Annual Leave Encashment Calculation ought to be done on the basis of Monthly Pay Drawn by the employee during the Preeceding Month and should be divided by 26 not 30. The rule is very clear about EL but CL is very confusing as if the employee who has not availed his CL during the preeceding year and neither has encashed it what should be done.
Can you please let me know where it has been mentioned in Factories Act?

hello Anil,
I was just going through your post........it was very informative.but I am still confused regarding two points:
Can EL(S) be adjusted while serving the notice period?
What is this theory of 5% of basic pay? is it that instead of encashing the remaining leaves, 5% of the basic amount is paid?
It would be good if you could throw light on these issues.
Thanks and regards,
Ayona

May I Ask You :
1. Does The Educational Institute Falls Under The Factory Act.
2. Where Is This Mentioned That The Balance Leave Should Be Encashed On Last Working Day And Cannot Be Adjusted Towards The Notice Period.
Manish

Hi,

Leave encashment to be done as per the rules Basic + DA wheather this is under EPF or under IT Act. In the case of establishment covered under the Factories Act, basis will be the Gross Wages and accordingly the calculations may vary.

Some points to be remembered:

1. Leave encashment is exempted to an extent on resignation from the services as per below:
a. Actual amount of leave encashment (Based on last month’s Basic + DA/30*Actual Leaves in balance)
b. Rs 300000.00
c. 10 Months average (just preceeding to date of leaving) salary
d. Cash equivalent of the leave salary in respect of the period of earned leave to the credit of the employee at the time of retirement (This has to be taken for the full year basis not part of the year of service will be considered)

2. If Mr. A has left the job after a service of 2 years and 6 month; the encashment will be as below:
Informations:
A. Mr. A’s Basic Salary : Rs 15000.00 at the time of leaving (Basic 15000.00 HRA 7500 Conveyance 800.00 total Gross Salary 23300.00)
B. Mr. A’s service with the current employer: 2 Years 6 Months
C. Leaves in Credit 45 Days
D. Leaves benefit available: 20 Leaves per year

Encashable amount:

Rs 15000.00/30*45 Days = Rs 22500.00

Tax Benefit (on leaving the service)will be least of below:

1. 22500.00
2. 300000.00
3. 10 Months average Salary (15000*10 Months/10 Months = Rs 15000.00) 15000.00*10 = Rs 150000.00
4. 2 Years (no part of the year considered; in our case 6 months service ignored)*20 Days/30 Days30*23300 = Rs 31067.00

Therefore the amount paid Rs 22500.00 is
A. Fully exempt from tax and
B. Hence shall be considered in tax computation u/s 10(10)(A) and
C. This encashment do not attract the deduction of PF.

Some Points are very important:
1. Basic Salary + DA
2. Averaging of Basic Salary + DA
3. Encashment to staff and implication of income tax

In case of difference of opinion;
Llet us know the sectionwise reference and treatment of the above.

Hi Sandeeptol,
In your case, the treatment done by your employer is seems to be correct. Rs 18000.00 is the encashment of leaves which is your income and hence to be included in your income from salary. Whereas the sattlement for the notice pay will not be considered as far as the computation is considered.

In which clause of Factories Act it is metnioed that encashed should be done on gross salary salary ?
Should we devide the Basic/Gross whatever with 26 or 30 days ?

Hi...
I have a doubt here, it is mandatory to deduct 4 days of PL for unclaimed LTA during FFS.
Pls revert....

Hi All,
If one employee resigns in between the month(15th), we gave him full and final settlement.
After that, next month when doing payroll process , can we have to process for the resigned employee or not.
if we are not process for the particular employee, in reports the employee information wont come.
pl. sugggest your opinion.
I will be very thankful to you all.
Thanks & Regards
Senthil Kumar M

Kindly note that leave encashment should be count on Basic + DA if applicable, please refer The Factories Act, 1948 chapter VIII, page 40 for more details.
Thanks
Ashok

Dear Senthil,
Once employee resigns in any month on any date and full and final have been made there is no requirement to process payroll but you must have HR package then you can see that person in MIS as and when required.
Regards
Ashok