How Do You Calculate Leave Encashment for Employees? Seeking Clarity on the Process

I work as an HR in an Engineering Company in Kolkata. We have a system for leave encashment of any Privilege Leave that exceeds 60 days at the end of the financial year for our employees. The amount becomes taxable in the hands of our employees.

Leave Encashment Calculation

I would like to know if the employer company wants to pay leave encashment to its employees, what would be the basis of calculation? Say the number of leaves available for encashment to an employee is 25 days.

Is the calculation like: (Basic salary per month) * 12 * 25 days / 365 = Amount of leave encashment? Is this in order?

Regards

There are two ways of calculation. Some companies pay leave encashment on Basic+DA (Basic Pay), and some pay on gross salary. Please refer to the historical data of your organization to avoid any unnecessary chaos in your organization.

Calculation Example

It's calculated as follows: Considering an employee's gross salary is Rs. 20,000, and he has 15 ELs/PLs credit in his leave account. He will be paid Rs. (20,000/26=769.00) (769x15)=Rs. 11,535.

Link to additional information

Regards