Is Privilege Leave Encashment Mandatory at Retirement? Seeking Clarity on Policies and Salary Calculations

Privilege Leave Encashment at Retirement

Is it compulsory to pay for balance Privilege Leaves (PL) at the time of superannuation or retirement? According to our company policy, PL is not encashable.

Salary Components for PL Encashment

Another thing, if PL is encashable, what part of the salary is to be considered for calculating the payable amount?

Kindly suggest...

Regards,
S Mitra

Yes, this has been supported by labor laws like the Factories Act and selected Shops and Commercial Establishment Acts. However, employment terms could also play a vital role here by including relevant clauses in employment terms. For example, "Employees are supposed to avail of at least 10 days every year. The maximum yearly carry forward limit is 14, and the overall accumulation limit is 40. A maximum of 40 days of leave can be encashed at the time of settlement if the employer refuses to allow the employee to take the leave or adjust the leave with the notice period."

Generally, EL encasement will be done on an on-demand basis. If an employee terminates due to some termination policy, then they are not eligible for EL encasement. Many companies are following the procedure of Earned Leave/Privilege Leave, where 1 EL credit is added to the employee's account. If the total leave of any employee is from January 1st to February 15th, then they will receive encasement for 15 days.

Calculation of EL Encasement:

Encasable Amount = Basic Salary / 26 * Number of days to be encased.

Thank you.

Leave Encashment at Termination

The Factory Act specifically provides that all leave lying unused at the time of termination, resignation, or superannuation needs to be encashed. You do not have a choice there. At best, your policy can prevent carry forward, and therefore only last year's leaves will be encashed.