Earned Leave Encashment: Is It Based on Gross Salary or Basic + DA?

Rule for Encashment of Earned Leave

What is the rule for encashment of Earned Leave? Is it paid on Gross Salary or on Basic + DA?

Regards

It depends on company policy. Some companies provide benefits based on Gross Salary, while others offer benefits based on Basic + DA.

For encashment of leave, there are certain rules, and it's not just a policy matter of a company. The lawmakers who prescribed the leave for the employees also prescribed the rules of encashment. For example, in Section 79 and 80 of the Factories Act, it is stated that when an employee is on leave, he is entitled to the salary as if he were at work. Similarly, when any employee has left his employment, he is entitled to the wages for the balance of accumulated leave. In short, what a person would have received while at work, the same is receivable while on leave or for encashment of leave.

Any policy against legal provisions cannot be a policy at all for the simple reason that it is going to invite trouble.

I agree with Mr. Kulkarni. He guided you exactly, so you should refer to this. If you need further clarification, type on Google "rule of encashment or Earned leave," and you will find the link to the Citehr post related to this topic. Several comments are mentioned in that post. I am sure that will be helpful for you.

In the Shops and Establishment Act, there is no provision for the encashment of leaves while on continuous work. According to the Act, leave encashment is only allowed after leaving the employer. Therefore, in some cases, a few companies encash the leave based on Basic + DA, while others do so based on the gross salary.

Sir, with due respect, the Bombay Shops and Establishment Act also does not mention the leave encashment payment while on duty or the continuity of employment or encashing due to the lapse of leave. The Act only states leave encashment while terminating the employment by either side but not encashment during employment.

What you are saying is very correct. I was not saying that encashment is compulsory, but I was referring to the salary rate at which encashment has to be done because the original post was asking for that. Whether to allow encashment or not is not governed by any rule. But if it is to be granted, then it should be at par with normal wages. Perhaps you were referring to the policy of management regarding whether to allow encashment or not, and such discretion is possible.

Thanks for your post.
Regards

Encashment of Earned Leave

As a general rule, encashment of earned leave (EL) is based on the basic salary plus dearness allowance (DA). Allowances such as conveyance, washing allowance, newspaper allowance, etc., are payable subject to the performance of duty. These allowances are not payable if the employee does not attend work. Therefore, for encashment purposes, they cannot be included.

Thank you,

KK

Leave Encashment Rules

In the case of leave encashment, only the Basic salary plus DA (Dearness Allowance) are payable under the condition that it does not involve house rent and other allowances relevant to the period of service. When considering rates under the Minimum Wages Act, the day rate of wages is used for such calculations.

Regards

Depends on the wage definition under the respective Act, either Factories or Shops. However, if an employee takes Earned Leave (EL), companies are paying the full day's wage. Similarly, this can be done for encashment as well.

Dear All, thanks. I still have this point to be clarified on leave encashment. Leave Encashment according to the AP Shops & Estb Act [Chapter 7; Section 30]. There is no clarity with encashment at the time of discharge/dismissal.

Also, It Says
"... provided also that every employee in any shop and establishment shall be entitled to encashment of leave with wages for a period of eight days in every year."

Can anyone clarify on the same, please?

Regards,
Ravikiran.

Dear All, thanks. I still have this point to be clarified on leave encashment.

Leave Encashment According to AP Shops & Estb Act

[Chapter 7; Section 30] No clarity with encashment at the time of discharge/dismissal is provided. Also, it says, "provided also that every employee in any shop and establishment shall be entitled for encashment of leave with wages for a period of eight days in every year." Can anyone clarify on the same, please?

Regards,
Ravikiran.

attribution https://www.citehr.com/474723-what-r...#ixzz2jHCe51Dp

Dear Schakraborty_69,

Basically, Annual Leave facilities are governed under the Factories Act 1948. If any organization has its own Service Regulations, the rules related to annual leave and encashment of the unavailed portion of leave—mode, method of payment, maximum and minimum leave to be encashed, and the number of times encashment is permitted—will also be defined in the regulation.

In the Factory Act 1948, the payment of wages in respect of unavailed leave is confined to employees who have been discharged by the employer or who have quit the job.

Under section 79 of the Factory Act, an employee can carry forward a maximum of 30 days of leave to the succeeding year. The law is silent regarding encashment.

Therefore, the encashment of unavailed leave is purely an amenity or welfare measure existing due to a settlement or negotiation between management and the employees. When it is a settlement, naturally, it will be governed by special conditions related to the method of payment, inclusive of the components of the Gross salary to be considered for encashment.

Regards,
SPKR

Please refer to the query. Kindly go through the contents under Section 79 of the Factories Act and also the Shops & Establishments Act of your state. The payment should be made on Basic + D.A. only; other components do not fall under the category of wages.

Regards,

In government employment, an employee can accumulate a maximum of 300 leave days in their leave account and can encash them at the time of superannuation or during LTC (maximum of 10 days leave).

Components of Wages for Leave Encashment

The following components of wages are to be considered for the purpose of encashment of earned leave at the time of superannuation:
- Basic pay
- Dearness allowance
- City compensatory allowance
- Special compensatory allowance (wherever applicable)

Illustration

On the date of retirement, suppose an employee's basic pay is Rs. 20,000/- with a 27% dearness allowance. If 300 earned leaves are credited to their leave account, the calculation shall be as follows:

Basic pay: Rs. 20,000
Dearness allowance: Rs. 5,400
-------------------------------
Total: Rs. 25,400 x 300 days = Rs. 2,54,000/- (leave encashment amount)

Regards,
Rahul

For encashment of leave, there are certain rules, and it's not just a policy matter of a company. The lawmakers who prescribed the leave for the employees also prescribed the rules of encashment. For example, in Section 79 and 80 of the Factories Act, it is stated that when an employee is on leave, he is entitled to the salary as if he were at work. Similarly, when any employee has left his employment, he is entitled to the wages of the balance of accumulated leave. In short, what a person would have received while at work, the same is receivable while on leave or for encashment of leave.

Any policy against legal provision cannot be a policy at all, for the simple reason it is going to invite trouble.

I agree with Kishor Kulkarni. If the company has its own service conditions, the conditions should not deviate or dilute the conditions of the existing Central Act. Thus, the employee is eligible for the leave salary equivalent to the salary he would have drawn if he were on duty. The allowances disallowed are compensatory allowances like conveyance, uniform cleaning, and food allowance.

Namaste, I worked in a Pvt. Ltd. Co. for 2 months and 8 days. My job was discontinued by the Director. Now, when my full and final settlement is processed, they have given me 3 days of earned leave at Basic + HRA only.