Leave Encashment Confusion: Should It Be Based on CTC or Basic Salary? Seeking Guidance

Please tell me whether to calculate leave encashment on a CTC basis or basic salary. Actually, in our company, we have calculated it based on CTC. We have done it in the following manner:

Example Calculation

For example, if the CTC is Rs. 15,000/-, the daily salary is Rs. 500. Therefore, 500 * number of leaves (EL) (500 * 11.5 EL = 5750). Thus, we have given encashment of Rs. 5750/- to the employee.

Is this correct? Please guide.

Is Leave Encashment Calculated on CTC?

Please advise on whether leave encashment should be calculated based on CTC or basic salary. Currently, in our company, it is calculated on a CTC basis. Here is an example of how we have been calculating it:

For instance, if the CTC is Rs. 15,000, the daily salary would be Rs. 500. Therefore, for 11.5 earned leaves (EL), the calculation would be 500 * 11.5 = Rs. 5,750. Consequently, we provide an encashment of Rs. 5,750 to the employee.

Is this approach correct? Kindly provide guidance.

Hi Pallavi, if your fixed monthly gross component is Rs. 15,000, then the above calculation is correct.

Leave Encashment Calculation

It's incorrect. However, we can calculate leave encashment based on the CTC as well. It's not compulsory to do it solely based on the basic salary.

CTC is only for employer reference on how much they are spending for an employee. CTC breakup could include the EL part but not for calculation. EL has to be calculated based on the fixed/Gross salary for a worker/workman. For staff, it depends on the company's policy; it could be gross or only basic.

Normally, leave encashment is done on the gross monthly salary only. So, your calculation is right.

Thank you very much for sharing your thoughts. Could you provide me with some evidence (such as a website link or document) regarding the encashment of leave based on the gross monthly salary? This will help me better understand the details of my query.