Leave Encashment Law: Do You Know If It's Based on Basic or Gross Salary?

Leave Encashment Law Inquiry

Please let me know if there is any law that addresses leave encashment. Is it required to encash earned leaves based on the basic salary or gross salary?

Thanks for your help in advance.

Regards, Ishneet

Hi Ishneet! In our organization, leave encashment is done based on gross salary. Only the balance of earned leaves/paid leaves can be encashed.

Leave Encashment Policy for Government Employees

Leave encashment policy for government employees is based on Basic + DA. You can read more about it here: http://persmin.gov.in/DOPT/Acts_Rule..._I_Rule_03.pdf.

Leave Encashment for Private Sector Employees

For private sector employees, leave encashment is as per the company policy. Mostly, it is based on Basic + DA.

Regards,
Pon

Thank you for your assistance, seniors. That means we can decide the same internally; no law says anything about leave encashment in private companies. It is mostly paid based on the Basic Salary. However, a question arises when an employee takes leave – their whole day's pay is not deducted. But when they are not taking leave, or are not allowed to do so due to work pressure or any other reason, the person would only receive half or 40% of the day's pay.

Regards,
Ishneet

Leave encashment is a benefit given to employees at the time of retirement or in between. It is not correct to compare encashment with a deduction of salary for leave. Allowances are not applicable for encashing the earned/privilege leaves.

Regards,
Pon

That is why we get leave encashment based on the gross salary. Our company is a private limited company. I can't comment on other companies' policies.

Paid leaves can only be encashed at the time of resignation. If you have 40 leaves at the time of resignation and 30 days is the notice period, then the same can be adjusted. You will get the basic pay for 10 days in this case. A 30-day salary should be given in lieu of the notice period. This policy is common in most companies. Please refer to the terms and conditions of your respective organization.