Earned Leave in Salary: Is It Common Practice in IT Companies?

Hello HR Professionals, I have a query. Can earned leave be a part of the salary component? I work for an IT company, and the salary structure includes EL as one of the components, along with basic pay, HRA, travel allowance, and special allowance. Can anyone shed some light on this, please?

Thanks,
Kavitha

Earned Leave Encashment as a Salary Component

Earned Leave (EL) encashment is part of the salary component if encashed. The encashment is subject to Provident Fund (PF) and Income Tax (I.T.) deductions.

Regards,
Pon

It's definitely not...

Understanding Earned Leave (EL)

Let's understand what is the meaning of EL. Earned Leave is calculated on a pro-rata basis based on the actual working days. Leave is provided to employees to avail the benefits of taking leave whenever they need, which is their right as per the law. However, the EL component can only be shown at the time of encashment, either at year-end or during full and final settlement. It can't be treated as a fixed monthly salary component.

If you consider it as fixed, then you are not providing any leave benefits to the employees as you are paying the amount against it, which is incorrect. It is perceived as the company being against employees taking leaves or attempting to prevent employees from availing the benefits provided by law.

Thank you.

Understanding Earned Leave and Salary Components

Earned leave is classified as one kind of leave allowed and it cannot be treated as salary. However, if any part of earned leave is allowed by the company for encashment, i.e., called otherwise surrender of earned leave, then the leave salary for such encashment will be included in salary for tax purposes. If the same encashment of leave is allowed at the time of retirement of the employee, then it is exempt from tax subject to a ceiling of Rs. 3.00 lakhs, and salary exceeding Rs. 3.00 lakhs is chargeable.

Hope you are fully clarified on this matter.

Regards,
Ramanathan
HR Consultant/Attorney
[Phone Number Removed For Privacy Reasons]

Thank you very much for the inputs. This information will help me to put forward my views to the management and hopefully review the current salary structure.

Thanks again.

Regards,
Kavitha