Earned Leave Calculation: Should It Be Based on Gross Salary or Just the Basic Part?

Hi Seniors, how should we calculate earned leave? Is it based on the gross salary or just the basic part?

Regards,
Ritika

Ritika.S.C: On monthly gross salary only. Quite a few firms calculate it on the basic, but that leads to employee perception issues.

Please refer to your appointment letter or your leave policy to gain a better understanding. If you do not have any, please get it done on an urgent basis.

With regards to your query, my view/opinion is that if the employee had availed the leave during employment, then the employer would have paid them their gross salary. So, for encashment, why pay only the basic? This is purely my view.

The number of annual/earned leave is defined in the enactment applicable to the establishment, e.g., the Shops and Commercial Establishment Act, and the rate is also defined in it. Most likely, it is based on monthly wages, i.e., gross.

The leave policy can offer superior benefits but not inferior.

I erred! I meant to say it's on a monthly basic only, and quite a few firms calculate it on the gross, which leads to employee perception issues.

As some members rightly stated, when an employee takes PL for one month, their full salary—gross/net salary—is paid and not just the Basic. Some companies curtail this benefit by paying based on Basic.

Leave Rules and PL Encashment

The Leave Rules can provide superior benefits rather than inferior benefits when it comes to PL encashment, and it can be paid on the current Gross salary (which includes other applicable allowances).

I hope other senior members will provide the correct rule/practice as there is a difference in some companies paying only on Basic.

Regards,
C. Neyim Khan

Your query seems to me not properly framed, or your concept of leave is not clear to you. I have not understood what you want to say. I am equally confused reading some of the replies. Is your question on the encashment of leave or salary on leave granted?

Answers for both are the same. You need to be in the shoes of the employee, and you will get the answer. Will you accept the salary for leave on a basic basis only?

To any establishment or company, either the Shops & Estb. Act, Factory Act, Mines Act, or Docks Workers Act is applicable, and the earned leave is governed under those Acts. All those Acts are protecting the interests or rights of employees. Those Acts cannot say to pay leave salary on Basic only.

Provisions Under Factory Act and Bombay Shops & Estb Act

Factories Act Section 80: Wages during leave period.

(1) For the leave allowed to him under section 78 or section 79, as the case may be, a worker shall be entitled to wages at a rate equal to the daily average of his total full-time earnings for the days on which he actually worked during the month immediately preceding his leave, exclusive of any overtime and bonus but inclusive of dearness allowance and the cash equivalent of the advantage accruing through the concessional sale to the worker of foodgrains and other articles.

Bombay Shops and Estb. Act Section 36: Pay during leave

Every employee shall be paid for the period of his leave at a rate equivalent to the daily average of his wages for the days on which he actually worked during the preceding three months, exclusive of any earnings in respect of overtime.

Regards

In our view, this should be on gross monthly pay. Leave encashment on basic salary is not the correct approach.

EL encashment is always calculated based on the current Basic salary. The formula for encashment is as follows:

Current Basic * No. of EL / 26

Thank you.

Dear Ritika and other members of the forum, this is my 1801st contribution to this forum. In fact, I wanted to thank you all on the eve of 2014 but regret to see counter-responses/comments and appreciations to such counter-responses/comments even after I have provided the answer with the help of provisions of the Law verbatim.

In my response to the query by Ritika, I not only cited the provisions of the Law but also asked her to put herself in the shoes of an employee and questioned whether she would accept the leave salary at basic only. However, there is still a differing view on my response, which was appreciated by Ritika.

I do not argue against having a different view, but the differing view should have some support, at least when the previous response/answer is supported.

Thank you.

Monthly Gross Salary Breakdown

- BASIC: 3000
- DA: 14500
- HRA: 2000
- CONV. ALLOW: 1500
- PERS ALLOW: 300
- INCENTIVE: 6000

In our office, leave encashment is given on Basic and DA only. If an employee is on leave, no deduction is made. Only the Incentive amount is deductible during their leave.

Could you please advise if the above procedure is correct or not?

Regards,
ARM