You may calculate leave encashment based on the basic salary, as this is a common practice in current payroll procedures. Leave encashment is calculated as Basic Pay / 30 * Number of leaves for encashment.
Note: Please refer to your company's HR manual or standing orders to ensure the correct method and rules for calculating this in your company.
Leave encashment is based on the standing order/HR policy of the company. Some companies pay leave encashment as part of the gross salary, while others pay based on basic + DA. It varies from company to company, but in normal practice, it should be paid based on basic + DA. Encouraging employees to take leave instead of accumulating it for encashment can be achieved by paying based on basic and DA.
Leave encashment is not legally correct, though not illegal. Are you asking about the payment of leave wages? Please narrate the circumstances a bit to enable an appropriate reply.
'Legally incorrect' as leave is to be enjoyed, there is no mention of encashment of leave in the Bombay Shops Act, Factories Act, or rules.
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