Can a Company Use Gross Salary for Notice Pay and Basic Pay for Leave Encashment?

Dear Team,

This query is regarding the leave encashment policy. Mr. X resigned from the post and paid a sum of Rs 60K towards the shortfall of the notice amount. The shortfall amount was calculated based on the gross salary.

At the time of full and final settlement, Mr. X's leave encashment was calculated based on the basic pay.

Can the company take two stands - Notice pay on gross and Leave Encashment on Basic?

Thank you.

It all depends on a company's service rules, which vary from company to company. In my opinion, the practice in question is acceptable, justified, and fair. If the gentleman had served the full notice period, he would have received all components as part of his gross salary. Conversely, the amount he is required to pay back as notice pay equals his gross salary because he chooses not to serve the notice period. Similarly, the purpose of leave is to utilize all leaves, not to keep them for encashment.

In India, we do not often go on family tours or holidays. Companies also schedule work when employees are most available, so they typically only consider encashment of unavailed leave balance based on basic salary in their leave policies. You may have noticed that leave encashment is a welfare policy that isn't always applied in new setups, as they expect employees to plan and take their leaves.

Regards,
RDS Yadav