Correct Method Of Calculation Of Leave Encashment

Dear All,
It is not mentioned either in the Factories' Act or in any other Acts as regard to the method of calculation of leave encashment. Some of the views that in case of Monthly rated employees, to arrive at daily rate, monthly rate of Salary should be divided by 30 days. Some others view that Monthly rate of salary should be divided by 26 days. Request some one to highlight the correct and justifiable procedure.

Actually there are laws on leave encashments, see in every shops and establishment act there are decided leaves and there is a provision for carry forward along with cash payments for them. Like for eg in Punjab and Haryana Shops and Establishment Act

Leave- See Indian Labour Laws & Shram Suvidha Simplified

" Every employee who has been in employment for not less than twenty days in a year shall be entitled to one day’s earned leave for every such twenty days:

If an employee is discharged or dismissed from or leaves service during the course of the year he shall be entitled to leave with wages or wage in lieu of un-availed leave.

If an employee does not in any one year take the whole of the leave allowed to him under clause (a), any leave not taken by him shall be added to the leave to be allowed to him in the succeeding year: Provided that—

Subject to any specific agreement between the employer and the employee, the total number of days of leave that may be carried forward to a succeeding year shall not exceed forty in the case of a young person or thirty in any other case;

The provisions of this section shall not operate to the prejudice of any rights to which an employee may be entitled under any other law or under the terms of any award, agreement or contract of service;

Where such award, agreement or contract of service provides for a longer leave with wages or weekly holidays than those provided under this section the employee shall be entitled to only such longer leave or weekly holidays as the case may be.

Leave period in clause (a) shall, when applied for be granted except for a valid reason to be communicated in writing by the employer to the employee within fifteen days of the application: Provided that the leave so refused shall, if applied for again, be allowed during the year.

Notwithstanding anything contained in the above clauses every employee in an establishment shall be allowed with wages seven days casual leave and seven days sick leave in a year."

Now those covered under this act can follow the same parallel while allotting encashment facility

Dear Labour Law Index,
Your reply certainly is useful to me. But my query is regarding the method of calculation in case of Leave encashment. To arrive at daily rate, the monthly salary has to be divided by 30 or 26 days. Kindly clarify. It is more helpful, if there is any supporting document.

Most Appreciated,
There are two ways we can approach this
1) Actuarial Standards in India: They value leave encashment on 26 days basis. https://www.google.co.in/url?sa=t&rc...RrCaMdpp25AI7g
2) Civil Service Rule 38A, it does take 30 days.
According to me 26 days is the correct valuation measure.

There is an old case in Supreme Court that declared for purpose of gratuity computation of daily rate from monthly rate would be by dividing by 26. That is the rule followed by courts since. Even minimum wage regulations and notifications specify dividing by 26 days.
So you need to divide by 26 days in your case

Dear Mr Mohan,
For Monthly rated Employees do you pay salary for 30/31/29/28 days? you pay salary based on total days in the Month.For the purpose of Leave Encashment, you take total days in the month in which Leave Encashment is paid for determining 1 Day Salary
Ex:if you are Paying Leave Encashment in April-2017 take 30days
Similarly, if you are paying Leave Encashment in May- 2017 take 31 days

It would be highly beneficial for me if learned members enlighten me how to distribute a salary of Rs 1lac per month into allowances and perquisites. I am Admin Officer who is recently promoted.
Regards
Syed Adil Mehdi

I'll try to give a twist to the question here. What are the Heads of Salary (Basic, DA, HRA, Extra time Allowance, Tiffin Allowance, Conveyance Allowance ......) that be considered while deciding upon the amount be paid against Leave Encashment.
Learned Friends may kindly enlighten others please.
Soumitra Sengupta

Don't pose academic question, pose a case question to help you better.

Dear Soumitra,
Please Peruse "The Factories Act, 1948" & Shops & Commercial Establishments Act to know about leave Encashment.Fixed Salary Components of Gross Salary is considered for Leave Encashment.
Extra Time Allowance/Over Time, Tiffin Allowance etc can not be part of Fixed Salary Components.
What an Employee earns while he is on leave, Same Amount he earns at the time of Surrendering Leave