Understanding Leave Encashment: How Is It Calculated and What Does It Mean for You?

1. Can anyone explain the concept of encashment of leaves in detail? How is it calculated?

2. What are the minimum wage rates for different skilled people in the private sector in Andhra Pradesh?

Encashment of Leave

Encashment of leave refers to the facility to surrender unavailed leave either periodically or upon termination of employment for a cash benefit in respect of an employee. Not all types of leave are covered by this arrangement, but any leave of accruing nature like Earned Leave (E.L), Privilege Leave (P.L), or Annual Leave with Wages as per the respective establishment-specific law, is applicable, particularly on termination. It is a statutory payment to be reflected in the Full and Final (F&F) settlement. In practice, most employers permit it every year at the request of their employees. The monetary value of surrendered leave should equal the amount of salary the employee would have received if they had taken the leave. In other words, the gross salary payable minus certain allowances like those paid to facilitate actual work, such as conveyance allowance, heat allowance, night shift allowance, washing allowance, and similar, should be paid.

Your second question seems vague to me. It would be better to refer to the A.P. Govt. Labor Department website.

Thank you.

I would like to confirm the following regarding leave encashment:

Leave encashment during probation period

(a) An employee starts earning leave at a rate of 1.25 days per month from the date of joining but is not allowed to utilize Earned Leave (EL) during the probation period. Assuming that as per company policy, the probation period is 6 months and in the scenario where an employee resigns after serving 4 months (EL = 1.25 x 4 = 5 days), is it mandatory to pay this amount at the time of Full and Final settlement (F&F)?

Formula for leave encashment calculation

(b) For companies that follow a 5-day work routine, can we use the following formula to calculate the leave encashment amount:

Last drawn gross salary / 22 x Earned leave balance.

I would appreciate your input on the above two points.

Thanks

Understanding the Probationer Status

A "Probationer" is a regular employee undergoing an initial phase of service for a definite duration as fixed in the contract of employment. This phase is for assessing the employee's suitability for the job by the employer. Regarding eligibility and entitlement to statutory service benefits like leave and holidays, no law applicable to the establishment differentiates between employees as probationer, confirmed, contractual, or otherwise. If there is no statutory condition in the establishment-specific law regarding the availment of earned leave (E.L) after a particular period, refusing to grant E.L to an employee solely on the grounds of probation is illegal. In any case of termination of employment, the E.L at the credit of the concerned employee's leave account should be included in his/her full and final (F&F) settlement of dues. It is mandatory.

Calculation of Cash Value for Unavailed Earned Leave

Regardless of the working pattern of the establishment, whether a 5-day week or a 6-day week, the holidays are paid holidays. Therefore, for calculating the cash value of unavailed E.L, divide the gross salary by 30.