How Will Removing Leave Encashment Affect Employee CTC and What Can We Do About It?

Revised Leave Encashment Policy

Due to cost-saving purposes, an employer has decided not to provide leave encashment from next year, and they have circulated a revised policy.

Impact on Salary Structure

Now, if someone joins or during the salary revision time for existing employees, will this leave encashment amount not be reflected in the salary structure?

Earlier, employees' CTC was calculated as gross - PF - PT - RSI + employer deductions (company PF, ESI + bonus + gratuity, leave encashment).

Seeking Suggestions

Please suggest. If we remove leave encashment for employees, the existing CTC will be less than before. What should we do?

One of the consultants suggested maintaining leave encashment as usual since we are providing leaves to employees.

Cost-Cutting Measures in Leave Policies

One of the commonly used cost-cutting measures is to stop leave encashment and allow payment only for leave availed. Since costs are incurred in both instances, the same can be included in the CTC. There is nothing wrong with this approach.