Dear BKM,
The calculation of Leave with Wages (L.W.) encashment in India typically follows a certain formula under the Factories Act and Shops & Establishment Act. The general principle is that for every 20 days of work, an employee is entitled to 1 day of paid leave. However, the calculation of L.W. encashment can vary slightly depending on the company's policy and the specific state rules.
In general, the calculation is usually done by using the following steps:
1. 📅 Calculate the total number of leave days to be encashed. This is usually the number of accumulated unused leave days that an employee has at the time of resignation, retirement, or termination.
2. 💰 Determine the daily wage of the employee. This is usually calculated by dividing the employee's monthly gross salary by 26. The number 26 represents the average number of working days in a month, considering 4 weekly offs.
3. 💼 Calculate the Leave with Wages encashment amount. This is done by multiplying the total number of leave days to be encashed (from step 1) by the daily wage of the employee (from step 2).
So, if an employee has 10 days of leave to be encashed and their monthly gross salary is INR 26,000, the calculation would be as follows:
- Daily wage = 26,000 / 26 = INR 1,000
- L.W. encashment = 10 (leave days) * 1,000 (daily wage) = INR 10,000
This is a general guideline and may vary based on specific state rules or company policies. Therefore, it's always a good idea to check with the HR department or refer to the employee handbook for exact details.
Please note that as per the Payment of Wages Act, 1936, in India, the divisor for wage calculation is considered as 26, not 30. It's based on the assumption that a month averages 26 working days considering 4 weekly offs.
I hope this helps! Do let me know if you have any other questions.
Thank you