Leave Encashment Rules: How Do They Apply with Just Basic and HRA in Salary?

Hi All, Greetings! Please let me know the rules of leave encashments. I have only two components in the salary structure: Basic + HRA (60+40)%. Please help me ASAP.

Regards,
Umang Mathur
HR & Admin Head
Shivam Exports

Hi, The general practice among companies is to consider Basic + DA for PL/EL encashment. However, it should be based on gross earnings. When an employee proceeds on leave, he/she is paid the full salary with leave, not just Basic + DA. Therefore, encashment should be calculated on the gross earnings of the employee.

You have only two components in the salary structure: Basic + HRA (60% + 40%). If an employee takes leave, he gets the full benefit, meaning full salary, if leave is available in his account. HRA need not be included in leave encashment. HRA is given for the whole month or not at all; it cannot be given in partial amounts. To compute HRA, you give 40% of the basic salary. Therefore, leave encashment may be calculated as follows:

=((basic pay * number of leave days) / number of month days) (e.g., 30, 31)

Understanding HRA and Leave Encashment

HRA, as per the normal meaning, is House Rent Allowance. There are employees in organizations who have their own residence and also enjoy HRA as a monthly gross component. Instead of HRA, if the name of the pocket is CCA, Spl. Allowance, Medical Allowance, Travel Allowance, etc., then, in the case of leave encashment, it will be considered.

If HRA is paid only to those employees staying in a rental house, then all the logics are correct. However, in this case, it is universally paid to all employees.

In my opinion, leave encashment should be based on both Basic & HRA.

Regards,
S K Bandyopadhyay (WB, Howrah)
CEO-USD HR Solutions
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