How Do I Calculate Leave Encashment with Old and New Basic Figures? Need HR Insights!

Hi everyone!!

Basically, I worked as an HR generalist, but currently, I have taken on the challenge of handling all HR activities. I need help from you, senior HR professionals! I have been tasked with providing the leave encashment calculation figures, considering both the old and new basic figures (i.e., before and after appraisal). Usually, leave encashment (L.E.) is calculated as follows: basic / 30 * number of days to be encashed. My question is, how should we incorporate the two basic figures when calculating L.E.? Should we base it on the current basic figure only to comply with the law? I hope my query is clear. I am looking forward to your prompt response. Please help me.

Cheers,
Kevina

Dear Kavina,

For calculating any terminal benefit, you should consider only the current figure. (Current basic and current DA should be considered for calculating leave encashment.)

With regards,

L. Kumar

Dear Kevina,

Only current basic and DA are to be considered for leave encashment.

Regards, L. Kumar

Hi Kumar,

I am in need of your help once again. As per rules/norms, we should pay the Leave Encashment amount based on basic + DA. What is the rule if a probationer takes leave during the probation period? In my company (IT), we have a 3-month probation period, and there is no leave facility during this time. However, upon confirmation, we credit leaves on a pro-rata basis to employees.

Please help me with this as it is MOST URGENT!

Cheers,
Kevina

Dear Kavina,

If the probationer has availed leave during the probation period, please note that those leave periods will be on LOP. During that period, you need not calculate for encashment. Also, while crediting leave after the completion of the probation period, you have to credit leave on a pro-rata basis only.

L. Kumar

Hi Kumar,

Thanks for your quick response! :) But don't you think that if we credit the leaves on a pro-rata basis, the employee will get encashed for his probation period as well? (as the pro-rata starts from the date of joining) Just a clarification...

Cheers,
Kevina

Dear Kevina,

How can an employee get cashed out without HR personnel's authentication or approval of the leave? What is your company's policy?

Regards,
L. Kumar

Dear Kumar,

We have mentioned in our policy that "on confirmation, they will be eligible for Privilege Leave on a Pro-rata Basis, i.e., from the date of their joining. The balance as of December will be taken into account for encashment, but up to 50% only (of the balance), and the remaining 50% of the balance leaves will be carried forward. For example: If PL is 10 for the whole calendar year and someone joins during March, the calculation would be 10/12*10 (10 PL for 12 months, with 10 eligible months starting from March).

In your last conversation, you mentioned that leave availed during probation will be treated as Leave Without Pay (LWP), i.e., per day salary will be deducted based on the Per Month Gross Salary. Is this in line with the norms followed by IT companies? I feel it's contradictory as the deduction happens on Gross Salary, but the Leave Encashment occurs based on Basic Salary.

I hope I am not confusing you.

Cheers,
Kevina

Dear Kevina,

If the employee encashes his leave and resigns, then you can adjust the same at the time of his final settlement. What is the issue? Alternatively, you can amend the policy for encashing leave accordingly.

Regards,
LKumar

Hi,

The issue is we are deducting the leave amount from the Gross Salary (during probation), but while encashing, we are paying it on basic......

Thanks for your prompt reply.

Cheers,
Kevina