Earned Leave Encashment: Should It Be Calculated on Basic or Gross Salary?

Hello,

How is EARNED LEAVE encashment calculated? Is it to be calculated on Basic or Gross? Please clarify.

Regards,
Sudha

Hello,

It depends on the existing leave policy and objectives of leave encashment. However, it can be calculated as follows:

1. BASIC (GROSS)/365 * NUMBER OF DAYS in view
or
2. BASIC (GROSS)/TOTAL NO OF ANNUAL WORKING DAYS * NUMBER OF DAYS in view

The adoption of either option 1 or 2 will be determined by the overall HR strategy and goals.

Regards,
Duro

Dear friends,

The provisions related to Earned Leaves are provided in Sec. 79 and Sec. 80 of the Factories Act (similar provisions are in Sec. 14 & 25 of the Punjab Shop & Commercial Establishment Act 1958, please check applicable state acts). These sections provide for the Annual leaves with wages and wages during the wage period. They cover entitlement, carry forward, requirements for availing, and wages to be paid during the wage leave period. However, there is no mention of encashment of the earned leaves, except in cases where an employee is discharged, dismissed, quits employment, superannuates, or dies while in service, which means that the unavailed leaves will lapse.

In my understanding, encashment should be as per the company policy. For calculation, we can refer to Sec. 80 of the Factories Act or similar sections as mentioned above.

Regards,
Sanjiv Sharma

Thank you for the information.

So, as per the following clause, which is present in the ACT, it should be encashed on Gross (not Basic). Please confirm. (My question is for a resigned employee, and he is claiming for earned leave encashment.)

If a worker is discharged or dismissed from service, quits his employment, is superannuated, or dies while in service during the course of the calendar year, he or his heir or nominee, as the case may be, shall be entitled to wages in lieu of the quantum of leave to which he was entitled immediately before his discharge, dismissal, quitting of employment, superannuation, or death. This should be calculated at the rates specified in sub-section (1), even if he had not worked for the entire period specified in sub-section (1) or sub-section (2) making him eligible to avail of such leave. Such payment shall be made--

Dear sudha5555,

Thank you for the information. So, as per the following clause present in the ACT, it should be encashed on Gross (not Basic). Please confirm. My question is for a Resigned Employee, who is claiming for earned leave encashment.

If a worker is discharged or dismissed from service, quits his employment, is superannuated, or dies while in service during the calendar year, he or his heir or nominee, as the case may be, shall be entitled to wages in lieu of the quantum of leave to which he was entitled immediately before his discharge, dismissal, quitting of employment, superannuation, or death. This should be calculated at the rates specified in sub-section (1), even if he had not worked for the entire period specified in sub-section (1) or sub-section (2) making him eligible to avail of such leave. Such payment shall be made --

Dear Sudha555,
Earned leave, as mentioned earlier by an expert, is only based on Basic+DA. Gross has many components and cannot be considered for leave encashment. Any legal guru there...

Regards,
Ukmitra