How Can I Add Leave Encashment to Our Company Policy? Seeking Your Advice!

Hi Group,

I am currently remaking the company's leave policy. The earlier structure of leave does not have the provision for the encashment of leave. Now, I want to incorporate the encashment of leave as well.

Kindly guide me regarding the encashment of earned leave as we do not have a provision for encashment of sick/casual leave.

Please help.
Prachi

5th June 2006

Dear Friend,

As I mentioned earlier regarding the same in "LEAVE RULES," however, this may be useful to you. See the following:

ALL THE EMPLOYEES

All the Employees are hereby informed that the following leaves and leave rules are introduced and will come into force with effect from:

1. CASUAL LEAVES: 12 Per Year

2. SICK LEAVES: 12 Per Year

3. EARNED LEAVES: 15 Per Year (Approx. As per Factories Act)

CASUAL LEAVES

a) An employee may be granted casual leave for a maximum of 12 days during the calendar year (i.e., 1st January to 31st December).

b) An employee who is appointed during the course of the year shall be entitled to it on a pro-rata basis.

c) Save in exceptional circumstances, casual leave will not be granted for more than three days at a time.

d) Any absence of more than the number of days allowed for casual leave shall, when not due to sickness, be treated as unauthorized absence from duty.

e) If a holiday falls in between casual leave, the leave will be treated as earned leave.

f) Unavailed casual leave will lapse at the end of the year.

SICK LEAVE

a) An employee may be granted sick leave for a maximum of 12 days during the calendar year (i.e., 1st January to 31st December).

b) Sick leave will be considered only for two days; more than two days will be considered with the support of a medical certificate. The supported medical certificate should be issued by a Regd. Medical Practitioner not below the rank of an MBBS doctor.

c) The unavailed sick leave will be carried forward to the next year.

d) The maximum accumulation of sick leave is 30 days.

e) Sick leave should not be clubbed with any other leave.

EARNED LEAVE

a) Every employee who has worked for a period of 20 days or more shall be allowed one day as earned leave.

b) Earned leave will be sanctioned only on a continuous basis; holidays, if any, in between will be exempted.

c) Earned leave cannot be availed more than three times in a calendar year.

d) Earned leave may be accumulated up to 60 days. Leave up to a maximum of 30 days will be encashed at the discretion of the management.

NOTE: AVAILING LEAVE IS NOT A MATTER OF RIGHT. THE MANAGEMENT CAN THUS REFUSE TO GRANT LEAVE TO AN EMPLOYEE DUE TO THE EXIGENCIES OF WORK. THE CASUAL LEAVE SHOULD GET SANCTIONED 02 TO 03 DAYS BEFORE AVAILING FROM THE DEPT. HEAD, AND THE EARNED LEAVE AS PER THE FACTORIES ACT.

- PERSONNEL MANAGER

Regards,

:)

PBS KUMAR

Dear PBS,

Thank you for providing such valuable information. However, my query pertains to the encashment of the said bifurcations. Please assist me in that regard as well.

Cheers,
Prachi

Hi Prachi,

Please assist me with the encashment policy in your organization so that I can design one for my company.

Thank you.

Dear Prachi,

I just have a small query. Can you elaborate on why you have decided to incorporate leave encashment? What is the objective and rationale for introducing this policy? Maybe then we all would be able to help you in devising a suitable policy.

Regards,
Anuradha Zingade

Hi Anu,

Our employees take unnecessary leaves, and there is no official record of them. Moreover, at the end of the year, they demand the encashment of leaves. Since ours is a new organization, we cannot afford to give too many holidays or encash on the wrong basis. However, we do understand that the encashment of leaves is a must as per the Factories Act. So, in this direction, I want to know about the encashment of leaves, until what time they are valid, and when they can be encashed upon. Please help.

Cheers, Prachi

Dear Prachi,

Sorry, I was not able to reply. I am trying to search for the survey conducted by a HR colleague and posted on the HR community. Give me a day's time. I should be able to get back to you.

In general, casual leaves and earned leaves are encashable. Entire casual leave can be encashed or you can set a limit that 15 or above can be encashed. Sick leave limit is usually a little higher as these may be required during long sickness. Ideally, it is 30 and above in most companies. Above 30 sick leaves can be encashed.

If your objective is to reduce absenteeism, then all casual leaves not consumed can be encashed, but set a limit for sick leave accumulation.

The calculation for encashment also varies from company to company, with some companies giving encashment on all the monthly components of the salary while some give on the basic.

Usually, the calendar year is followed for leaves, i.e., from January to December. As soon as the opening balance for the leaves is posted in the month of January (depending upon the efficiency of the department :)), the notification or a circular is put up by HR/Personnel department stating till when the encashment can be done.

Hope this helps for the time being.

Regards,

Anuradha

Hi All,

We want to revise our current encashment policy. Employees are accumulating a lot of leaves which we want to discourage as it is resulting in a high number of payouts to the employees. Please help us with a policy that will discourage encashments.

Regards,
Tripti

Hi,

Generally, leave encashment is based on the last earned Basic Salary. For example, if you need to encash 5 days of earned leave that have not been availed by an employee, then 5 days' basic salary can be encashed.

Regards

Hi Prachi,

If your organization is willing to pay the leave encashment amount per year, then you have to calculate the balance leaves as below. For instance, if an employee has a balance of 10 PL (earned leave), 2 CL, and 2 SL at the end of the year, and their latest gross salary is 6500 per month, then your calculation will be as follows: 10+2+2=14. Therefore, the leave encashment will be 6500/31*14=3033.33/-

Feel free to revert if needed.

Regards,
Ravi Kulkarni
ravi.k457@rediffmail.com

Hi there,

Encashing annual leave depends on your annual leave policy. Is your annual leave based on calendar days or working days? The matrix for calculating each differs, divided by the basic salary earned. When calculating leave encashment, it does not include sick leave or casual leave. Encashment policies are exclusive to annual leave and overtime earned.