Hi Can somebody let me know that EL are encashable on 30 days or 26 days. And if it is on 26 days then why it is so? Regds Mohit
From India, Delhi
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5From India, Delhi
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Dear Mohit,
A very nice question, and therefore I will answer it in detail.
Earlier, there was a concept of daily-rated and monthly-rated employees. The workmen cadre used to be generally daily-rated, while clerical staff and management staff used to be monthly-rated. Daily-rated would mean wages of say Rs. 150.00 per day, and no payment would be made for weekly offs. In a month, generally, there are 30 days and 4 weekly offs, so normally payment would be released only for 26 days if the workman was not absent on any day. For Leave Encashment, the basis was the number of days multiplied by the daily wage. The same was the situation for entitlement of Leaves. Leaves would be allowed only on days worked (as in the case of the Factories Act). So at the time of granting leaves, intervening OFFS would not be counted as Leave.
Monthly-rated employees, in contrast, would get a salary (in the case of daily rate, the word was wages) for the full 30 days, i.e. they were paid for weekly offs also. Here, as the salary was paid for the full 30 days, for Leave encashment, the monthly salary would be divided by 30 to get one day's payment. Leaves here were granted on a lump sum basis, i.e. 30 days of leave per annum. There was no link with days worked (only the condition was that the person should not be absent). The total number of leaves was also more in this case. So at the time of the grant of leave, intervening OFFS were treated as leaves.
There was a constant demand from the unions to convert everybody to a monthly rate. So slowly, everybody became monthly-rated. But how was it done? Companies simply multiplied the daily wage by 26 and started calling it monthly wage or salary. But now for Leave encashment, if the formula was changed to a 30-day basis, then it would be a loss to the workmen. So the Leave encashment formula remained unchanged, i.e. the monthly wage was divided by 26 to get the daily rate. The system of entitlement and grant of leaves remained the same, i.e. in such cases, leaves are granted on the basis of days worked, and intervening OFFS are not treated as Leave.
So, two types of practices are there. In the IT Industry, there was never a daily rate system. Therefore, it will not be correct to adopt the 26-day formula. Because in that situation, if you encash 30 days of leave, you will be paying more than one month's salary. Similarly, in the IT Industry, leaves are paid on a lump sum basis and not on a days-worked basis. Therefore, intervening OFFS should be treated as leaves (but it is suggested only for EL/PL). In the case of CL, the practice was always the same for both daily rate and monthly rate employees, i.e. they get a fixed amount of CL per annum irrespective of days worked, and intervening OFFS are never counted as Leave.
People generally do not know the background, make assumptions, and start giving opinions that are not correct because it confuses the new lot.
KKT
From India, Delhi
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A very nice question, and therefore I will answer it in detail.
Earlier, there was a concept of daily-rated and monthly-rated employees. The workmen cadre used to be generally daily-rated, while clerical staff and management staff used to be monthly-rated. Daily-rated would mean wages of say Rs. 150.00 per day, and no payment would be made for weekly offs. In a month, generally, there are 30 days and 4 weekly offs, so normally payment would be released only for 26 days if the workman was not absent on any day. For Leave Encashment, the basis was the number of days multiplied by the daily wage. The same was the situation for entitlement of Leaves. Leaves would be allowed only on days worked (as in the case of the Factories Act). So at the time of granting leaves, intervening OFFS would not be counted as Leave.
Monthly-rated employees, in contrast, would get a salary (in the case of daily rate, the word was wages) for the full 30 days, i.e. they were paid for weekly offs also. Here, as the salary was paid for the full 30 days, for Leave encashment, the monthly salary would be divided by 30 to get one day's payment. Leaves here were granted on a lump sum basis, i.e. 30 days of leave per annum. There was no link with days worked (only the condition was that the person should not be absent). The total number of leaves was also more in this case. So at the time of the grant of leave, intervening OFFS were treated as leaves.
There was a constant demand from the unions to convert everybody to a monthly rate. So slowly, everybody became monthly-rated. But how was it done? Companies simply multiplied the daily wage by 26 and started calling it monthly wage or salary. But now for Leave encashment, if the formula was changed to a 30-day basis, then it would be a loss to the workmen. So the Leave encashment formula remained unchanged, i.e. the monthly wage was divided by 26 to get the daily rate. The system of entitlement and grant of leaves remained the same, i.e. in such cases, leaves are granted on the basis of days worked, and intervening OFFS are not treated as Leave.
So, two types of practices are there. In the IT Industry, there was never a daily rate system. Therefore, it will not be correct to adopt the 26-day formula. Because in that situation, if you encash 30 days of leave, you will be paying more than one month's salary. Similarly, in the IT Industry, leaves are paid on a lump sum basis and not on a days-worked basis. Therefore, intervening OFFS should be treated as leaves (but it is suggested only for EL/PL). In the case of CL, the practice was always the same for both daily rate and monthly rate employees, i.e. they get a fixed amount of CL per annum irrespective of days worked, and intervening OFFS are never counted as Leave.
People generally do not know the background, make assumptions, and start giving opinions that are not correct because it confuses the new lot.
KKT
From India, Delhi
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Very nice article explaining the computation of the daily rate. However, what would be the most recommended or applied pro-rating formula for employees on a monthly salary? My company is adopting the annualized formula, i.e., (Monthly Pay x 12)/(52 wks x 40hrs). Naturally, this formula is favorable when an employee is receiving payment from the company but unfair when the employee has to pay the company back, e.g., for the Notice Period. Thanks.
From Kenya, Nairobi
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From Kenya, Nairobi
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LEAVE ENCASHMENT NOT INCLUDED IN WAGES FOR P. F. CALCULATION.pdf
Leave Encashment & Salary Calculation.xls x