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Itisha
What is the calculation of paid leave?
From India, New Delhi
Madhu.T.K
4207

Your thread heading is about leave encashment whereas your post content is about calculation of paid leave. Paid leave means leave taken for which payment of salary is made. Obviously, it will be equal to the salary for the working day or the paid leave will be considered as day worked for payment. At the same time, encashment is surrender of leaves and when you surrender your leaves, you will get cash equivalent to the number of days leave surrendered. If you mean to know on which salary, whether only basic salary will be considered for encashment, or is it basic and dearness allowance which should qualify for encashment of leaves or is it the gross salary that should qualify for encashment of leaves, will depend upon the salary structure. Normally, only basic salary and dearness allowance will be considered for encashment of leaves. At the same time, if the total salary including allowances like HRA etc are considered for deduction of salary for absence without leave, then the same should be considered for encashment of leaves also. Conversely, if the basic and DA only will qualify for deduction of Loss of pay and allowances are compensatory allowances, ie, paid to compensate costs like rent (HRA), education of children (Education allowance), travel (conveyance allowance), etc, then for encashment of leave also the Basic pay and Da shall be taken.
From India, Kannur
Anonymous
What factors should be considered in determining the salary components eligible for leave encashment?
From Vietnam, Hanoi
kalyani-k1
When it comes to Paid Leaves to be encashed then u will be calculating the days with Basic Salary determined .
for eg : if someone 's monthly salary is 25K with Basic as 12.5K based then u ll calculate encashment ofpaid leaves with 12.5K base.

From India, Pune
Madhu.T.K
4207

Ms Kalyani, this is the practice, ie, to calculate the leave encashment on basic wages (and also DA, if it is paid) But I am saying that no where under any Act, it is said that basic pay alone is your salary. In the present situation when we fix the Cost to Company first and then split it in to small compartment and allocate the minimum of it under basic salary, what is the significance of taking only the basic salary for leave encashment. This is the issue with all such payments, like bonus, gratuity, PF etc. If you take a leave, you are paid the whole salary. If you take loss of pay leave, your day's deduction is calculated on the whole salary and not on basic salary alone. Then why should we take basic only for encashment? It is true that the present employers take only basic. But we should not allow that. We are HR and we should convince them that salary means the total emolument and not simply basic salary.
From India, Kannur
kalyani-k1
Madhu, Paid Leaves are a benefit that the company gives in to employees, They are supposed to use it, Majority of company encashes leaves only while FNF. So technically this practise is alo discourage employee to balance life and given importance to personal time and break that one deserves.
From India, Pune
Madhu.T.K
4207

I agree, encashment is permitted only at the time the employee leaves the company, as you said, at the time of full and final settlement. Why the laws restricts the surrender of leaves while in service? Leaves are minimum in number and no employee should be permitted to keep it so that he can encash it, but at the same time, he should be encouraged to avail it, and maintain a work life balancing. At the same time, if the leaves granted are over and above the one mandatory as per the law, certainly, that will become an employee benefit and the employer can have separate SOPs to encash it. He can say that encashment will be on basic salary alone. Now, when it comes to encashment of leaves as per the law, we should take the wages as per law as the base. My opinion is that basic salary is only a component of salary that the employer fixes, and it is not the wages as per contract of employment. In many cases, the allowances like HRA, Conveyance etc are not compensatory allowance. Only compensatory allowance, like, allowance to compensate certain costs like cost of taking a house (house rent allowance), cost of travel ( conveyance allowance), cost of having meals (meals allowance) cost of education of children (education allowance), cost of buying newspaper and periodicals (newspaper allowance), are outside the scope of wages. In the current scenario these are part of remuneration and the total salary is subjected to deduction when an employee takes a leave without pay.

It is due to the faulty compensation structuring that these confusions arise. The industrial sense when the Factories Act or Shops...Act was passed was different from the current industrial practice. In the past wages would mean basic salary and dearness allowance. The latter was paid to take care of the increasing cost of living and the former would represent the cost of labour. All other payments and contributions payable by the employer due to that employment, like bonus, PF, ESI, gratuity etc were costs by the employer and these were implied and there was no need to show it separately in the salary offer sheet. But now, it is not the cost of labour but it is cost to the company. It is the total cost of engaging an employee including the statutory and other benefits, the maximum incentives that he could earn in a month or even the cost of award or performance bonus that he may get by achieving certain goals, that we show in the salary sheet. It is seldom called as salary offer but it is only CTC offer!

From India, Kannur
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