How to calculate leave encashment

[charlie]

Hi everyone
I’m trying to figure out how leave encashment is calculated. I understand that some companies allow employees to encash unused leave either during service or at the time of resignation/retirement, but I’m confused about the actual calculation formula. Does it depend on basic salary only, or does it include allowances like HRA or DA? And is there a standard formula or does it vary based on company policy and labour laws?

 

[jenny]

Encashment of leaves involves the payment of cash on leave days not taken.
Formula:
Basic Salary/26 Unused Days of leave.
Example:
Suppose basic is 26000 and 10 days unused leave, in which case:
= 26,000 ÷ 26 × 10 = ₹10,000.

 

[niyati]

Leaves are the act of receiving money on unclaimed paid leave. Most companies use the following formula to compute it:

Leave Encashment = Monthly Basic Salary/ 26 x Unused Leave Days.

Where(26) is the number of working days per month.

Example:

Basic salary: ₹28,600

Unused leave: 12 days

Step 1: Per day basic = 28,600 ÷ 26 = ₹1,100
Step 2: Leave encashment = ₹1,100 × 12 = ₹13,200

Therefore the employee will receive 13, 200 as leave encashment.

 

[smith]

The payment that is given to an employee based on the unused earned or paid leave is called the leave encashment. In computing it, firms tend to take the past drawn basic salary of the employee or basic salary with some allowances such as dearness allowance. The common formula used is:

Encashment of Leave =(Last Drawn Salary/26) x Days of Unused Leave.

In this case, 26 is the mean number of working days in a month which is paid. Other organizations can take a 30 days period or their policy.

Suppose that an employee makes 45,000 as the last salary and has 12 unutilized leave days, then:

Per day salary = 45,000 ÷ 26 ≈ 1,730
Encashment = 1,730 × 12 = ₹20,760

Tax rules also apply. The encashment during employment is typically taxed to the full extent whereas the encashment at retirement or resignation may be tax-exempt based on legislation and the type of employer.

 

[Lily]

Leave encashment is generally calculated by determining your daily salary and multiplying it by the number of unused, eligible leave days.

The common formula is:


Leave Encashment = [(Basic Salary + Dearness Allowance) Divided by 30 days)] x (No. of Eligible Unused Leaves)

 

[karen]

The percentage, often computed as (Basic Salary + DA, where applicable) / 26 x number of days of unused leave, is normally used to compute leave encashment but the exact formula and elements may depend on the company policy and local labour regulations.