Hi,
I wanted some clarification regarding Leave Encashment. Earn Leave encashment is the perrogative of any Management. Leave rule says that the EL can be accumulated upto 30 days and the excess will get lapsed if not utilised. There is no rule as such that the excess leave has to be encashed by the Management. But in case of people who leave the company for any reason, the factories act is very clear that the leave at the employees credit is to be paid. For convenience sake most of the Managements break the salaries in to Basic, DA, HRA, Conveyance etc., Some Managements say that the legislation has not specifically defined the components of Leave encashment in case of employees leaving the services & hence they will pay taking into account only Basic and DA. They also say that the other components are not wages, we will account only basic and DA. What is your opinion on this? Is this the right practice? Is there a legislation supporting this or otherwise? Would be grateful if our learned members throw light on this issue.
-Srinaren
From India, Bangalore
16I wanted some clarification regarding Leave Encashment. Earn Leave encashment is the perrogative of any Management. Leave rule says that the EL can be accumulated upto 30 days and the excess will get lapsed if not utilised. There is no rule as such that the excess leave has to be encashed by the Management. But in case of people who leave the company for any reason, the factories act is very clear that the leave at the employees credit is to be paid. For convenience sake most of the Managements break the salaries in to Basic, DA, HRA, Conveyance etc., Some Managements say that the legislation has not specifically defined the components of Leave encashment in case of employees leaving the services & hence they will pay taking into account only Basic and DA. They also say that the other components are not wages, we will account only basic and DA. What is your opinion on this? Is this the right practice? Is there a legislation supporting this or otherwise? Would be grateful if our learned members throw light on this issue.
-Srinaren
From India, Bangalore
Though the Factories Act does not clearly say about salary for the purpose of encashment, many similar Acts, such as Payment of Bonus Act, Payment of Gratuity Act, Industrial Disputes Act etc, have given definition to wages to include only Basic wages and the dearness allowances. Therefore, for leave encashment also the basic salary plus the dearness allowance at the time of encashment shall be taken. It is correct that all other allowances form part of employee benefits and not salary.
In establishments having Standing Orders, this matter will be clarified very clearly. Even otherwise, it is advisable to give a definition to salary so that there would not be any confusion at the time of encashment of leave, payment of salary in lieu of notice (from both the side), calculation of retrenchment wages or gratuity.
Regards,
Madhu.T.K
From India, Kannur
In establishments having Standing Orders, this matter will be clarified very clearly. Even otherwise, it is advisable to give a definition to salary so that there would not be any confusion at the time of encashment of leave, payment of salary in lieu of notice (from both the side), calculation of retrenchment wages or gratuity.
Regards,
Madhu.T.K
From India, Kannur
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PF Contribution on Leave Encashment - Clarification by EPFO.pdf
EPFO Circular Leave Encashment.jpg