Privilege leave encashment

When payment is made on monthly scale of pay, the daily rate of wages for a worker can be obtained

only by dividing the amount of wages for 30 days by 26. This is done because the workman is entitled to four days as weekly rest during which period he does not work. The reason is that workman actually gets monthly wages for the work done only for 26 days. Thus for a workman, it is the actual receipt for 26 days which is his monthly scale of pay, i.e., 30 days wages. Therefore, a day’s wage should mean the result obtained by dividing the monthly wages by actual number of working days, i.e., 26 days.

Encashment of E L is made at the time of full & final settlement. If any employee takes leave during service period then he is paid salary on his full earnings & not on basic therefore practice of company of encashment @ Gross can be correct.


Leave is also settled as per bilateral agreement between employees and employer, therefore standing orders and negotiated leave policy (that should offer superior benefits) may also be looked into.

Or For the leave and its encashment you may go thru the enactments that is applicable to the establishment e.g; Factories Act 1948, SHOPS AND Commercial ESTABLISHMENTS ACT, SMALL ENTERPRISES (EMPLOYMENT RELATIONS) ACT 2002.


>>> Factories Act 1948: Chapter VIII: Section 79: wages in lieu of the quantum of leave to which he was entitled immediately before the discharge, dismissal, quitting of employment, superannuating or death calculated at the rates specified in sub-section (1)


As per Factories Act Annual Leave Encashment Calculation ought to be done on the basis of Monthly Pay Drawn by the employee during the Preceding Month and should be divided by 26 not 30.



>>> SHOPS AND COMMERCIAL ESTABLISHMENTS ACT may also be perused if the establishment is commercial.

e.g;

GUJARAT SHOPS AND ESTABLISHMENTS ACT, 1948 

Section 35 - Leave 

3[(1A) Every employee who has accumulated leave shall, when he goes on leave for a period of not less than twenty-one days, be entitled to surrender, out of the balance of leave remaining to his credit on the commencement of his leave, any period of leave, not exceeding twenty-one days; and such employee shall, for the period of leave so surrendered by him, be lentitled to payment of wages


Section 36 - Pay during leave 
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Every employee shall be paid for the period of his leave at a rate equivalent to the daily average of his wages, for the days on which he actually worked during the preceding three months, exclusive of any earnings in respect of overtime.



>>> SMALL ENTERPRISES (EMPLOYMENT RELATIONS) ACT 2002: 

2. Definitions: (n) Wage: Wage means the basic wage, dearness allowance, city compensatory allowance or house rent allowance or overtime wages or wages for leave period or bonus.


CHAPTER: IV: CONDITIONS OF WORK: 11. (4) Annual Leave & Holidays