Leave Encashment
Leave encashment is payment for unused paid leave — converting a remaining balance into money, either annually or when an employee leaves.
Also known as: leave encashment meaning, PL encashment, earned leave encashment
Only some leave types are encashable, and which ones is a policy decision. Earned or privilege leave commonly is; casual and sick leave commonly are not, because they exist to be taken rather than accumulated. A policy that encashes everything quietly converts sick leave into a bonus and discourages people from taking it when ill.
The rate is usually basic salary plus dearness allowance for the number of days, divided by a monthly divisor — the same divisor question that appears in loss of pay, and worth answering once in the policy rather than per calculation.
Most companies cap the balance that can be carried forward or encashed, for a straightforward reason: an uncapped balance is an unfunded liability that grows every year and lands at exit. The cap is a financial control as much as a leave rule.
At exit, encashment forms part of the full and final settlement, and its tax treatment differs from that of salary. That distinction is worth getting right in the settlement rather than in a correction afterwards.
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Leave Management
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See leave managementRelated terms
Full and Final Settlement (F&F)
Full and final settlement is the closing calculation when an employee leaves — everything still owed to them, less everything they owe, paid as one amount after the last working day.
Comp Off (Compensatory Off)
Comp off is a paid day off granted in exchange for working on a weekly off, holiday or rest day, rather than paying overtime for that work.
LOP (Loss of Pay)
LOP is an unpaid absence — a day an employee did not work and had no paid leave balance to cover, so the corresponding salary is deducted from that month's pay.
Gratuity
Gratuity is a lump sum an employer pays an employee who leaves after five or more completed years of continuous service, calculated as fifteen days' wages for every year served.