Leave Encashment Calculation: Formulas and Examples

Leave encashment, the process of being paid for unused earned leave, is calculated by determining the daily salary rate and multiplying it by the number of unutilized leave days. The basic formula is: Leave Encashment = (Basic Salary + Dearness Allowance) / 30 * Number of Unused Earned Leaves. For example, if an employee has a monthly salary of ₹30,000 and 20 unused leave days, their daily wage would be ₹1,000, and their leave encashment would be ₹20,000.

Detailed Breakdown:

Calculate Daily Salary:
Sum the employee's basic salary and dearness allowance for a month.
Divide this total by 30 (the number of days in a month) to get the daily salary.

Determine Unused Earned Leave Days:
Subtract the number of leave days taken from the total number of earned leave days.

Calculate Leave Encashment:
Multiply the daily salary by the number of unused earned leave days.

Example:
Let's say an employee has: Monthly Basic Salary: ₹30,000, Monthly Dearness Allowance: ₹10,000, and Total Unutilized Earned Leave Days: 20.

Calculation:
Daily Salary: (₹30,000 + ₹10,000) / 30 = ₹1,333.33 (rounded)
Leave Encashment: ₹1,333.33 * 20 = ₹26,666.66 (rounded)
Therefore, the employee would receive ₹26,666.66 as leave encashment.