Tips to Do Leave Encashment Calculation
Leave encashment calculation may be tricky, but the correct steps make it easy. Here’s how to calculate it correctly:
Understand the Formula The formula for leave encashment is generally worked out on the basis of an employee’s basic salary and the number of unused leave days. The formula generally follows this pattern:
Leave Encashment = (Basic Salary ÷ 30) × Unused Leave Days. Make sure you know the exact formula your company follows, as it can differ based on company policies and local laws.
Factor in Taxes In most situations, the encashment of leave might partly be subject to tax under your country’s taxation laws. An example is the exemption of certain amounts in countries for government staff or leave encashment exemption on the grounds of an employee’s tenure of service. Always refer to applicable tax legislation and compute accordingly after considering exemptions on the employee.
Review Leave Balance Prior to making the calculation, one should check the current leave balance of the employee. Ensure you tally the precise number of unused leaves and any carryover from past years, where relevant. Correctly verifying the leave balance ensures the calculation is based on the actual entitlement, avoiding overpayment or underpayment.