Leave Encashment

What Is Leave Encashment?

Leave encashment is a term used to describe the situation where an employee is paid their accrued leave days in cash. Employers usually provide this advantage as part of their leave policy. Employees can save up vacation/sick/personal days as time goes by and then use them accordingly. On the other hand, employees are allowed to encash these leaves if they are unused by the end of a stated period. The amount deducted for encashed leave days is usually calculated as a percentage of the employee's salary and the number of encashed days. Leave encashment allows employees to have financial extras and helps them plan their time off wisely. The system equally ensures that employers manage their workforce efficiently by reducing the balances of the unused leave days.

Example

Leave encashment is exemplified by the case of Sarah, who had 20 days of unutilized vacation leave at the end of the year. Sarah's employer gives a leave encashment option for up to 10 unused days at the end of the financial year. Sarah decides to use 5 paid leaves that she couldn’t use. Given that the monthly salary is $3000, the employer calculates the daily encashment by multiplying it by $150, bringing out $750. Sarah gets this money along with her regular earnings, which helps her have more money at her disposal. This example shows how leave encashment serves two purposes: to give employees financial flexibility and to allow employers to handle accumulated leave well.