Overview of Earned Leave Encashment
Earned leave encashment is a system of dealing with employees’ unused leave entitlements as they approach retirement. It is an agreement between an employer and employee and is a way for employers to retain funds for which they have set aside in the event of an employee’s potential future leave expiry.
Unlike unpaid leave, earned leave encashment gives employees an additional benefit: a lump sum payment for any unused leave tracker they have accrued over the years. The employer has the right to claim the money back if the employee does not fulfil their leave entitlement due to retiring, job termination or resizing.
Process of Earned Leave Encashment
In order for an employee to be eligible for earned leave encashment, they need to have served for a certain period of time with the same employer. This period may vary depending on the jurisdiction and the company’s policy.
The employee must also have not used any of the leave entitlement during the agreement period. If the employee does use any leave management system online, the amount paid for leave encashment will be reduced according to the agreement. This is done to ensure that the employer is not left with a sizable amount of unused leave entitlement after the employee has retired.
Benefits and Considerations
Earned leave encashment provides additional security and income to an employee. Since it is usually taxed as income, the employee can make full use of incentives on income tax by including the amount as an extra source of income. This can also incentify employees to work longer and take fewer holidays, inspiriting loyalty in an employee.
However, earned leave encashment is usually non-transferable, and can only be enjoyed by the employee who has earned it. In some cases, the employer may also withhold a certain percentage of the amount for future use. It is also important to review company policies and local regulations so that any potential legalities are avoided.
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FAQs
How is earned leave encashment calculated?
Earned leave encashment is calculated based on the length of service the employee leave time tracker has completed with the company and the employee’s leave entitlement. The calculation can vary based on the applicable jurisdiction and other considerations.
What is the rule of leave encashment?
The rules of leave encashment depend on local regulations and the employer’s own policies. Generally, the employee must have completed a set period of service with the employer in order to claim the lump sum payment.
What is the limit of earned leave encashment?
The limit of earned leave salary encashment depends on the employer and the applicable jurisdiction. Generally, the maximum amount available for earned leave encashment cannot exceed the annual amount of leave tracking system.
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