When you resign or retire from a company, you are usually legally entitled to convert your unused Paid Leaves (Earned Leaves/Privilege Leaves) into hard cash. Our Leave Encashment Calculator uses standard HR frameworks to compute specifically how much money you will receive in your Full & Final (F&F) settlement.
How to calculate Leave Encashment?
1. Find your Basic Salary: Encashment is rarely calculated on your total CTC or gross pay. It is strictly calculated on your Basic Salary plus Dearness Allowance (DA). Open your latest payslip and sum these two values.
2. Earned Leave Balance: Check your HR portal (like Workday or Keka). Find your balance of Earned Leaves (EL) or Privilege Leaves (PL). Note: Sick Leaves, Casual Leaves, and Maternity Leaves expire at the end of the year and are never encashable.
3. Check the Formula Limit: Most companies cap the maximum number of days you can encash (usually 45, 60, or 300 days for PSUs). If your balance exceeds this cap, the excess days simply lapse.
The Formula Explained
To convert your monthly Basic Salary into a "per-day wage", companies use one of two divisions:
- Divide by 26 (Standard): This assumes a standard month has 4 Sundays which are unpaid rest days. This gives you a higher per-day wage. Legal framework under the Factories Act supports this.
- Divide by 30 or 31 (Strict): Some private IT firms divide by the calendar days in the month to drastically lower your per-day payout. Check your corporate HR policy handbook.
Frequently Asked Questions
It depends on WHEN you encash it. If you encash leaves while actively working (during service), it is 100% fully taxable. If you encash them upon resignation or retirement, it is completely tax-exempt up to ₹25 Lakhs under Section 10(10AA).
Because HRA, LTA, and "Special Allowances" are conditional allowances paid to you for working. When you are encashing unworked days, companies are not legally obligated to pay you these conditional allowances, hence the restriction to Basic Pay.
Massively. State and Central Government employees enjoy completely tax-free leave encashment upon retirement with absolutely no upper financial limit.
Usually, no. Sick Leaves (SL) and Casual Leaves (CL) operate on a "Use it or Lose it" policy every calendar year. Only Privilege/Earned Leaves can be accumulated over years and eventually encashed.
Under the Shops and Establishments Act, if an employee is terminated or resigns, the employer is legally mandated to pay them wages in lieu of any unavailed earned leaves. Failure to do so can result in labor court penalties.