How to Calculate Earned Leave and Leave Encashment

Leave is one of the most common sources of friction between employees and HR. Clear rules and accurate balances fix most of it.

The usual leave types in India

• Earned or privilege leave (EL/PL): earned for days worked, can usually be carried forward and encashed
• Casual leave (CL): for short, unplanned needs; usually lapses at year end
• Sick leave (SL): for illness; sometimes carried forward up to a limit

Many companies also have maternity leave (as per law), paternity leave, bereavement leave and leave without pay.

Minimums come from law

Your state's shops and establishments act or the factories act, and the new labour codes, set minimum leave entitlements and carry-forward rules for many workers. Your policy can be more generous, not less. Check what applies to your establishment.

Accrual: monthly or upfront?

• Monthly accrual: 18 days a year means 1.5 days credited each month. Fair for new joiners and exits.
• Upfront credit: the full year's EL on 1 April. Simpler, but you need rules for people who leave early.

Counting leave days

Count working days only: exclude weekly offs and holidays that fall inside the leave. A leave from Friday to Monday with Sunday off is three days, not four. Be clear about sandwich rules if you have them.

Carry-forward

Set a maximum, for example 45 days of EL. Days above the limit lapse or are encashed at year end, depending on policy. Warn employees before the year ends so nobody loses leave unexpectedly.

Leave encashment

Encashment value = EL balance × daily rate. A common daily rate is monthly basic (sometimes basic + DA) ÷ 26. For example, 20 days with a basic of ₹30,000: 20 × 30,000 ÷ 26 = ₹23,077. It is usually paid at exit as part of full and final settlement, and sometimes yearly for days above the carry-forward limit.

Keep it transparent

1. Publish the policy and the holiday list at the start of the year.
2. Record every approved leave the same day.
3. Share balances monthly.
4. Check balances before approving long leave.

Our Leave Policy & Leave Balance Calculator counts working days around weekends and holidays, accrues earned leave monthly, checks carry-forward limits and shows encashment value for each employee.