Leave encashment
Leave encashment is the payment of unused leave days as money instead of time off, usually at the end of a leave year or when someone leaves. The amount is the encashable days multiplied by the person's daily rate, as a gross figure. Policies normally limit it to certain leave types and cap the days.
Here's the arithmetic in order. Take the unused days on each encashable leave type, apply any cap your policy sets, and multiply what is left by the daily rate. Say someone ends the year with 7 unused annual days, your cap is 5 and their daily rate is 150. They encash 5 days, and 5 × 150 comes to 750, gross, before any deduction. The two days over the cap lapse or carry over, whichever your policy says.
Most arguments start with the daily rate. One employer divides monthly base pay by 30, another by the working days in that month, a third by a fixed 26. On a monthly pay of 3,000 those give 100, about 136 and about 115 a day. None of them is wrong. Using different divisors for different people is, so pick one, write it into the policy and use it every time.
Which types qualify is the rest of the design. Annual leave is the usual candidate. Sick leave usually isn't, because paying out sick days rewards coming in ill. Types that exist for one event, such as marriage or bereavement, rarely qualify either. They cover a circumstance rather than build a balance.
Timing matters too. Year-end encashment turns days that would lapse into pay, which takes the heat out of a year-end rush for cover. Encashment on leaving settles a balance someone earned but never used. Tax and deductions on the sum stay with whoever prepares pay, so your leave records only need to produce the gross figure.
Plan for one side effect. An encashable balance gives people a reason not to take their days, and rest is what the allowance was for. That's why many policies cap the days that can be exchanged. Some also ask for a minimum number of days actually taken first.
Where this shows up in PeopleMuster
PeopleMuster puts an Encashable flag on each leave type, beside its annual quota and its Paid or Unpaid flag. The leave quotas grid shows every person's used and allocated days per type, so the encashable balance at year end is a lookup.
Questions people ask
What daily rate is used for leave encashment?
The one your policy names. Common choices are monthly base pay divided by 30, by 26, or by the working days in that month. Any of them works if everyone is paid on the same rule.
Can sick leave be encashed?
Rarely. Most policies limit encashment to annual leave, because paying out sick days rewards coming to work ill. Check your own policy type by type.
When is leave encashment paid?
Most often at the end of the leave year, or with the last pay when someone leaves. Your policy sets the timing, and people should know it before they count on the money.