Leave Encashment Valuation Every salaried person, as per labor law, is entitled to a minimum number of paid leave every year, however, it is not necessary that an individual employee utilize leave balance at the time of retirement or resignation from the company, as the case may be. This compels the employer to compensate the unutilized Paid leave of the employees. This concept is better known as leave encashment Valuation. If you want to know more about Leave Encashment Valuation like its types, formula, and more then read the whole blog.
Here’s an example to help you understand how the leave encashment is calculated:
Mrs. Das is leaving the company after 30 years of service. Her firm provided her with 25 days of paid leave per year, for a total of 500 days of leave during her entire tenure with the company.
Mrs. Das has already taken 150 days of paid vacation as a result of this. She now has 350 days of unused leave. At the time of retirement, she is receiving a base salary plus a dearness allowance (DA) of Rs 35,000 per month.
Now, leave encashment Valuation is computed by multiplying the number of unused leaves by the salary per day, which is calculated as:
Day wage = 35,000/30 = Rs. 1167 (approx)
Received leave encashment = 350*1167 = 4,08,450
As a result, Mrs. Das earned Rs 4,08,450 as leave encashment.
Many businesses’ leave policies consist of informing their employees about their paid vacation days and national holidays.
However, leave policies are far more significant than you would think. Most candidates who are being hired by a company will inquire about the company’s leave policy. Aside from the number of leaves, potential employees want to know what types of leaves the organization offers for different requirements and crises.
A Leave Encashment valuation policy assists you in defining the number of leaves available to your employees, the sorts of leaves available to them, and how to apply for leaves.
With a leave policy, you can reassure them that you will offer them the necessary time off to address any challenges they may be experiencing or to take time off to travel, recover from an illness, celebrate their festivals, cope with life events, or simply relax.
Employers must grasp the many rules governing paid Leave Encashment valuation policy in order to be in compliance with the law. Aside from that, many forward-thinking organizations now provide a variety of other leave options as supplementary bonuses to their employees.
National and state legislation governs the minimum amount of leave that businesses must provide. However, the specifics of leave policies vary greatly amongst employers.
Because different industries are subject to different labor rules, the nature of the business is an important consideration.
The Factories Act of 1948 applies to factories in India. Every state has enacted the Shops and Commercial Firms Act for establishments other than factories (such as IT/service companies, shops, and so on).
Suggested Reads: IND AS 19 Employee Benefits, Actuarial Valuation, Gratuity Valuation, GAAP (GENERALLY ACCEPTED ACCOUNTING PRINCIPLES), AS15 R (Accounting Standard 15 Revised).
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