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Last Updated : Dec 14, 2019 08:38 AM IST | Source:

Here’s why leave encashment must be a rule, not an exception

While employees are entitled to take a set number of leaves each year, atleast 5-10 percent of this remains underutilised.

As the year comes to a close, corporate offices start seeing empty seats. This is because employees start taking holidays more frequently in December to exhaust their entitled leaves.

This not only impacts productivity but in service sector roles leads to the end user also facing service delays. A simpler way of preventing this would be to offer partial leave encashment at the end of every three to five years.

Leave encashment is a policy which a majority of corporates offer as an added benefit. So if an individual accumulates 60-90 days, this can be encashed at the time of retirement or separation.


Companies typically do not allow more than 30-40 days’ leave to be accumulated. This is to ensure that at the time of retirement of senior management, they do not have to end up a heavy benefit.

At the time of his retirement in 2017, Larsen & Toubro (L&T) Chairman AM Naik was entitled to Rs 38.04 crore retirement benefit, of which Rs 32.2 crore was the leave encashment. This is because Naik rarely took any leaves during his career spanning 50 plus years at L&T.

A few companies buy leave encashment policies for individual employees. This can be redeemed at the time of retirement or separation and covers the employer’s liability for encashment. However, this may not be cost effective of companies with a large employee size.

Even in companies where employees are entitled to take upto 30-40 paid leaves a year, the staff is rarely allowed to exhaust this limit. A rough estimate suggests that 5-10 percent of the leaves go unused.

A simpler way would be to pay atleast 30-40 percent of the amount for the unused leaves proportional to the monthly compensation of the particular individual. As the employee moves higher up in the hierarchy, the proportion of cash payment for unused leaves could be increased.

If any corporate employee takes a day off without applying for it, it is a common practice to deduct this day’s pay from his/her salary. The same should apply to leaves that they are legally entitled to.

While paying an employee for all unused leaves may not be cost-effective, a partial payment system would ensure that there is a fair work environment. This will not only discourage staff from taking leaves merely to exhaust the ‘yearly quota’, but will also compensate them for the same.

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First Published on Dec 14, 2019 08:38 am
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