Leave encashment

How it works

1. Set the payroll month and year in the Accrual panel of the Leave Ledger, then select the employee in Balances.
2. In Leave encashment, choose the leave type, the days and the basis, Basic + DA / 30 or Gross / 30, and add a note if needed.
3. ZeniaHR checks the balance. If the employee has fewer days than asked, it refuses and says how many are available.
4. The ledger posts an encashment entry that debits the days, with the rate and payroll period written in the note.
5. A leave encashment earning is added to Direct Payroll inputs for that month and folds into the next run for the period.
6. If the employee has no active salary structure, the days are still encashed on the ledger and HR is told to add the earning by hand.

What you can set

• Basis: Basic + DA / 30, the common basis, or Gross / 30.
• Payroll period: the month and year set in the Accrual panel.
• Leave type: only types marked encashable appear in the encashment list.
• Days: whole or half days, such as 7.5, up to the available balance.
• Rate per day: from the employee's active salary structure, using the same earnings split as the payroll run.
• Note: optional text, saved on the ledger entry and shown on the payroll input.

When leave encashment comes up

Encashment usually comes up at two moments. At the end of the year, the OSH Code lets a worker ask for encashment of unused leave, and carry forward is capped at 30 days, so employees with large balances usually encash the excess. At exit, unused earned leave is commonly paid in the full and final settlement, and wages are due within two working days of the employee leaving. Your policy decides which leave types can be encashed and on what basis; the leave encashment glossary entry explains the common approaches.

Worked example: encashing the excess before year end

Meena Kulkarni, a senior accountant in Nashik, has 34 days of earned leave on 18 December 2026, and her company carries forward at most 30. She asks to encash 4 days. Her Basic plus DA is ₹18,000 a month, so on the Basic + DA / 30 basis one day is worth ₹600 and 4 days come to ₹2,400. HR sets the payroll period to December 2026 and encashes the days.

The ledger now shows 30 days of earned leave, all of which carry forward on 1 January. Her December payroll run picks up a leave encashment earning of ₹2,400, which appears on her payslip under earnings. Had her company used Gross / 30 on a monthly gross of ₹30,000, the same 4 days would have paid ₹4,000.

Checks before you encash

Confirm the basis in your written policy before the first encashment, because changing it later invites disputes. Encash before the regular payroll run for that month is finalized, because a sealed run cannot take new inputs. For exits, encash in the exit month so the amount lands in the final salary. Tax treatment of encashment depends on the case, so leave that question to your tax adviser.

Frequently asked questions