Leave Encashment is the payment made in lieu of unused leaves. The Employees have the benefit of cashing in their accumulated leave either during their tenure in the company or when they retire/resign (As per Company Policy).
There are two options to create the Leave Encashment component.
One is paid to the Employees on exit, during the settlement process.
The other is paid to the Employees during the service period based on the No of available Encashable Leaves.
Leave Encashment when Paid During Service:
Steps to Create the Leave Encashment Component
Click the “Settings” icon.
Click “Salary Components”.
Select “New”.
Create a Pay component Leave Encashment.
The abbreviation can be “LE”.
Configure it as below:
“Paid Type”- should be Earnings.
Check the box - “Paid Component”,
“Tax Status” as “Taxable”
This should be a “Variable Component”.
Map to “Leave Encashment”.
The calculation Type can be either Flat or Formula-based.
Flat-where you must enter the amount manually.
Formula-based-where the amount gets calculated as per the formula entered.
If the component is configured as “FLAT”, then the amount is to be updated against the eligible Employees via “Manage Pay Adjustments” while processing the payroll run.
If it is a FORMULA-based configuration, the leave encashable days must be entered.
Go to Transactions >> Leave/Time Management >> Leave Encashment.
Paid on Separation:
Create a Pay component Leave Encashment-Settlement.
The abbreviation can be “LES”.
Configure it as below:
“Paid Type”- Earnings
Check the box - “Paid Component”,
“Tax Status” as “Taxable”
This should be a “Variable Component”.
Map to “Leave Encashment Not Taxable”.
The calculation Type can be either Flat or Formula-based.
If it is “Flat”, then the amount should be manually entered while processing FFS.
And if it is “Formula" based, then the number of days should be manually updated while processing FFS.
Click “Add”.
Once the Leave Encashment component is created, allocate the component to employees.
Click the below link to view the document- “How to allocate the pay component”.
How to allocate a pay component: Help Center (freshdesk.com)
Please Note:
You need to first ensure the encashable option, and the carry forward option of the leaves are enabled.
Go to PayrollàSettingsàLeaveàSelect the LeaveàClick View/Edit
The check box is enabled for “Is Encashable?”
“Maximum carry forward at year-end” and the “Maximum days encashable” is updated.
“Encashable Formula” is updated.