How to Calculate Leave Encashment

by Contributing Writer; Updated September 26, 2017

Providing paid vacation time is a benefit given by employers. The idea is to allow a healthy work-life balance so that employees will be more productive. The government does not require employers to provide their employees with paid vacation time. Employers who provide this kind of a benefit will have their own manner in implementing this policy. The general idea of this policy is that employees are allowed a certain amount of days where they will be paid even if they do not report to work. For some employers, part of this policy allows unused leaves to be converted to cash at the end of the year.

Items you will need

  • Company policy and procedure
  • Employment contract
  • Pen
  • Paper
  • Calculator
Step 1

Familiarize yourself with the details. Know how your company classifies the leaves. Find out if the company segregates leaves into different categories or just lumps it into a general category. Each company has its own policies on categorizing leaves, such as classifying them into sick days and vacation days. Find out how many paid leaves you are entitled to as stated on your employment contract. The number of allowable days depends on your employer. Know if your company allows conversion of unused leaves to cash. Some companies would have policies wherein unused leaves can be carried over to the following year. Check a copy of the company policy and procedure or ask your Human Resources officer.

Step 2

Find out how many paid leave days you have left. Most companies keep track of the number of times you have taken paid leave. You can also keep your own records. Note the number of paid leaves you have already taken. For example, your company will allow you 15 days paid vacation time. You were able to confirm from your employer that you have already taken 10 days from your allowable paid vacation time. That would mean you have 5 days of unused paid vacation time.

Step 3

Compute how much you are getting paid a day. Find out how much you are getting paid per month. Divide that amount with the number of days you work in a month. For example, let us say you are being paid $1,000 a month and that you work 20 days a month. The computation would be $1,000 divided by 20. The result would be 50. That means you get paid $50 for each day of work.

Step 4

Multiply your unused paid vacation days by the amount you get paid in a day. Using the same example that we used earlier, you multiply 5 days by $50. The product would be $250. That would be the amount your employer gives you when you encash your unused leaves.