Leave Encashment Calculator

What is leave encashment?

Leave encashment is a payment in place of earned (annual) leave that you were entitled to but did not take. In the private sector it is usually paid when you leave the company, and some employers also allow encashing part of the balance every year. For government servants it is mainly paid at retirement in lieu of leave preparatory to retirement (LPR).

Formula

Leave encashment = (monthly salary ÷ 30) × number of unused leave days.

Example: Rs 90,000 salary and 24 unused days → 90,000 ÷ 30 × 24 = Rs 72,000. If your company encashes on basic pay of Rs 60,000, the same 24 days are worth Rs 48,000. That is why the salary component matters as much as the number of days.

Private sector rules

Under the Factories Act and the shops and establishments laws, workers earn annual leave with pay (commonly 14 days a year after twelve months of continuous service), and unused leave can be accumulated up to a limit. Many employers offer more generous policies, often 20 to 30 days. Whether unused leave is paid on exit, and on which salary, is mostly set by your contract and HR policy, so check:

• the maximum days that can be carried forward or encashed;
• whether encashment uses basic or gross salary;
• whether leave is lost if you resign without serving notice;
• whether casual and sick leave lapse (they usually do and are not encashable).

Government employees: encashment in lieu of LPR

Under the revised leave rules, a government servant can choose to retire without taking LPR and receive encashment of leave instead, up to a maximum of 365 days of full-pay leave at credit. The amount is calculated on basic pay at the time of retirement: basic pay ÷ 30 × days (up to 365). The payment is usually processed with the pension papers. Leave encashment is taxable as salary in the year received.

Is leave encashment taxable?

Yes. In Pakistan leave encashment counts as salary income and is added to your other salary for the tax year. A large encashment in the final month can push withholding up for that month. If too much tax is withheld across the year, you can adjust it when filing your return. Run your total yearly salary through the salary tax calculator to estimate the effect.

Leave encashment within a final settlement

When you resign, leave encashment is one part of your full and final settlement, alongside salary for days worked, gratuity and any notice-period adjustment. The final settlement calculator combines all of them in one place. Government employees retiring should also see the pension and commutation calculator.

Frequently asked questions