Leave encashment

Yearend is time for some important planning decisions and one of them is leave encashment. Some employers put a cap on number of leaves an employee can carry forward to the next year. Any excess would either be forfeited or encashed. Most employees opt for encashment for some additional going around money during the year end festivities, some choose for a year end incentive instead. What should you choose?
1. Most leave encashment gives you “Basic pay” or a fraction of the total CTC when they compute the cash-consideration/adjustment for the foregone leaves.
2. Secondly, if you take 5 days off, you get 2 weekends (4 days free). Otherwise also one works for 250 days in a year (after adjusting for weekends, vacations, downtime and leaves etc.). So there is a 40% extra to be gained by taking time off.
3. Also remember that every year of service leads to promotions & increments. So there is a possibility of gains (although small in value) to postpone the leave encashment for an actual rainy day.
4. I am scared of a one way conversion. If you take extra leaves or unpaid time-off, then your bonus/perks/incentives are also proportionately revised. But u don’t get paid extra (in the same proportion) for not taking vacations.
5. Some companies have a policy of “donating leaves” for a cause or to a colleague. Check the tax treatment for the same. If the donation is not to a tax exempt entity, then the tax burden has to be paid by the employee.
To me someone encashing the leaves is scraping the bottom of the barrel. Of all the funds to tap into, your leave balance should probably be the last. Even those companies that don’t have a leave encashment policy necessarily have to adjust the accrued leave balance on the last day. While it is lucrative to get a fat settlement cheque, but remember:
1. Try to negotiate it against the notice period duration, if feasible. Most likely you are switching for higher pay. This means that the value of your time off is far less that what its worth in the next company.
2. Take time off, any new job/assignment comes with a steep learning curve and the quest to prove oneself. This means that family and social obligations are bound to suffer in the first 100 days of the new job. Use the time off to
A healthy life needs a balance between the work and home and vacations are a good tool to restore the balance. Why would anybody skim on that? The work has existed long before you joined it and will continue to exist. However for your family, you are irreplaceable.

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