Besides overtime pay and annual bonuses, there are a few other occasions when an employer may need to pay additional wages. Two such common instances are when there is leave encashment and salary-in-lieu of notice period to be paid out to their employees. <\/p>\n\n\n\n
Read Also: Ordinary Wage (OW) VS Additional Wage (AW): What\u2019s The Difference (And Why It Matters To Employers And Employees)<\/a><\/em><\/strong><\/p>\n\n\n\n Encashing leave days is a way of converting an employee\u2019s unconsumed annual leaves into money. <\/p>\n\n\n\n With many companies adopting some form of work-from-home arrangement, it\u2019s possible that some workers may not need to take leaves to run personal errands or look after their spouse\/parents\/children who are ill and may need to rest at home – since they are already working from home.<\/p>\n\n\n\n From a business consideration, allowing employees to accumulate too many unused leave days may cause potential problems in the future, such as lack of manpower if many employees choose to take their leaves during the same period. For example, if employees have 21 days of annual leave each year and can bring forward half of their leaves from this year, they will end up with 31 days of annual leave in 2026, which equates to over 6 weeks away from work.<\/p>\n\n\n\n Converting unused annual leave into cash is one way of allowing employees to \u201cconsume\u201d their leaves. This may also be preferred by your employees instead of forcing them to take block leaves or even forfeiting unused leaves.<\/p>\n\n\n\n Read Also: <\/em><\/strong>Should You Allow Employees To Encash Their Remaining Annual Leave This Year?<\/a><\/em><\/strong><\/p>\n\n\n\n The amount to be paid for leave encashment is based on the employee\u2019s salary. Here\u2019s how you can calculate leave encashment.<\/p>\n\n\n\n Step 1: <\/strong>Since annual leave is based on a per year basis and not per month, you will need to find out the per day working rate of the employee. <\/p>\n\n\n\n According to the Ministry of Manpower (MOM), the formula to calculate a worker\u2019s<\/a> per day rate<\/a> is:<\/p>\n\n\n\n (12 \u00d7 monthly basic or gross rate of pay) \/ (52 \u00d7 average number of days an employee is required to work in a week<\/strong>)<\/p>\n\n\n\n For example, for an employee who earns $5,000 a month and works 5 days a week, his daily rate is:<\/p>\n\n\n\n (12 x $5,000) \/ (52 x 5 days) = $230.77 (daily rate)<\/strong><\/p>\n\n\n\n However, for an employee who works 6 days a week, his daily rate will be: <\/p>\n\n\n\n (12 x $5,000) \/ (52 x 6 days) = $192.31 (daily rate)<\/strong><\/p>\n\n\n\n Step 2: <\/strong>Find out the leave balance and multiply the daily rate with the leave days meant to be encashed.<\/p>\n\n\n\n For example, for an employee who earns $5,000 a month and works 5 days a week and has 10 days of annual leave left. The total encashment to be paid will be: <\/p>\n\n\n\n $230.77 x 10 = $2,307.70 (Total encashment to be paid to employee)<\/strong><\/p>\n\n\n\n Do note that leave encashment is considered as part of additional wages and subject to both employer and employee\u2019s CPF contribution if it falls within the AW ceiling<\/a>.<\/p>\n\n\n\nHow To Calculate Leave Encashment For Employees?<\/strong><\/h3>\n\n\n\n