Leave Encashment — Procedure
Module: HRM › Leave Encashment (/HRM/leave_encashment.php)
Permission: HR_LEAVE_ENCASHMENT
Related: GL / Accounting Articles Reference, ESB Procedure
1. What it does
Leave Encashment converts an employee's unused leave days into money. For each employee, per fiscal year, you can either:
- Payout — pay the encashed leave now (immediately via a bank account, or accrue it as a payable to be cleared in the next payroll), or
- Carry Forward — roll the unused days into next year (no money, no GL posting).
Only one encashment is allowed per employee per fiscal year. Once processed, the form shows "You have already Leave Encashment Processed".
2. Before you start (one-time setup)
Configure under HRM › Settings (the "Benefits / Leave Encashment Settings" block):
| Setting | Pref name | Notes |
|---|---|---|
| Enable Leave Encashment | leave_encashment_enabled | Must be 1, else a warning shows. |
| Leave Type for Encashment | encashment_leave_type | e.g. AL (Annual Leave). Required. |
| Calculation Basis | encashment_basis | daily (Monthly ÷ 30), basic (Basic only), or gross (all earnings). Defaults to daily. |
| Leave Encashment Expense account | leave_encashment_expense_account | The P&L expense (e.g. 9991). |
| Leave Encashment Payable account | leave_encashment_payable_account | The liability (e.g. 9992). Falls back to Default Salary Payable if blank. |
| Max Carry Forward (per leave type) | kv_empl_leave_types.max_carry_forward | Cap on days that may be carried forward. |
| ESB / Encashment Round Off account | esb_encash_round_off_act (GL Setup) | Optional. If blank, round-off posts to the expense account. |
The employee must have at least one processed payslip (to derive the salary/earnings used as the encashment base) and a leave balance in the configured leave type.
3. Step-by-step
- Open HRM › Leave Encashment.
- Select Financial Year, Department, and Employee.
- Review the Details panel:
- Leave Type for Encashment, Payable Days, Max Carry Forward.
Payable Days = leave balance − leave already used this year + previous-year carry forward.
- In the Earnings panel, tick the allowance components to include in the encashment base. (When you first pick an employee all earnings are ticked — encash on full gross; untick any you want to exclude.)
- The system shows Calculation Basis, Calculated Gross Salary, and the Net Encashment:
- Daily basis:
Net = Payable Days × (Gross ÷ 30). - Basic/Gross basis:
Net = Payable Days × (Gross × 12 ÷ 365).
- Daily basis:
- Choose the Action:
- A) Payout
- Enter Round Off if needed (click the spinner to refresh the Total).
- Pick a Bank Account for Payment (optional):
- With a bank → the encashment is paid immediately (Payable Dr / Bank Cr).
- No bank → only the expense and payable are accrued; the payable is cleared later inside the monthly payroll (or by a manual employee payment).
- Add Comments → click Submit.
- B) Carry Forward
- The form shows Carry Forward Days (capped at Max Carry Forward).
- Add Comments → click Submit.
- No payment and no GL is posted; the days are recorded and
kv_empl_leave_days.carry_forwardis updated for next year.
- A) Payout
- After submitting you can view the GL (for a payout) and Print the encashment slip (report rep811).
4. Accounting impact (summary)
| Action | Journal (double entry) |
|---|---|
| Payout — accrual | DR Leave Encashment Expense (net + round-off) · CR Leave Encashment Payable (total) |
| Payout — paid by bank | (plus) DR Leave Encashment Payable · CR Bank |
| Settled at payroll | DR Leave Encashment Payable (clears it) — paid inside net pay; expense was already booked at accrual |
| Carry Forward | None — days only |
Live sample (employee #43, txn #136, 2026-06-13): DR 9991 Expense 394.52 + DR 9991 Round Off 0.40 / CR 9992 Payable 394.92; bank payment txn #109 DR 9992 394.92 / CR Bank 394.92. See the GL reference for every line.
5. Rules & gotchas
- One encashment per employee per fiscal year.
- You cannot encash a date before the employee's joining date.
- You cannot input to a year already encashed (*"you can't input to this year"*).
- The expense is recognised at accrual (payout), not at carry-forward. A carried-forward balance only becomes a liability when it is later encashed or settled in ESB.
- Outstanding carry-forward encashments are listed oldest-first (FIFO) and are auto-settled during ESB processing.
