Leave and holidays
Earned leave (EL): the days that build up and carry over
Earned leave is paid leave an employee builds up by working, credited in proportion to days actually worked rather than granted upfront at the start of the year. It is the type used for planned absences taken in a block, it carries forward when unused up to the limit that applies, and the balance left when a person resigns is normally paid out in the final settlement.
Last reviewed: September 2026
Also called: EL, earned leave, privilege leave, PL, annual leave
In plain English
Leave an employee collects by working through the year. It is used for planned time off, and whatever is left over is usually carried over or paid for when they leave.
How it works in detail
The wedding season, the school holidays and the harvest land on the calendar months ahead, and earned leave is the type an employee books them with. The application comes in with notice, the employer can hold it back when a counter or a site cannot spare the person that week, and an approved day is paid in full.
Accrual is the part employers get wrong. The credit is a proportion of the days actually worked, so a year with long absences earns fewer days than a full one. The accrual formula and the carry-forward ceiling come from the Factories Act, 1948 or the Shops and Establishments Act of your state, whichever covers the establishment, and both differ, so confirm what applies with your consultant. Anything granted above that floor is your own policy and belongs in writing.
A worked example
The setup
Say Sunil has been on the payroll two years at INR 31,200 a month and resigns at the end of March with eight days of earned leave uncleared.
The calculation
The employer's written rule divides by 26 payable days. INR 31,200 / 26 = INR 1,200 per day. 8 uncleared days x INR 1,200 = INR 9,600, which is added to the settlement alongside the March salary of INR 31,200.The result
Sunil receives INR 9,600 as leave encashment inside his full and final settlement. The payout appears as its own line and is not folded into the March salary figure.
Common mistakes
- Crediting a full year of earned leave every January regardless of days worked. The balance is earned across the year, so somebody who joined in July has not earned the same number of days.
- Letting a balance grow with no carry-forward ceiling. Fix the maximum an employee may carry into the next year, and state in the policy what happens to the days above that maximum.
- Leaving the encashment rate unstated until somebody resigns. Decide which figure the payout divides, gross or basic, and which day count it uses, well before you are settling an exit.
How VTClock handles it
VTClock keeps no accrual ledger and does not encash a balance. An admin approves the dates, and the approved days count as paid in the month's salary and on the slip.
Frequently asked questions
Do I have to let an employee carry an unused earned leave balance forward?
Carry-forward and its ceiling come from the Act covering your establishment, either the Factories Act, 1948 or your state's Shops and Establishments Act, and the limit differs, so ask your consultant what applies to you. Above that ceiling the choice is the employer's, and whether the extra days lapse or are paid for has to be stated in the leave policy before the year turns.
How is an earned leave balance paid out when somebody resigns?
The uncleared balance on the last working day is converted at a per-day rate and added to the full and final settlement. The employer's policy decides whether that rate divides gross salary or basic salary, and by how many days. Put it in writing early, because an exit is the worst moment to be negotiating which figure a payout is worked out on.
How much notice should an employee give before taking earned leave?
That is the employer's rule to set, and the reason for the notice is to keep a counter or a site covered while the person is away. Many employers ask for the application some days ahead for a short break and considerably longer for anything over a week. Write the notice period into the policy and name who approves, so a refusal in a busy month is not read as personal.
Related terms
- Casual leaveCasual leave, usually written CL, is paid time off an employer grants for short personal reasons that arrive at little notice: a bank errand, a family matter, a day of travel.
- Sick leaveSick leave is paid time off an employee draws when they are unwell, under treatment, or advised rest by a doctor.
- Comp offComp off, short for compensatory off, is a paid day away from work given to an employee who worked on a day they were entitled to keep free, such as a weekly off or a declared...
- Full and final settlementA full and final settlement is the closing payment made when an employee leaves, covering everything still owed in both directions.
- Pro-rata salaryPro-rata salary is the share of a monthly salary an employee earns when they are on the payroll for only part of the month, or on two different salary rates inside it.
- Payable daysPayable days are the number of days a monthly salary is spread across, and the number of days in a given month the employee is actually paid for.
Modules that touch this
- LeaveStaff apply with dates, type and attachments. Approve, reject or mark loss of pay without chasing WhatsApp threads.
- SalaryMonthly pay builds from attendance fractions, holidays, weekly offs and approved leave, so there are no side calculations.
- Salary slipsBranded, printable slips with earnings, an attendance summary and advance recovery. Staff see the same figures you print.
See how VTClock handles earned leave
Tell us how your team is paid and where attendance is recorded today. We will show you what the module does with it.