Monetary payment in lieu of unused paid leave, usually at separation or year-end per company policy.
Leave encashment is the practice of paying employees cash for unused paid leave days, either annually (surplus leave carried beyond company cap) or at the time of resignation, retirement, or termination. In Pakistan, leave encashment policies vary by employer: some companies encash only annual leave, others include casual leave, and most cap encashable balances at 30 to 60 days.
The calculation is typically: Encashed Amount = (Gross Salary / 30) x Number of Days Encashed, though some employers use basic salary only. The amount is added to the final settlement or annual bonus and is subject to income tax withholding under Section 149. Only unused leave within the encashment policy is paid; leave taken is not refunded.
Encashment is considered a separate line item on the payslip for transparency. Companies with generous encashment policies often see lower actual leave utilisation, which can trigger health and burnout concerns. Modern HR platforms calculate encashment automatically in the F&F workflow.
On leaving the company, Imran was paid leave encashment of PKR 90,000 for 18 unused annual leave days.
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