Leave encashment converts untaken holiday into cash. Where it applies, an employee who has accrued more leave than they used does not simply lose the balance; they are paid for it.
When it happens
- At termination or resignation, as part of the final settlement, which is the most common case
- At the end of a leave year, where local rules or company policy allow a balance to be cashed rather than carried
- During employment, in jurisdictions and policies that permit selling back leave
How the rules differ
Some countries require unused statutory leave to be paid out on termination and treat any attempt to forfeit it as unlawful. Others allow forfeiture after a carry-over deadline. A few restrict encashment during employment specifically to stop it becoming a way of pressuring people out of taking rest. The tax treatment varies too, and payment on termination is sometimes taxed differently from payment mid-employment.
Why it matters when hiring internationally
Unused leave is a liability that accumulates on the balance sheet whether or not anyone is tracking it. A team with a culture of not taking holiday is quietly building a bill that lands when people leave. Accurate leave records are what make that number defensible, which is why leave tracking and payroll need to be connected rather than maintained separately.