> ## Documentation Index
> Fetch the complete documentation index at: https://docs.hitaji360.com/llms.txt
> Use this file to discover all available pages before exploring further.

# Leave Encashment

> Leave encashment is the act of paying an employee cash for leave days they have earned but not taken.

Leave encashment is the act of paying an employee cash for leave days they have earned but not taken. Instead of carrying the days forward or letting them expire, you convert an agreed number of days into money that lands on the employee's next payslip. In Hitaji 360 an encashment is a small document in its own right: you record how many days are being cashed out, the system works out the value from the employee's salary, deducts the days from their leave balance, and creates an extra earning line that payroll picks up — all while keeping your leave ledger and your accounts in step.

This page covers raising an encashment, the rules that govern how many days can be cashed out, the statuses it moves through, and exactly what happens to the leave balance, the payslip, and the general ledger.

**You'll find this at:** `/hr/leave/encashment`

> Encashments belong to a **business**, and the leave balance they draw from is tied to a specific **employment contract**. Before you raise one, confirm the business switcher at the top of the app is set to the business that holds the employee's leave balance — encashing in the wrong business will fail to find the balance, or draw down the wrong one.

> 📷 *Screenshot: the Leave Encashment list with the "Create Encashment" button — to be added.*

***

## Before you start

Encashment only works when a few things are already in place:

* **The leave type must allow encashment.** Each leave type has an **Allow Encashment** flag (set on the leave type under leave settings). Only types with this flag turned on appear in the encashment form's leave-type list — if the list is empty, no leave type has been made encashable yet.
* **The employee must have a balance to cash out.** Encashment draws against the available balance on the contract for that leave type's policy.
* **The salary structure must carry an encashment rate.** The cash value per day comes from the employee's active **salary structure** (its *leave encashment amount per day*). If that rate is zero or missing, submitting the encashment is refused — there is nothing to pay.
* **You need a payout salary component.** This is the earning line the money rides on into payroll (for example, an "Leave Encashment" earning component). You pick it on the form.

***

## The encashment lifecycle (statuses)

An encashment is a *submittable document* — it carries a numeric document status shown to you as a badge:

| Status        | Meaning                                                                                                                                    | What you can do                                                   |
| ------------- | ------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------- |
| **Draft**     | Created but nothing has happened yet — no balance taken, no payslip line, no ledger posting.                                               | Submit it, or leave it.                                           |
| **Submitted** | The real work is done: leave balance deducted, the leave ledger written, the extra-salary line created, and the accounting accrual posted. | Cancel it (only while it has not yet been pulled into a payslip). |
| **Cancelled** | Fully reversed — balance refunded, ledger backed out, extra-salary cancelled, accrual reversed.                                            | Nothing further.                                                  |

The single most important thing to understand:

> **Nothing happens until you *submit*.** Creating an encashment just saves a Draft. The balance is only deducted, the payslip line only created, and the ledger only posted at the moment you **Submit**.

***

## Raising an encashment

From the Leave Encashment list, choose **Create Encashment**. The list itself shows one row per encashment with the **Employee**, **Days** cashed out, the **Amount**, the **Payroll Date**, and the **Status** badge.

> 📷 *Screenshot: the Create Encashment modal — employee, leave type, leave balance, days, salary component, payroll date — to be added.*

In the **Create Encashment** form:

| Field                | Required | Notes                                                                                                                                         |
| -------------------- | -------- | --------------------------------------------------------------------------------------------------------------------------------------------- |
| **Employee**         | Yes      | Pick the employee. Their active contract is resolved from the selection.                                                                      |
| **Leave Type**       | Yes      | Only **encashable** leave types appear here. If none do, no type has *Allow Encashment* on yet.                                               |
| **Leave Balance**    | Yes      | The specific policy balance to draw from — shown as the policy name with its available days, so you can see what's there before you cash out. |
| **Days to Encash**   | Yes      | How many days to convert. Must be at least 0.01 and no more than two decimal places. The form warns if the figure exceeds what's available.   |
| **Salary Component** | Yes      | The **earning** component the payout rides on into payroll.                                                                                   |
| **Payroll Date**     | Yes      | The date that decides which payslip the payout lands in, and the date used to look up the encashment rate. Defaults to today.                 |

The **amount is not entered by you** — it is calculated on submit from the salary structure's per-day encashment rate (`amount = days × rate per day`). The Draft is saved with the amount at zero until then.

***

## What submitting does

When you **Submit**, Hitaji runs a series of checks and then makes every change at once:

1. **Validation.** It confirms the leave type still allows encashment, that the available balance covers the days requested, and — importantly — that you are not cashing out days that the type reserves. A leave type can set a **non-encashable floor** (a number of days that must always be kept) and a **maximum encashable** cap per event; the actual encashable figure is *available − reserved floor*, then limited by the cap. If your requested days exceed that, submission is refused.
2. **Rate lookup.** It reads the encashment rate per day from the contract's active salary structure as at the payroll date, and computes the amount. A zero or missing rate stops the submission.
3. **Leave ledger + balance.** It writes a negative **Encashment** entry to the leave ledger and increases the balance's *Used* days, so the cashed-out days are gone from the available figure. (See the leave overview for how the ledger and balance work together.)
4. **The payslip line.** It creates and submits an **additional salary** row against the salary component you chose, for the calculated amount, dated to the payroll date. This is what running payroll for that period will pick up and pay.
5. **The accounting accrual.** It posts a journal entry recognising the encashment as a cost and a liability (see *Behind the scenes* below).

> **Self-service note:** If the *employee themselves* raises an encashment (rather than HR doing it for them), an extra gate applies — the leave type must also have **Allow Self-Service Encashment** turned on. HR-raised encashments are not subject to that gate.

***

## Cancelling an encashment

You can **Cancel** a Submitted encashment, but only while it has **not yet been consumed by a payslip**. Once the additional-salary line has been pulled into a payroll run, the encashment is locked — you must handle it through a payroll correction instead.

Cancelling reverses everything submission did, symmetrically:

* A positive counter-entry is written to the leave ledger and the balance's *Used* days are reduced — **the days come back**.
* The additional-salary line is cancelled, so payroll will no longer pay it.
* The accounting accrual is reversed.

***

## Permissions

| Action                               | Permission        |
| ------------------------------------ | ----------------- |
| View encashments                     | `hr-leave:read`   |
| Create, submit, cancel an encashment | `hr-leave:config` |

A user who manages leave settings (the `hr-leave:config` holder) is the one who raises and submits encashments.

***

## Behind the scenes — the accounting

Encashment is one of the few leave actions that touches your **general ledger**, because it is real money being committed. When an encashment is **submitted**, Hitaji posts a balanced accrual:

|                                                                                                                                              | Debit             | Credit            |
| -------------------------------------------------------------------------------------------------------------------------------------------- | ----------------- | ----------------- |
| **Payroll expense** (the salary component's mapped expense account, or the `payroll_expenses` system account if the component is not mapped) | Encashment amount |                   |
| **Accrued leave liability** (`accrued_leave_liability`)                                                                                      |                   | Encashment amount |

In plain terms: the cost of the cashed-out leave is recognised as an expense, and the matching obligation to pay it is parked in an accrued-leave-liability account until payroll actually disburses it. The expense account that was used is remembered on the encashment, so that if you cancel, the reversal posts against exactly the same account — debiting the liability back down and crediting the expense back out.

When payroll later **pays** the additional-salary line, the normal payroll postings move the money from that liability to cash/bank as part of the run.

> If submitting fails complaining about a missing system account, your chart of accounts is missing the `accrued_leave_liability` (or a payroll expense) system account — configure it, or contact support, and try again.

***

## Related

* [Leave overview](/hr/user/leave/overview) — how balances, the ledger, and leave types fit together
* [Leave types & settings](/hr/user/leave/leave-types) — where *Allow Encashment*, the reserve floor, and the cap are set
* [Leave reports (balance & ledger)](/hr/user/leave/leave-reports) — see the Encashment ledger entries and refunds
* [Salary structures](/hr/user/payroll/salary-structures) — where the encashment rate per day comes from
* [Salary components](/hr/user/payroll/salary-components) — the earning component the payout rides on
* [Payroll corrections](/hr/user/payroll/payroll-corrections) — for encashments already consumed by a payslip