U.O. No. F.D(SR-II)2-36/2024 — Dated: Lahore, 09th September 2024
The Finance Department, Government of the Punjab, has issued an important clarification regarding how leave encashment in lieu of refused Leave Preparatory to Retirement (LPR) should be paid to government employees. This guidance, issued in response to a specific query raised by the School Education Department, settles a question that has long created confusion among Drawing and Disbursing Officers (DDOs), budget officers, and employees alike: should leave encashment for refused LPR be paid as a one-time lump sum, or should it be paid monthly along with regular pay?
The Finance Department’s answer is now clear: it must be paid monthly, at the initial pay of the pay scale, in addition to the employee’s monthly pay — not as a single lump-sum disbursement.
Background of the Case
This clarification was issued in reply to a formal reference made by the Section Officer (Budget-I), School Education Department, Government of the Punjab, vide letter No. SO(Budget-I)1-26/2023, dated 21st June 2024. The School Education Department had sought guidance from the Finance Department on the correct method of processing payments for employees whose Leave Preparatory to Retirement (LPR) had been refused, and who were consequently entitled to encashment of that leave.
Given that thousands of Punjab government employees across various departments face LPR-related situations each year — particularly in departments with staff shortages where LPR is often refused due to operational necessity — this was a practical and widely relevant query, and the Finance Department’s response carries implications far beyond the School Education Department alone.
What the Rules Say
In its reply, the Finance Department directed attention to Rule 17(2) through Rule 1(c), which was amended vide Notification No. FD.SR.II/2-97/2019, dated 1st June 2023. Based on this amended rule, the Finance Department has now definitively clarified that:
“Leave encashment in lieu of refused LPR shall be paid @ initial pay of the pay scale on monthly basis in addition to monthly pay.“
This means that when an employee’s LPR is refused by the competent authority — usually because their services are still required by the department — the employee does not lose out on the financial benefit associated with that leave. Instead of being paid the encashment amount as a single upfront lump sum, the value is now to be spread out and paid every month, calculated at the initial pay of the relevant pay scale, and credited in addition to the employee’s regular monthly salary.
Understanding “Refused LPR” and Why Encashment Matters
Leave Preparatory to Retirement (LPR) is a facility available to government servants, typically allowing them to proceed on extended leave in the final months before their formal retirement date, while remaining on the payroll. However, in many cases — particularly in departments facing staff shortages such as Education, Health, and Police — the competent authority may refuse to sanction LPR, requiring the employee to continue working until their actual date of superannuation.
When LPR is refused, the employee is deprived of the leave period they would otherwise have been entitled to before retirement. To compensate for this, government rules allow the employee to receive encashment of the leave they were unable to avail. The core question that departments had been grappling with was the method and timing of this encashment payment — specifically, whether it should be:
- Paid as a lump sum at the time of retirement or at the time LPR is refused, or
- Paid monthly, spread over the remaining service period, alongside regular salary.
This notification settles the matter firmly in favor of the monthly payment method.
Key Implications of This Clarification
- Standardization Across Departments This guidance is not limited to the School Education Department. Since it is based on a generally applicable rule (Rule 17(2) read with Rule 1(c) of the relevant pension/leave rules), it effectively sets a uniform standard that all Provincial Government departments, DDOs, and Accounts Offices in Punjab must now follow when processing leave encashment cases involving refused LPR.
- Monthly Cash Flow Benefit for Employees Employees affected by refused LPR will now see the encashment amount reflected in their monthly salary, calculated at the initial pay of their pay scale, rather than waiting for a delayed lump-sum settlement. This provides more predictable and immediate financial benefit during the remaining months of active service.
- Clarity for Budget and Accounts Offices DDOs and budget officers across departments now have clear, referenced guidance to cite when processing such cases — reducing the likelihood of audit objections, processing delays, or inconsistent treatment of similar cases across different departments.
- Basis in a Pre-Existing Amendment It’s worth noting that this is not an entirely new rule — the underlying amendment to Rule 17(2)/1(c) was already made through Notification No. FD.SR.II/2-97/2019 dated 1st June 2023. This latest communication of September 2024 is essentially a reaffirmation and practical clarification of an existing rule, issued because departments were evidently unsure how to apply it correctly, more than a year after the original notification.
Who Should Take Note
This clarification is particularly relevant for:
- Government employees nearing retirement age whose LPR may be refused due to departmental requirements.
- DDOs and Budget Officers across all Punjab government departments, who are responsible for correctly calculating and disbursing leave encashment payments.
- HR and establishment sections of provincial departments, who process LPR applications and need to correctly categorize refused cases for financial processing.
- Pension and retirement case handlers, who must ensure that monthly encashment payments are properly recorded and reconciled with the employee’s final pension case at the time of actual retirement.
Administrative Details
The communication was issued as an Unofficial Note (U.O.) No. F.D(SR-II)2-36/2024, dated 9th September 2024, from Lahore, bearing diary number 24476. It was signed by Muhammad Ilyas Abbasi, Section Officer (SR-II), Finance Department, Government of the Punjab, and addressed directly to the Section Officer (Budget-I) of the School Education Department for necessary compliance and onward guidance.
Key points
If you are a Punjab government employee whose LPR has been refused, this notification provides the clear, authoritative answer: leave encashment in lieu of refused LPR must be paid monthly, at the initial pay of the pay scale, alongside regular monthly salary — not as a lump sum. Departments should align their payroll processing accordingly and cite U.O. No. F.D(SR-II)2-36/2024 and the underlying Notification No. FD.SR.II/2-97/2019 when raising or resolving related cases with their Accounts Offices.
This article is based on the official communication issued by the Finance Department, Government of the Punjab, dated 9th September 2024. Employees are encouraged to verify their individual case status with their respective DDO or Accounts Office.