diff --git a/erpnext/hr/doctype/attendance/attendance.json b/erpnext/hr/doctype/attendance/attendance.json
index eaca9f6..906f6f7 100644
--- a/erpnext/hr/doctype/attendance/attendance.json
+++ b/erpnext/hr/doctype/attendance/attendance.json
@@ -87,11 +87,12 @@
    "search_index": 1
   },
   {
-   "depends_on": "eval:doc.status==\"On Leave\"",
+   "depends_on": "eval:in_list([\"On Leave\", \"Half Day\"], doc.status)",
    "fieldname": "leave_type",
    "fieldtype": "Link",
    "in_standard_filter": 1,
    "label": "Leave Type",
+   "mandatory_depends_on": "eval:in_list([\"On Leave\", \"Half Day\"], doc.status)",
    "oldfieldname": "leave_type",
    "oldfieldtype": "Link",
    "options": "Leave Type"
@@ -100,6 +101,7 @@
    "fieldname": "leave_application",
    "fieldtype": "Link",
    "label": "Leave Application",
+   "no_copy": 1,
    "options": "Leave Application",
    "read_only": 1
   },
@@ -175,7 +177,8 @@
  "icon": "fa fa-ok",
  "idx": 1,
  "is_submittable": 1,
- "modified": "2020-02-19 14:25:32.945842",
+ "links": [],
+ "modified": "2020-04-11 11:40:14.319496",
  "modified_by": "Administrator",
  "module": "HR",
  "name": "Attendance",
diff --git a/erpnext/hr/doctype/attendance/attendance.py b/erpnext/hr/doctype/attendance/attendance.py
index 9e965db..7355a56 100644
--- a/erpnext/hr/doctype/attendance/attendance.py
+++ b/erpnext/hr/doctype/attendance/attendance.py
@@ -7,33 +7,15 @@
 from frappe.utils import getdate, nowdate
 from frappe import _
 from frappe.model.document import Document
-from frappe.utils import cstr, get_datetime, get_datetime_str
-from frappe.utils import update_progress_bar
+from frappe.utils import cstr, get_datetime, format_date
 
 class Attendance(Document):
-	def validate_duplicate_record(self):
-		res = frappe.db.sql("""select name from `tabAttendance` where employee = %s and attendance_date = %s
-			and name != %s and docstatus != 2""",
-			(self.employee, getdate(self.attendance_date), self.name))
-		if res:
-			frappe.throw(_("Attendance for employee {0} is already marked").format(self.employee))
-
-	def check_leave_record(self):
-		leave_record = frappe.db.sql("""select leave_type, half_day, half_day_date from `tabLeave Application`
-			where employee = %s and %s between from_date and to_date and status = 'Approved'
-			and docstatus = 1""", (self.employee, self.attendance_date), as_dict=True)
-		if leave_record:
-			for d in leave_record:
-				if d.half_day_date == getdate(self.attendance_date):
-					self.status = 'Half Day'
-					frappe.msgprint(_("Employee {0} on Half day on {1}").format(self.employee, self.attendance_date))
-				else:
-					self.status = 'On Leave'
-					self.leave_type = d.leave_type
-					frappe.msgprint(_("Employee {0} is on Leave on {1}").format(self.employee, self.attendance_date))
-
-		if self.status == "On Leave" and not leave_record:
-			frappe.throw(_("No leave record found for employee {0} for {1}").format(self.employee, self.attendance_date))
+	def validate(self):
+		from erpnext.controllers.status_updater import validate_status
+		validate_status(self.status, ["Present", "Absent", "On Leave", "Half Day", "Work From Home"])
+		self.validate_attendance_date()
+		self.validate_duplicate_record()
+		self.check_leave_record()
 
 	def validate_attendance_date(self):
 		date_of_joining = frappe.db.get_value("Employee", self.employee, "date_of_joining")
@@ -44,19 +26,52 @@
 		elif date_of_joining and getdate(self.attendance_date) < getdate(date_of_joining):
 			frappe.throw(_("Attendance date can not be less than employee's joining date"))
 
+	def validate_duplicate_record(self):
+		res = frappe.db.sql("""
+			select name from `tabAttendance`
+			where employee = %s
+				and attendance_date = %s
+				and name != %s
+				and docstatus != 2
+		""", (self.employee, getdate(self.attendance_date), self.name))
+		if res:
+			frappe.throw(_("Attendance for employee {0} is already marked").format(self.employee))
+
+	def check_leave_record(self):
+		leave_record = frappe.db.sql("""
+			select leave_type, half_day, half_day_date
+			from `tabLeave Application`
+			where employee = %s 
+				and %s between from_date and to_date
+				and status = 'Approved'
+				and docstatus = 1
+		""", (self.employee, self.attendance_date), as_dict=True)
+		if leave_record:
+			for d in leave_record:
+				self.leave_type = d.leave_type
+				if d.half_day_date == getdate(self.attendance_date):
+					self.status = 'Half Day'
+					frappe.msgprint(_("Employee {0} on Half day on {1}")
+						.format(self.employee, format_date(self.attendance_date)))
+				else:
+					self.status = 'On Leave'
+					frappe.msgprint(_("Employee {0} is on Leave on {1}")
+						.format(self.employee, format_date(self.attendance_date)))
+
+		if self.status in ("On Leave", "Half Day"):
+			if not leave_record:
+				frappe.msgprint(_("No leave record found for employee {0} on {1}")
+					.format(self.employee, format_date(self.attendance_date)), alert=1)
+		elif self.leave_type:
+			self.leave_type = None
+			self.leave_application = None
+
 	def validate_employee(self):
 		emp = frappe.db.sql("select name from `tabEmployee` where name = %s and status = 'Active'",
 		 	self.employee)
 		if not emp:
 			frappe.throw(_("Employee {0} is not active or does not exist").format(self.employee))
 
-	def validate(self):
-		from erpnext.controllers.status_updater import validate_status
-		validate_status(self.status, ["Present", "Absent", "On Leave", "Half Day", "Work From Home"])
-		self.validate_attendance_date()
-		self.validate_duplicate_record()
-		self.check_leave_record()
-
 @frappe.whitelist()
 def get_events(start, end, filters=None):
 	events = []
@@ -90,18 +105,20 @@
 		if e not in events:
 			events.append(e)
 
-def mark_attendance(employee, attendance_date, status, shift=None):
-	employee_doc = frappe.get_doc('Employee', employee)
+def mark_attendance(employee, attendance_date, status, shift=None, leave_type=None, ignore_validate=False):
 	if not frappe.db.exists('Attendance', {'employee':employee, 'attendance_date':attendance_date, 'docstatus':('!=', '2')}):
-		doc_dict = {
+		company = frappe.db.get_value('Employee', employee, 'company')
+		attendance = frappe.get_doc({
 			'doctype': 'Attendance',
 			'employee': employee,
 			'attendance_date': attendance_date,
 			'status': status,
-			'company': employee_doc.company,
-			'shift': shift
-		}
-		attendance = frappe.get_doc(doc_dict).insert()
+			'company': company,
+			'shift': shift,
+			'leave_type': leave_type
+		})
+		attendance.flags.ignore_validate = ignore_validate
+		attendance.insert()
 		attendance.submit()
 		return attendance.name
 
diff --git a/erpnext/hr/doctype/hr_settings/hr_settings.json b/erpnext/hr/doctype/hr_settings/hr_settings.json
index 90f4988..9161ed8 100644
--- a/erpnext/hr/doctype/hr_settings/hr_settings.json
+++ b/erpnext/hr/doctype/hr_settings/hr_settings.json
@@ -13,10 +13,12 @@
   "stop_birthday_reminders",
   "expense_approver_mandatory_in_expense_claim",
   "payroll_settings",
+  "payroll_based_on", 
+  "max_working_hours_against_timesheet", 
   "include_holidays_in_total_working_days",
   "disable_rounded_total",
-  "max_working_hours_against_timesheet",
   "column_break_11",
+  "daily_wages_fraction_for_half_day", 
   "email_salary_slip_to_employee",
   "encrypt_salary_slips_in_emails",
   "password_policy",
@@ -184,13 +186,27 @@
    "fieldtype": "Link",
    "label": "Role Allowed to Create Backdated Leave Application",
    "options": "Role"
+  },
+  {
+   "default": "Leave",
+   "fieldname": "payroll_based_on",
+   "fieldtype": "Select",
+   "label": "Calculate Working Days in Payroll based on",
+   "options": "Leave\nAttendance"
+  },
+  {
+   "default": "0.5",
+   "description": "The fraction of daily wages to be paid for half-day attendance",
+   "fieldname": "daily_wages_fraction_for_half_day",
+   "fieldtype": "Float",
+   "label": "Daily Wages Fraction for Half Day"
   }
  ],
  "icon": "fa fa-cog",
  "idx": 1,
  "issingle": 1,
  "links": [],
- "modified": "2020-01-06 18:46:30.189815",
+ "modified": "2020-04-13 21:20:59.382394",
  "modified_by": "Administrator",
  "module": "HR",
  "name": "HR Settings",
diff --git a/erpnext/hr/doctype/hr_settings/hr_settings.py b/erpnext/hr/doctype/hr_settings/hr_settings.py
index bf91906..5ed4c87 100644
--- a/erpnext/hr/doctype/hr_settings/hr_settings.py
+++ b/erpnext/hr/doctype/hr_settings/hr_settings.py
@@ -15,6 +15,9 @@
 		self.set_naming_series()
 		self.validate_password_policy()
 
+		if not self.daily_wages_fraction_for_half_day:
+			self.daily_wages_fraction_for_half_day = 0.5
+
 	def set_naming_series(self):
 		from erpnext.setup.doctype.naming_series.naming_series import set_by_naming_series
 		set_by_naming_series("Employee", "employee_number",
diff --git a/erpnext/hr/doctype/salary_slip/salary_slip.js b/erpnext/hr/doctype/salary_slip/salary_slip.js
index f430eee..1c4d4e3 100644
--- a/erpnext/hr/doctype/salary_slip/salary_slip.js
+++ b/erpnext/hr/doctype/salary_slip/salary_slip.js
@@ -51,7 +51,7 @@
 	},
 
 	end_date: function(frm) {
-		frm.events.get_emp_and_leave_details(frm);
+		frm.events.get_emp_and_working_day_details(frm);
 	},
 
 	set_end_date: function(frm){
@@ -86,7 +86,7 @@
 
 	salary_slip_based_on_timesheet: function(frm) {
 		frm.trigger("toggle_fields");
-		frm.events.get_emp_and_leave_details(frm);
+		frm.events.get_emp_and_working_day_details(frm);
 	},
 
 	payroll_frequency: function(frm) {
@@ -95,15 +95,14 @@
 	},
 
 	employee: function(frm) {
-		frm.events.get_emp_and_leave_details(frm);
+		frm.events.get_emp_and_working_day_details(frm);
 	},
 
 	leave_without_pay: function(frm){
 		if (frm.doc.employee && frm.doc.start_date && frm.doc.end_date) {
 			return frappe.call({
-				method: 'process_salary_based_on_leave',
+				method: 'process_salary_based_on_working_days',
 				doc: frm.doc,
-				args: {"lwp": frm.doc.leave_without_pay},
 				callback: function(r, rt) {
 					frm.refresh();
 				}
@@ -115,12 +114,12 @@
 		frm.toggle_display(['hourly_wages', 'timesheets'], cint(frm.doc.salary_slip_based_on_timesheet)===1);
 
 		frm.toggle_display(['payment_days', 'total_working_days', 'leave_without_pay'],
-			frm.doc.payroll_frequency!="");
+			frm.doc.payroll_frequency != "");
 	},
 
-	get_emp_and_leave_details: function(frm) {
+	get_emp_and_working_day_details: function(frm) {
 		return frappe.call({
-			method: 'get_emp_and_leave_details',
+			method: 'get_emp_and_working_day_details',
 			doc: frm.doc,
 			callback: function(r, rt) {
 				frm.refresh();
diff --git a/erpnext/hr/doctype/salary_slip/salary_slip.json b/erpnext/hr/doctype/salary_slip/salary_slip.json
index 097d3a0..54a8164 100644
--- a/erpnext/hr/doctype/salary_slip/salary_slip.json
+++ b/erpnext/hr/doctype/salary_slip/salary_slip.json
@@ -11,20 +11,20 @@
   "employee_name",
   "department",
   "designation",
+  "branch",
   "column_break1",
-  "company",
+  "status",
   "journal_entry",
   "payroll_entry",
+  "company",
   "letter_head",
-  "branch",
-  "status",
   "section_break_10",
   "salary_slip_based_on_timesheet",
-  "payroll_frequency",
   "start_date",
   "end_date",
   "column_break_15",
   "salary_structure",
+  "payroll_frequency",
   "total_working_days",
   "leave_without_pay",
   "payment_days",
@@ -309,6 +309,7 @@
   {
    "fieldname": "earning",
    "fieldtype": "Column Break",
+   "label": "Earning",
    "oldfieldtype": "Column Break",
    "width": "50%"
   },
@@ -323,6 +324,7 @@
   {
    "fieldname": "deduction",
    "fieldtype": "Column Break",
+   "label": "Deduction",
    "oldfieldtype": "Column Break",
    "width": "50%"
   },
@@ -463,7 +465,7 @@
  "idx": 9,
  "is_submittable": 1,
  "links": [],
- "modified": "2020-04-09 20:02:53.159827",
+ "modified": "2020-04-14 20:02:53.159827", 
  "modified_by": "Administrator",
  "module": "HR",
  "name": "Salary Slip",
diff --git a/erpnext/hr/doctype/salary_slip/salary_slip.py b/erpnext/hr/doctype/salary_slip/salary_slip.py
index 40fe572..916b64a 100644
--- a/erpnext/hr/doctype/salary_slip/salary_slip.py
+++ b/erpnext/hr/doctype/salary_slip/salary_slip.py
@@ -5,7 +5,7 @@
 import frappe, erpnext
 import datetime, math
 
-from frappe.utils import add_days, cint, cstr, flt, getdate, rounded, date_diff, money_in_words
+from frappe.utils import add_days, cint, cstr, flt, getdate, rounded, date_diff, money_in_words, format_date
 from frappe.model.naming import make_autoname
 
 from frappe import msgprint, _
@@ -44,9 +44,9 @@
 
 		if not (len(self.get("earnings")) or len(self.get("deductions"))):
 			# get details from salary structure
-			self.get_emp_and_leave_details()
+			self.get_emp_and_working_day_details()
 		else:
-			self.get_leave_details(lwp = self.leave_without_pay)
+			self.get_working_days_details(lwp = self.leave_without_pay)
 
 		self.calculate_net_pay()
 
@@ -117,7 +117,7 @@
 			self.start_date = date_details.start_date
 			self.end_date = date_details.end_date
 
-	def get_emp_and_leave_details(self):
+	def get_emp_and_working_day_details(self):
 		'''First time, load all the components from salary structure'''
 		if self.employee:
 			self.set("earnings", [])
@@ -129,7 +129,8 @@
 			joining_date, relieving_date = frappe.get_cached_value("Employee", self.employee,
 				["date_of_joining", "relieving_date"])
 
-			self.get_leave_details(joining_date, relieving_date)
+			#getin leave details
+			self.get_working_days_details(joining_date, relieving_date)
 			struct = self.check_sal_struct(joining_date, relieving_date)
 
 			if struct:
@@ -188,10 +189,9 @@
 
 		make_salary_slip(self._salary_structure_doc.name, self)
 
-	def get_leave_details(self, joining_date=None, relieving_date=None, lwp=None, for_preview=0):
-		if not joining_date:
-			joining_date, relieving_date = frappe.get_cached_value("Employee", self.employee,
-				["date_of_joining", "relieving_date"])
+	def get_working_days_details(self, joining_date=None, relieving_date=None, lwp=None, for_preview=0):
+		payroll_based_on = frappe.db.get_value("HR Settings", None, "payroll_based_on")
+		include_holidays_in_total_working_days = frappe.db.get_single_value("HR Settings", "include_holidays_in_total_working_days")
 
 		working_days = date_diff(self.end_date, self.start_date) + 1
 		if for_preview:
@@ -200,24 +200,42 @@
 			return
 
 		holidays = self.get_holidays_for_employee(self.start_date, self.end_date)
-		actual_lwp = self.calculate_lwp(holidays, working_days)
-		if not cint(frappe.db.get_value("HR Settings", None, "include_holidays_in_total_working_days")):
+		
+		if not cint(include_holidays_in_total_working_days):
 			working_days -= len(holidays)
 			if working_days < 0:
 				frappe.throw(_("There are more holidays than working days this month."))
 
+		if not payroll_based_on:
+			frappe.throw(_("Please set Payroll based on in HR settings"))
+		
+		if payroll_based_on == "Attendance":
+			actual_lwp = self.calculate_lwp_based_on_attendance(holidays)
+		else:
+			actual_lwp = self.calculate_lwp_based_on_leave_application(holidays, working_days)
+
 		if not lwp:
 			lwp = actual_lwp
 		elif lwp != actual_lwp:
-			frappe.msgprint(_("Leave Without Pay does not match with approved Leave Application records"))
+			frappe.msgprint(_("Leave Without Pay does not match with approved {} records")
+				.format(payroll_based_on))
 
-		self.total_working_days = working_days
 		self.leave_without_pay = lwp
+		self.total_working_days = working_days
 
-		payment_days = flt(self.get_payment_days(joining_date, relieving_date)) - flt(lwp)
-		self.payment_days = payment_days > 0 and payment_days or 0
+		payment_days = self.get_payment_days(joining_date,
+			relieving_date, include_holidays_in_total_working_days)
 
-	def get_payment_days(self, joining_date, relieving_date):
+		if flt(payment_days) > flt(lwp):
+			self.payment_days = flt(payment_days) - flt(lwp)
+		else:
+			self.payment_days = 0
+
+	def get_payment_days(self, joining_date, relieving_date, include_holidays_in_total_working_days):
+		if not joining_date:
+			joining_date, relieving_date = frappe.get_cached_value("Employee", self.employee,
+				["date_of_joining", "relieving_date"])
+
 		start_date = getdate(self.start_date)
 		if joining_date:
 			if getdate(self.start_date) <= joining_date <= getdate(self.end_date):
@@ -235,9 +253,10 @@
 
 		payment_days = date_diff(end_date, start_date) + 1
 
-		if not cint(frappe.db.get_value("HR Settings", None, "include_holidays_in_total_working_days")):
+		if not cint(include_holidays_in_total_working_days):
 			holidays = self.get_holidays_for_employee(start_date, end_date)
 			payment_days -= len(holidays)
+
 		return payment_days
 
 	def get_holidays_for_employee(self, start_date, end_date):
@@ -256,27 +275,67 @@
 
 		return holidays
 
-	def calculate_lwp(self, holidays, working_days):
+	def calculate_lwp_based_on_leave_application(self, holidays, working_days):
 		lwp = 0
 		holidays = "','".join(holidays)
+		daily_wages_fraction_for_half_day = \
+			flt(frappe.db.get_value("HR Settings", None, "daily_wages_fraction_for_half_day")) or 0.5
+
 		for d in range(working_days):
 			dt = add_days(cstr(getdate(self.start_date)), d)
 			leave = frappe.db.sql("""
 				SELECT t1.name,
-					CASE WHEN t1.half_day_date = %(dt)s or t1.to_date = t1.from_date
+					CASE WHEN (t1.half_day_date = %(dt)s or t1.to_date = t1.from_date)
 					THEN t1.half_day else 0 END
 				FROM `tabLeave Application` t1, `tabLeave Type` t2
 				WHERE t2.name = t1.leave_type
 				AND t2.is_lwp = 1
 				AND t1.docstatus = 1
 				AND t1.employee = %(employee)s
-				AND CASE WHEN t2.include_holiday != 1 THEN %(dt)s not in ('{0}') and %(dt)s between from_date and to_date and ifnull(t1.salary_slip, '') = ''
-				WHEN t2.include_holiday THEN %(dt)s between from_date and to_date and ifnull(t1.salary_slip, '') = ''
-				END
+				AND ifnull(t1.salary_slip, '') = ''
+				AND CASE
+					WHEN t2.include_holiday != 1
+						THEN %(dt)s not in ('{0}') and %(dt)s between from_date and to_date
+					WHEN t2.include_holiday
+						THEN %(dt)s between from_date and to_date
+					END
 				""".format(holidays), {"employee": self.employee, "dt": dt})
 
 			if leave:
-				lwp = cint(leave[0][1]) and (lwp + 0.5) or (lwp + 1)
+				is_half_day_leave = cint(leave[0][1])
+				lwp += (1 - daily_wages_fraction_for_half_day) if is_half_day_leave else 1
+
+		return lwp
+	
+	def calculate_lwp_based_on_attendance(self, holidays):
+		lwp = 0
+
+		daily_wages_fraction_for_half_day = \
+			flt(frappe.db.get_value("HR Settings", None, "daily_wages_fraction_for_half_day")) or 0.5
+
+		lwp_leave_types = dict(frappe.get_all("Leave Type", {"is_lwp": 1}, ["name", "include_holiday"], as_list=1))
+
+		attendances = frappe.db.sql('''
+			SELECT attendance_date, status, leave_type
+			FROM `tabAttendance`
+			WHERE
+				status in ("Absent", "Half Day", "On leave")
+				AND employee = %s
+				AND docstatus = 1
+				AND attendance_date between %s and %s
+		''', values=(self.employee, self.start_date, self.end_date), as_dict=1)
+		
+		for d in attendances:
+			if d.status in ('Half Day', 'On Leave') and d.leave_type and d.leave_type not in lwp_leave_types:
+				continue
+
+			if format_date(d.attendance_date, "yyyy-mm-dd") in holidays:
+				if d.status == "Absent" or \
+					(d.leave_type and d.leave_type in lwp_leave_types and not lwp_leave_types[d.leave_type]):
+						continue
+
+			lwp += (1 - daily_wages_fraction_for_half_day) if d.status == "Half Day" else 1
+
 		return lwp
 
 	def add_earning_for_hourly_wages(self, doc, salary_component, amount):
@@ -945,7 +1004,7 @@
 		if not self.salary_slip_based_on_timesheet:
 			self.get_date_details()
 		self.pull_emp_details()
-		self.get_leave_details(for_preview=for_preview)
+		self.get_working_days_details(for_preview=for_preview)
 		self.calculate_net_pay()
 
 	def pull_emp_details(self):
@@ -954,8 +1013,8 @@
 			self.bank_name = emp.bank_name
 			self.bank_account_no = emp.bank_ac_no
 
-	def process_salary_based_on_leave(self, lwp=0):
-		self.get_leave_details(lwp=lwp)
+	def process_salary_based_on_working_days(self):
+		self.get_working_days_details(lwp=self.leave_without_pay)
 		self.calculate_net_pay()
 
 def unlink_ref_doc_from_salary_slip(ref_no):
diff --git a/erpnext/hr/doctype/salary_slip/test_salary_slip.py b/erpnext/hr/doctype/salary_slip/test_salary_slip.py
index 73bb19e..fc687a3 100644
--- a/erpnext/hr/doctype/salary_slip/test_salary_slip.py
+++ b/erpnext/hr/doctype/salary_slip/test_salary_slip.py
@@ -21,18 +21,105 @@
 		make_earning_salary_component(setup=True, company_list=["_Test Company"])
 		make_deduction_salary_component(setup=True, company_list=["_Test Company"])
 
-		for dt in ["Leave Application", "Leave Allocation", "Salary Slip"]:
+		for dt in ["Leave Application", "Leave Allocation", "Salary Slip", "Attendance"]:
 			frappe.db.sql("delete from `tab%s`" % dt)
 
 		self.make_holiday_list()
 
 		frappe.db.set_value("Company", erpnext.get_default_company(), "default_holiday_list", "Salary Slip Test Holiday List")
 		frappe.db.set_value("HR Settings", None, "email_salary_slip_to_employee", 0)
-
+		frappe.db.set_value('HR Settings', None, 'leave_status_notification_template', None)
+		frappe.db.set_value('HR Settings', None, 'leave_approval_notification_template', None)
+		
 	def tearDown(self):
 		frappe.db.set_value("HR Settings", None, "include_holidays_in_total_working_days", 0)
 		frappe.set_user("Administrator")
 
+	def test_payment_days_based_on_attendance(self):
+		from erpnext.hr.doctype.attendance.attendance import mark_attendance
+		no_of_days = self.get_no_of_days()
+
+		# Payroll based on attendance
+		frappe.db.set_value("HR Settings", None, "payroll_based_on", "Attendance")
+		frappe.db.set_value("HR Settings", None, "daily_wages_fraction_for_half_day", 0.75)
+
+		emp_id = make_employee("test_for_attendance@salary.com")
+		frappe.db.set_value("Employee", emp_id, {"relieving_date": None, "status": "Active"})
+
+		frappe.db.set_value("Leave Type", "Leave Without Pay", "include_holiday", 0)
+
+		month_start_date = get_first_day(nowdate())
+		month_end_date = get_last_day(nowdate())
+
+		first_sunday = frappe.db.sql("""
+			select holiday_date from `tabHoliday`
+			where parent = 'Salary Slip Test Holiday List'
+				and holiday_date between %s and %s
+			order by holiday_date
+		""", (month_start_date, month_end_date))[0][0]
+
+		mark_attendance(emp_id, first_sunday, 'Absent', ignore_validate=True) # invalid lwp
+		mark_attendance(emp_id, add_days(first_sunday, 1), 'Absent', ignore_validate=True) # valid lwp
+		mark_attendance(emp_id, add_days(first_sunday, 2), 'Half Day', leave_type='Leave Without Pay', ignore_validate=True) # valid 0.75 lwp
+		mark_attendance(emp_id, add_days(first_sunday, 3), 'On Leave', leave_type='Leave Without Pay', ignore_validate=True) # valid lwp
+		mark_attendance(emp_id, add_days(first_sunday, 4), 'On Leave', leave_type='Casual Leave', ignore_validate=True) # invalid lwp
+		mark_attendance(emp_id, add_days(first_sunday, 7), 'On Leave', leave_type='Leave Without Pay', ignore_validate=True) # invalid lwp
+
+		ss = make_employee_salary_slip("test_for_attendance@salary.com", "Monthly")
+
+		self.assertEqual(ss.leave_without_pay, 2.25)
+
+		days_in_month = no_of_days[0]
+		no_of_holidays = no_of_days[1]
+
+		self.assertEqual(ss.payment_days, days_in_month - no_of_holidays - 2.25)
+
+		#Gross pay calculation based on attendances
+		gross_pay = 78000 - ((78000 / (days_in_month - no_of_holidays)) * flt(ss.leave_without_pay))
+
+		self.assertEqual(ss.gross_pay, gross_pay)
+
+		frappe.db.set_value("HR Settings", None, "payroll_based_on", "Leave")
+
+	def test_payment_days_based_on_leave_application(self):
+		no_of_days = self.get_no_of_days()
+
+		# Payroll based on attendance
+		frappe.db.set_value("HR Settings", None, "payroll_based_on", "Leave")
+
+		emp_id = make_employee("test_for_attendance@salary.com")
+		frappe.db.set_value("Employee", emp_id, {"relieving_date": None, "status": "Active"})
+
+		frappe.db.set_value("Leave Type", "Leave Without Pay", "include_holiday", 0)
+
+		month_start_date = get_first_day(nowdate())
+		month_end_date = get_last_day(nowdate())
+
+		first_sunday = frappe.db.sql("""
+			select holiday_date from `tabHoliday`
+			where parent = 'Salary Slip Test Holiday List'
+				and holiday_date between %s and %s
+			order by holiday_date
+		""", (month_start_date, month_end_date))[0][0]
+
+		make_leave_application(emp_id, first_sunday, add_days(first_sunday, 3), "Leave Without Pay")
+
+		ss = make_employee_salary_slip("test_for_attendance@salary.com", "Monthly")
+
+		self.assertEqual(ss.leave_without_pay, 3)
+
+		days_in_month = no_of_days[0]
+		no_of_holidays = no_of_days[1]
+
+		self.assertEqual(ss.payment_days, days_in_month - no_of_holidays - 3)
+
+		#Gross pay calculation based on attendances
+		gross_pay = 78000 - ((78000 / (days_in_month - no_of_holidays)) * flt(ss.leave_without_pay))
+
+		self.assertEqual(ss.gross_pay, gross_pay)
+
+		frappe.db.set_value("HR Settings", None, "payroll_based_on", "Leave")
+
 	def test_salary_slip_with_holidays_included(self):
 		no_of_days = self.get_no_of_days()
 		frappe.db.set_value("HR Settings", None, "include_holidays_in_total_working_days", 1)
@@ -315,7 +402,6 @@
 
 		return [no_of_days_in_month[1], no_of_holidays_in_month]
 
-
 def make_employee_salary_slip(user, payroll_frequency, salary_structure=None):
 	from erpnext.hr.doctype.salary_structure.test_salary_structure import make_salary_structure
 	if not salary_structure:
@@ -603,3 +689,17 @@
 		"type": "Earning"
 	}).submit()
 	return salary_date
+
+def make_leave_application(employee, from_date, to_date, leave_type, company=None):
+	leave_application = frappe.get_doc(dict(
+		doctype = 'Leave Application',
+		employee = employee,
+		leave_type = leave_type,
+		from_date = from_date,
+		to_date = to_date,
+		company = company or erpnext.get_default_company() or "_Test Company",
+		docstatus = 1,
+		status = "Approved",
+		leave_approver = 'test@example.com'
+	))
+	leave_application.submit()
\ No newline at end of file
diff --git a/erpnext/patches.txt b/erpnext/patches.txt
index 801d583..0ea83fd 100644
--- a/erpnext/patches.txt
+++ b/erpnext/patches.txt
@@ -669,6 +669,7 @@
 erpnext.patches.v12_0.set_total_batch_quantity
 erpnext.patches.v12_0.rename_mws_settings_fields
 erpnext.patches.v12_0.set_updated_purpose_in_pick_list
+erpnext.patches.v12_0.set_default_payroll_based_on
 erpnext.patches.v12_0.repost_stock_ledger_entries_for_target_warehouse
 erpnext.patches.v12_0.update_end_date_and_status_in_email_campaign
 erpnext.patches.v13_0.move_tax_slabs_from_payroll_period_to_income_tax_slab #123
diff --git a/erpnext/patches/v12_0/set_default_payroll_based_on.py b/erpnext/patches/v12_0/set_default_payroll_based_on.py
new file mode 100644
index 0000000..04b54a6
--- /dev/null
+++ b/erpnext/patches/v12_0/set_default_payroll_based_on.py
@@ -0,0 +1,6 @@
+from __future__ import unicode_literals
+import frappe
+
+def execute():
+	frappe.reload_doc("hr", "doctype", "hr_settings")
+	frappe.db.set_value("HR Settings", None, "payroll_based_on", "Leave")
\ No newline at end of file