Leave policy is one of the most frequently asked about — and most inconsistently managed — areas of HR in Indian organisations. Employees ask about it before joining. They dispute it when they leave. And organisations that have not documented it clearly face avoidable grievances, audit observations, and legal challenges.
This guide covers the types of leave in India, statutory entitlements, the impact of the new Labour Codes on leave, and what HR teams must do to ensure their leave policy is compliant in 2026.
Types of Leave in India
1. Earned Leave (EL) / Privilege Leave (PL) / Annual Leave
Earned leave is the most important category. It is leave that accrues based on days worked and can be carried forward and encashed. The entitlement varies by state and industry — typically 15 to 21 days per year under the Factories Act and shops and establishment acts. Under the OSH Code 2020, the entitlement is one day of earned leave for every 20 days worked.
2. Sick Leave (SL)
Leave taken due to illness or medical reasons. Typically 7 to 12 days per year depending on the applicable state act. Most organisations require a medical certificate for sick leave beyond 2-3 consecutive days.
3. Casual Leave (CL)
Leave for personal or family emergencies and short-notice requirements. Typically 7 to 12 days per year. Casual leave is generally not carried forward at year end.
4. Maternity Leave
26 weeks for women with fewer than two surviving children, under the Maternity Benefit Act 1961. Fully paid. See our detailed guide: Maternity Leave Rules in India 2026.
5. Paternity Leave
There is no central statutory paternity leave in India for private sector employees. However, many organisations offer 5 to 15 days as a company policy benefit. Government employees are entitled to 15 days under central government rules.
6. Bereavement Leave
Not mandated by statute for most private sector employees, but widely offered as a company benefit — typically 3 to 5 days for the death of an immediate family member.
7. Public Holidays
National holidays (Republic Day, Independence Day, Gandhi Jayanti) are mandatory paid holidays. State and festival holidays vary by state and are notified by the respective state governments. The total number of public holidays per year is typically 10 to 14 in most states.
8. Compensatory Off (Comp Off)
Leave given in lieu of working on a weekly off, public holiday, or beyond standard hours. Must be granted within a prescribed period — typically within 60 to 90 days of the extra work done.
9. Leave Without Pay (LWP)
Leave taken when all paid leave entitlements are exhausted. Must be documented and approved. Impacts PF contribution base and salary calculations for the month.
Impact of the OSH Code 2020 on Leave
The Occupational Safety, Health and Working Conditions Code 2020 (being implemented in 2026) consolidates leave provisions across 13 earlier laws. Key changes:
— Earned leave entitlement is now standardised at one day for every 20 days worked (for adult workers).
— Earned leave can be carried forward up to 30 days (from the previous ceiling of 30 days under the Factories Act — no change for most, but harmonises across industries).
— Leave encashment at the time of separation is now more clearly defined.
— The Code permits states to prescribe their own thresholds — check your state's notification for the applicable rules.
HR Leave Policy Compliance Checklist 2026
Policy documentation:
— Written leave policy approved by management and communicated to all employees
— Policy clearly defines all leave types, entitlements, carry-forward rules, and encashment provisions
— Policy complies with applicable state shops and establishments act and the OSH Code
Leave management:
— Leave records maintained for every employee
— Leave balance statements provided to employees at regular intervals
— Approval process documented — who approves, what lead time is required, escalation process
Year-end process:
— Lapse policy communicated clearly — which leaves lapse at year end, which carry forward
— Carry-forward limits documented and enforced
— Leave encashment process for departing employees documented
Statutory compliance:
— Leave register maintained as required under applicable law
— Public holiday list notified to employees at the start of the year
— Compensatory off policy documented and enforced within the prescribed timeline
Leave Encashment — What HR Must Know
Leave encashment at the time of separation (resignation, retirement, or termination) is a statutory right for employees with accumulated earned leave. The encashment must be calculated on the last drawn basic salary — not gross salary — unless your policy or applicable law specifies otherwise.
Under income tax rules, leave encashment received at the time of retirement is exempt from tax up to certain limits. Leave encashment received on resignation is taxable.
Frequently Asked Questions
Q: Can an employer refuse to grant earned leave?
A: An employer can defer leave to meet operational requirements, but cannot deny earned leave indefinitely. Leave must be granted within a reasonable period, and if leave is denied, the reason should be documented.
Q: Can casual leave be carried forward?
A: Typically no — casual leave lapses at the end of the leave year if unused. However, this depends on your company policy and the applicable state act. Some organisations allow a portion of CL to be carried forward as sick leave.
Q: Is leave encashment mandatory during the notice period?
A: Yes — accumulated earned leave that has not been availed must be encashed as part of the full and final settlement. Under the Code on Wages, F&F including leave encashment must be settled within two working days of the last working day.
Q: Do contract employees get leave entitlements?
A: Yes — contract employees working on the principal employer's premises are entitled to leave as per applicable law. The responsibility lies with the contractor, but the principal employer may be liable if the contractor defaults.
Q: How should comp off be tracked?
A: Comp off should be tracked in your leave management system with the date of extra work, the approving manager's confirmation, and the expiry date of the comp off. Untracked comp off creates significant liability and employee grievances.
For a ready-to-use leave policy template and complete HR policy documentation kit, visit our Stores and Services page.
Related reading: Maternity Leave Rules in India 2026
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