Indian leave policy is set by state Shops and Establishments Acts (and now the OSH Code), not one national law: earned leave commonly accrues at 1 day per 20 worked, with casual and sick leave varying by state.

The OSH Code 2020, in force since 21 November 2025, lowers annual-leave eligibility to 180 days worked and keeps the 1-per-20 accrual rate.

A workable policy needs five decisions: leave types and quotas, accrual timing, carry-forward caps, encashment rules, and the approval chain.

Employee Leave Policy in India: Rules, Types, and a Working Structure

There is no single Indian leave law. Leave entitlements come from each state's Shops and Establishments Act for offices and shops, and from the OSH Code (in force since 21 November 2025, replacing the Factories Act) for factories. So a leave policy for a company with offices in Karnataka and Maharashtra has to satisfy two different statutes, and a remote team spread over six states, six. That is why the safe pattern is: meet the most generous applicable statute, then standardise above it.

The statutory leave types

Earned/privilege leave (EL/PL): accrues with service, commonly 1 day per 20 days worked (about 15-18 days a year), carries forward up to a cap, and is encashable at exit. Casual leave (CL): 6-12 days for short, unplanned absences; lapses annually. Sick leave (SL): 6-12 days, some states require a medical certificate beyond 2-3 days. Maternity leave: 26 weeks paid for the first two children under the Maternity Benefit Act, a central law that overrides state variation. Compensatory off: not statutory in most states but standard practice for worked week-offs and holidays.

What changed under the OSH Code

Two things matter for policy writers. Annual-leave eligibility now needs 180 days worked in the year, down from 240, so first-year and high-churn employees qualify sooner. And the carry-forward cap for covered workers is 30 days, with the excess encashed rather than lapsed. If your policy still says 240 days, it is quoting a repealed Act.

The five decisions a policy must make

Types and quotas per leave type. Accrual timing (annual credit on 1 January vs monthly pro-rata; monthly avoids the quit-in-February-with-full-quota problem). Carry-forward caps per type. Encashment basis (basic vs basic+DA, /26 vs /30) and when it pays out. And the approval chain with sandwich rules for leave adjoining week-offs. Write each as one unambiguous sentence; ambiguity in a leave policy always resolves against HR in practice.

Enforce it in software, not in email threads

Indian HRM applies the policy mechanically: per-type balances, monthly accrual, carry-forward caps at year close, encashment in F&F, sandwich rules, and an append-only leave ledger for audits. Download the free leave policy template and adapt the quotas to your states, or see how leave management software runs the policy day to day.