Leave Policy Template for Indian Companies

1. Why a written leave policy matters

A written policy does three things at once. It keeps you on the right side of the law during a labour audit. It gives your HR person a clean answer when an employee files a grievance over a rejected leave. And it stops the founder being the bottleneck for every CL approval. It also protects the employee. If maternity leave is documented, nobody can quietly cut it to 12 weeks. If the encashment formula is on paper, the F&F settlement does not turn into a fight. Treat this as a contract clause, not an HR newsletter.

2. The leave types every Indian leave policy should define

You only need six or seven. More than that and managers stop tracking, employees stop reading, and the system collapses into "ask the boss".

• Casual Leave (CL): short, unplanned breaks. 7 to 12 days a year, usually no carry-forward.
• Sick Leave (SL): illness or injury. 7 to 14 days a year. Often non-encashable. Medical certificate beyond 3 consecutive days.
• Earned Leave (EL) or Privilege Leave (PL): planned vacations. 15 to 21 days a year, accrues monthly, carries forward, often encashed.
• Compensatory Off (Comp-Off): 1:1 day for working on a weekly off or declared holiday. Expires in 60 to 90 days.
• Maternity Leave: governed by the Maternity Benefit Act 1961 (amended 2017).
• Paternity Leave: no central statute for the private sector. Common SME policy is 5 to 15 days.
• Bereavement Leave: 3 to 5 days on death of an immediate family member. Optional but expected in 2026.

Optional add-ons: marriage leave (5 days, one-time), sabbatical (unpaid, 1 to 3 months), and a small WFH allowance separate from leave.

3. Statutory minimums you cannot go below

Different acts apply depending on whether you are a factory, a shop, or an IT/ITES establishment. Cross-check your state.

• Factories Act 1948, Section 79: 1 day of EL for every 20 days worked, roughly 12 to 15 days a year. Applies to factory workers with 240+ days of service in the previous calendar year.
• State Shops & Establishments Acts: each state sets its own EL, CL, SL, and holiday rules. Maharashtra (8 days CL+SL plus 21 days EL), Karnataka (1 day per 20 worked plus 12 sick/casual), and Delhi (15 days EL plus 12 CL/SL) are common reference points. Check the act for the state where the establishment is registered, not where head office sits.
• Maternity Benefit Act 1961 (amended 2017): 26 weeks paid leave for women with 80+ days of service in the 12 months before expected delivery, for the first 2 children. 12 weeks for the third child onward. 12 weeks for adoption of a child below 3 months and for commissioning mothers in surrogacy. Work-from-home post-leave is at employer discretion. Establishments with 50+ employees must provide a creche.
• Paternity Leave: no central statute for private companies. Government employees get 15 days under CCS Rules. Set your own policy and write it down.
• Three national holidays: 26 January, 15 August, and 2 October are mandatory paid holidays for almost every Indian establishment.

Encashment has its own rule. Section 10(10AA) of the Income Tax Act caps tax-exempt leave encashment for non-government employees at ₹25 lakh in a lifetime (revised in 2023, verify the current limit before publishing). Anything above is taxable as salary.

4. Sample policy text you can adapt

Drop this into your handbook. Replace numbers in square brackets with what fits your company. Keep the act references intact.

4.1 Eligibility and accrual

• Confirmed employees are eligible from date of joining. EL begins to accrue from the first full month of service.
• EL: [1.75] days per completed month ([21] days/year), credited at month-end.
• CL: [12] days/year. SL: [10] days/year. Both credited [pro-rata on joining / on 1 January].
• Probationers: CL and SL only. EL accrues but cannot be availed until confirmation.
• Contract workers and interns: leave is governed by the individual contract, in line with the applicable Shops & Establishments Act.

4.2 Application and approval

• EL: apply at least [7] working days in advance via the leave portal. Manager approves within [2] working days.
• CL: apply at least [1] working day in advance. In genuine emergencies, regularise within 24 hours of return.
• SL of 3 days or more: medical certificate from a registered practitioner is mandatory.
• Approval chain: reporting manager, then HR. Skip-level kicks in if the manager does not respond within [3] working days.
• Single point of truth is the leave portal. WhatsApp or verbal approvals are not valid.

4.3 Carry-forward, lapse, and encashment

• EL can be carried forward up to [45] days. Anything above lapses on 31 December.
• CL and SL do not carry forward.
• EL encashment is paid only on resignation, retirement, or termination, and only on the EL balance. Formula: (Basic + DA) / 30 × EL days.
• Tax treatment is governed by Section 10(10AA) of the Income Tax Act 1961.

4.4 Half-day, short leave, holiday calendar

Half-day leave is permitted in CL and EL, deducted as 0.5 days. Up to [2] short-leaves of 2 hours each are allowed per month without deduction. The company observes three national holidays (26 January, 15 August, 2 October) plus [8 to 12] festival holidays notified each January in line with the [state] Shops & Establishments Act. Two festival holidays may be restricted/optional from a published list.

4.5 Maternity, paternity, and adoption

• Maternity: 26 weeks paid leave for the first 2 children, 12 weeks for the third onward, under the Maternity Benefit Act 1961 (amended 2017). Adoption (child under 3 months) and commissioning surrogacy: 12 weeks. Eligibility: 80 days of service in the preceding 12 months.
• Post-maternity work-from-home for up to [3] months may be granted case by case.
• Paternity: [10] working days of paid leave, availed within 6 months of the child's birth.
• Section 5 of the Maternity Benefit Act also entitles a woman who suffers a miscarriage or medical termination of pregnancy to 6 weeks of paid leave from the date of the event, on production of proof.

5. Edge cases worth writing down

The corners are where policies break. Be specific.

• Probation: 6 months typical. EL accrues but is not available. CL and SL are.
• Notice period: EL during notice up to [50%] of notice days. The rest must be served or bought out.
• Multi-state teams: a Bangalore-payroll employee cannot claim a Maharashtra-only festival holiday by default. List home location in the offer letter and tag a state holiday calendar.
• Loss of pay (LOP): once balance is exhausted, leave converts to LOP at (Gross / 30) per day from the next payroll.
• Sandwich leave: if an employee takes leave on Friday and the next Monday, the weekend counts as leave only if the policy explicitly says so. Most Indian SMEs do not count weekends.

6. POSH and protected leave

The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act 2013 does not prescribe a fixed paid leave. The Internal Committee can recommend up to 3 months of paid leave to the complainant during inquiry, separate from her regular entitlement. Link this from the leave handbook so HR does not deduct it from EL by mistake.

7. Make the policy self-service, not a PDF on a shared drive

A leave policy that lives only in a Google Doc gets ignored. Push it through a system the employee already uses.

• Acknowledgement: every employee e-signs the policy. Track version number and signature date.
• Live balances: each employee sees CL, SL, EL, and comp-off balances on their dashboard, refreshed after every payroll run.
• Mobile-first: 70% of leave applications in Indian SMEs come from a phone. The flow should take under 30 seconds.
• State-aware holiday calendar: the right list shows up based on the employee's location.
• Audit trail: who approved, when, on what device. Useful when somebody disputes a deduction six months later.