Leave in India is governed by two layers, and most confusion comes from reading only one of them.
The Occupational Safety, Health and Working Conditions Code, 2020 sets a central floor for annual leave with wages. Above it sits your state Shops and Establishments Act, which the Labour Codes did not repeal and which is often more generous. Maharashtra, Karnataka and Delhi all differ, and several states amended their Acts during 2025 and 2026.
Where the two differ, apply whichever is better for the employee. Here are the leave types you will actually need to define.
1. Earned leave (EL) or privilege leave (PL)
Leave that accrues with service, usually as a proportion of days worked, and is meant for planned time off.
This is the one with financial consequences. Earned leave typically carries forward up to a ceiling and is encashable, which makes accrued leave a real liability on your books. Most small companies have never put a number on it until someone senior resigns.
Set out clearly: how it accrues, how much carries forward, what lapses, and what is encashed on exit. The carry-forward rule is the one employees remember and finance forgets to provision for.
2. Casual leave (CL)
Short, unplanned absences. A day for a personal emergency, a family obligation, something that could not be scheduled.
Casual leave usually does not carry forward and is not encashable, which is exactly why it gets exhausted in the last quarter of the year. Some companies merge CL and SL into a single pool to avoid the gaming. That is a policy choice, not a legal requirement, and it is worth checking against your state Act before you do it.
3. Sick leave (SL)
For illness, injury or recovery. Entitlement is set by your state Shops and Establishments Act, so it genuinely varies.
Decide in advance when you require a medical certificate, and apply that rule consistently. Asking one employee for proof and not another is the kind of inconsistency that becomes evidence later.
For employees covered by ESI, extended illness may attract sickness benefit under the Code on Social Security, 2020, which is separate from your own sick leave policy.
4. Maternity leave
Maternity benefit now sits in the Code on Social Security, 2020, which absorbed the Maternity Benefit Act, 1961 and its 2017 amendment. The entitlement did not disappear with the old Act, but your handbook should cite the Code rather than the repealed statute.
Two things employers commonly miss: the obligation applies well below the headcount people assume, and the creche threshold moved when the OSH Code came into force. Check the current trigger against your own numbers rather than the figure you remember.
5. Paternity leave
Not a statutory entitlement for private-sector employees in India. Companies that offer it do so as policy.
If you offer it, write down the duration, the notice required and whether it can be split. An informal “take what you need” arrangement reliably produces two employees who got different answers.
6. Bereavement leave
Also policy rather than statute. Usually three to five days, and usually defined by relationship to the deceased.
Worth writing down precisely because nobody wants to negotiate it in the moment. A written rule means the manager approves rather than decides.
7. Leave without pay (LWP)
When paid leave is exhausted and the absence is still necessary.
The operational point is that LWP changes gross pay, which changes PF, ESI and professional tax. So it is not purely an HR decision, and it needs to reach payroll before the cut-off rather than after.
Building a leave policy that holds up
Four things settle most disputes before they start.
- Configure per state, not per company. If you employ in four states you have four sets of statutory minimums.
- Write the carry-forward and lapse rules explicitly, and provision for the encashment liability.
- Let employees see their own balance. This removes an entire category of argument.
- Make sure the balance reaches payroll. Final settlement is due within two working days of an exit under the Code on Wages, 2019, and you cannot hit that if the leave balance is reconciled manually.
We configure leave rules per state as part of our HR service, with a Cloud HRMS included. See how leave and attendance management works, or tell us which states you employ in.
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