Employee Leave Policy in India

author Shreyika Walia , Apoorv Shishodia

calender February 29, 2024

Employee Leave Policy in India

In the dynamic environment of the Indian workforce, the employee leave policy in India is the foundation to shape a balanced and supportive professional environment. It acts as an important mechanism for the well-being of employees and for the overall efficiency and productivity of the organizations. Employee Leave policy in India is not one-size-fits-all as they vary across states, sectors, organizations, and the employment duration. Through this article, we will explore the complexities of the structure laid down under the labour laws in India. At the same time, we will explore the dynamics of the leave policy in India for private companies, where advancement and flexibility often shape employee benefits. Both these aspects integrate to form a leave ecosystem in India which is reflective of the evolving dynamics of work culture and societal needs.

Structure of leave policy in India as per labour law

Leave policies in India are not formulated at the sole discretion of private companies but is governed by several labour legislations. In India, the regulations pertaining to leaves are governed by both central labour laws and state labour laws established by the respective state governments for organizations operating within their jurisdiction. Specifically, the leave policies for workers employed in manufacturing businesses, such as factories, are governed by the Factories Act, 1948 (“Factories Act”). For employees working in entities other than manufacturing units, the leave provisions are governed by the Shops and Establishment Act ("S&E Act") of the state where the registered office or corporate office of the organization is located.

Leave policy in India as per the S&E Act

As previously mentioned, organizations not involved in manufacturing activities are governed by the S&E Act of the respective state. Additionally, there can be instances where an organization is engaged in manufacturing activities, but it has a corporate office other than the factory or certain employees do not qualify as workers under the Factories Act. In such cases, the leaves for the corporate branch of the organization and employees not categorized as workers under the Factories Act are regulated by the leave provisions outlined in the S&E Act. The following leaves are available for employees under the S&E Act:

Earned Leave

Earned leaves, also known as privilege leaves, are contingent on the duration of an employee’s tenure. These are paid leaves that employees accumulate based on their duration in an organization, allowing them to take time off with pay for personal reasons or for vacations. The number of earned leaves and the accumulation of the same are different in every state of India, depending upon their local factors and the specific requirement of that particular state. For example, as per the S&E Act applicable in the state of Punjab, every employee who has been in employment for not less than 20 (twenty) days in a year shall be entitled to 1 (one) day's earned leave for every such 20 (twenty) days. Whereas, as per the S&E Act applicable in the state of Uttar Pradesh, every employee who has been in continuous employment of the same employer for a period of 12 (twelve) months, is entitled to earned leaves of at least 15 (fifteen) days for every 12 (twelve) months of such service.

Sick Leave

Sick leaves are provided to employees to deal with the health problems. Through these leaves, an employee can take a paid time off to recover from any illnesses or medical conditions. Same as the earned leaves available as per the respective S&E Act of that particular state, the sick leaves are also different for every state in India. For instance, the S&E Act applicable in the state of Karnataka, every employee is entitled to a maximum of 12 (twelve) days of sick leave in a calendar year. Whereas, in the state of Punjab, employees are entitled to 7 (seven) days of sick leaves in a calendar year.

Casual Leave

Casual leaves are short-term, unplanned leaves granted to employees for unforeseen situations, emergencies, or personal reasons, allowing them to take time off work with pay. The number of casual leave days varies across organizations as per the S&E Act of that particular state. For instance, the S&E Act applicable in the state of Uttar Pradesh stipulates a provision of 10 (ten) days of causal leaves to the employees in a calendar year. Whereas, there is no such provision for casual leaves in the S&E Act applicable in the state of Karnataka.

Public Holidays

Though not categorised as a type of leave, S&E Act of the respective states also provide recognition to specific public holidays. Employees are entitled to take these days off without any deduction in pay. This ensures that individuals can celebrate and observe national, regional, or religious holidays and contribute to the cultural diversity and inclusivity in the workplace.

Leave policy in India as per the Factories Act

The leave structure for organizations in India engaged in the manufacturing sector is regulated by the Factories Act. The Factories Act includes a provision for earned leaves for workers, which are more or less similar to the provisions outlined in the S&E Act of various states. According to the Factories Act, every worker who has rendered services for a period of 240 (two hundred and forty) days or more in a factory during a calendar year is entitled to 1 (one) day of earned leave for every 20 (twenty) days of work performed in the preceding calendar year. However, it's noteworthy that while the Factories Act provides for earned leaves, it does not include any provisions for casual leaves or sick leaves for workers employed in organizations with manufacturing operations.

Maternity Leaves

Apart from the above-mentioned types of leaves, there is a provision in India for granting paid maternity leaves to the female employees. These maternity leaves are over and above all the leaves that a female employee is entitled to by virtue of any law in force. The Maternity Benefit Act, 1961 governs maternity leaves in India. Under this legislation, employers are mandated to provide a maximum of 26 (twenty-six) weeks of paid leave to female employees who have rendered a minimum of 80 (eighty) days of service in the establishment in the 12 (twelve) months preceding the date of the expected delivery. Furthermore, female employees are entitled to additional maternity leaves beyond the initial 26 (twenty-six) weeks in situations of illness arising out of pregnancy, delivery, premature birth, or miscarriage.

Leave policy in India for private companies

Private companies in India adhere to both labour laws and market practices when formulating their employee leave policies. While labour laws establish a baseline for minimum leave entitlements, many progressive companies choose to go beyond these statutory requirements as part of their commitment to employee welfare and satisfaction. In addition to providing leaves mandated by labour laws, companies may offer enhanced benefits, such as increased leave accrual rates, additional casual or privilege leaves, and special leave categories for unique situations.

Moreover, in compliance with the legal mandates, organizations allow carry forward of leaves and leave encashment, enabling employees to accumulate unused leave days in subsequent years and further, receive monetary compensation for unused leaves at the end of a specified period. However, progressive private companies often offer leave encashment and carry-forward options that surpass the minimum stipulations set by labour laws, showcasing a dedication to fostering a positive work environment.

In the Indian market, the general trend among private companies is to adopt a flexible and employee-centric approach while formulating leave policies. The aim is to attract and retain talent by going beyond the legal obligations and aligning leave policies with the evolving needs and expectations of employees. The competitive job market often drives private companies to differentiate themselves by offering comprehensive leave benefits as part of their overall compensation and benefits packages.

Also Read: Notice Period under the Indian Labour and Employment Law Regime


In short, employee leave policy in India is a key element in shaping modern workplaces. Private companies create their own policies to meet the distinct needs of their employees, going beyond what the labour law requires. At the same time, leave policy in India as per labour laws ensure fair treatment and guarantee basic leave rights for everyone.

This combination of private company policies and legal rules creates a relationship where businesses care for their employees, and laws ensure fairness. Robust leave policies, with clear communication and a commitment to fairness, not only help individual private companies succeed but also contribute to creating respectful and dignified workplaces in society.

To conclude, Indian private companies should comply with the rules outlined in labour laws while also prioritizing the well-being of their employees, taking into account the specific organization structure and the needs of their workforce.

Blog HR, Employment & Labour


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