Types of Leave in India
Earned, casual, sick and statutory leave — what the law requires and what is left to your policy.
Leave is one of the few areas of Indian employment law where there is no single national rulebook. Some entitlements come from central legislation, some from your state's Shops and Establishments Act, and a large part is simply company policy. Getting the split wrong is how employers end up either non-compliant or quietly giving away more leave than they intended.
This guide covers each leave type an Indian employer needs to account for, what the law actually requires, and where you are free to decide.
The three sources of leave entitlement
- Central statutes — the Factories Act 1948, the Maternity Benefit Act 1961, and the ESI Act set floors that apply regardless of where you operate.
- State Shops and Establishments Acts — these govern offices, shops and most non-factory workplaces, and they differ meaningfully between states.
- Company policy — anything above the statutory floor, including most compensatory-off and paternity arrangements.
Earned Leave (also called Privilege Leave or Annual Leave)
Earned leave is the entitlement most commonly defined in statute. Under section 79 of the Factories Act 1948, an adult worker who has worked 240 days or more in a calendar year earns leave in the following year at the rate of one day for every 20 days worked. For a young worker the rate is one day for every 15 days.
A full year of work therefore produces roughly 15 days of earned leave. State Shops and Establishments Acts set their own figures for non-factory establishments, commonly in the range of 12 to 21 days a year.
Carry-forward
Unused earned leave is normally carried forward, subject to a ceiling — the Factories Act caps accumulation at 30 days for an adult worker. Company policies frequently set their own cap and require anything above it to be encashed or lapsed at year end.
Encashment
Earned leave is the type usually eligible for encashment, either annually or at exit as part of the full and final settlement. Encashment paid during employment is taxable as salary. Encashment at retirement or resignation is exempt for government employees; for other employees the exemption under section 10(10AA) is subject to a monetary ceiling.
Casual Leave
Casual leave covers short, unplanned absences — a day for a personal errand, a family matter, a civic obligation. It does not appear in the Factories Act; it comes from state Shops and Establishments Acts, which typically provide somewhere between 7 and 12 days a year.
Two conventions are near-universal in Indian practice, though they are policy rather than statute:
- Casual leave lapses at the end of the leave year rather than carrying forward.
- It cannot usually be combined with earned leave or taken in long blocks.
Sick Leave
Sick leave is also a state-level entitlement, commonly 7 to 14 days a year, often requiring a medical certificate beyond two or three consecutive days.
Where an employee is covered by ESI, there is a second layer: the ESI scheme provides a sickness benefit of roughly 70% of average daily wages for up to 91 days in a year, subject to contribution conditions. Employers covered by ESI often structure sick leave on the assumption that ESI carries the longer absences.
Maternity Leave
The Maternity Benefit Act, as amended in 2017, provides 26 weeks of paid maternity leave for the first two children and 12 weeks for the third onwards. Adopting and commissioning mothers are entitled to 12 weeks. Establishments with 50 or more employees must provide creche facilities.
This is a central entitlement and does not vary by state. We cover the detail, including the work-from-home provision and the interaction with ESI, in the maternity leave guide.
Paternity Leave
There is no statutory paternity leave for private-sector employees in India. Central government employees receive it under the CCS (Leave) Rules. Private employers who offer it — and many now do, typically 5 to 15 days — are doing so as policy, which means the terms are entirely theirs to set.
National and Festival Holidays
Most states require a minimum number of paid holidays each year through a National and Festival Holidays Act or equivalent. Three are commonly mandated across states:
- Republic Day — 26 January
- Independence Day — 15 August
- Gandhi Jayanti — 2 October
Beyond those, the festival list is usually chosen by the employer from a state-published schedule, which is why holiday calendars differ between two companies in the same city.
Compensatory Off
Where an employee works on a weekly off or a declared holiday, a compensatory day off is the standard remedy — and under the Factories Act, a worker required to work on a weekly holiday must be given a substituted holiday within a defined window. Businesses running shifts or seasonal peaks should track comp-off with an expiry, otherwise the liability accumulates invisibly.
Leave Without Pay
When an employee has exhausted their entitlement, further absence is loss of pay. This is where leave policy meets payroll: every LOP day has to flow into that month's salary calculation, and a mistake here is one of the most common causes of payroll disputes.
Designing a leave policy that survives an audit
- Confirm which Act covers each establishment — factory, shop or commercial establishment, and in which state.
- Set your entitlement at or above the statutory floor for each leave type, then write it down. An unwritten policy is decided by whoever argues hardest.
- Define the leave year — calendar or financial. The Factories Act works on the calendar year, so factories usually align to it.
- State carry-forward and encashment rules explicitly, including the cap.
- Decide the accrual method — monthly accrual is easier to pro-rate for joiners and leavers than annual crediting.
- Record every balance. Leave liability is a real number on your books and it appears in full at exit.
Where this gets automated
Leave is deceptively hard to run on a spreadsheet, because it is three problems at once: an accrual engine, an approval workflow, and a payroll input. Balances have to accrue correctly for mid-month joiners, LOP has to reach the salary calculation without being re-keyed, and encashable balances have to be available on the day someone resigns.
WorkoTime handles leave types with Indian rules built in — configurable accrual, carry-forward caps, encashment, and LOP that flows directly into payroll alongside attendance. If you are currently reconciling a leave register against a salary sheet by hand, that is the reconciliation this removes.