Key takeaways
- Earned leave starts after 180 days of work in a calendar year (it was 240 under the Factories Act).
- Workers earn 1 day for every 20 days worked, about 15 days a year.
- Up to 30 days carries forward; the excess can be encashed at year-end.
- Leave balances must be paid out within two working days when an employee leaves.
A clear leave policy prevents most HR arguments before they start: how much leave people get, when they can take it, and what happens to the balance at year-end or exit. The labour codes changed several of those answers, so many existing policies are now out of date.
Our template is a starting point you can adapt in an hour. Everything you need to decide is highlighted in yellow, and the legal minimums are already written in.
What the OSH Code changed for leave
| Rule | Before (Factories Act) | Now (OSH Code, Section 32) |
|---|
| Eligibility for annual leave | 240 days worked | 180 days worked |
| Rate of earning | 1 day per 20 days worked | 1 day per 20 days worked |
| Carry forward | Varied by law and state | Up to 30 days |
| Above the carry-forward limit | Often lapsed | Can be encashed at year-end |
| Leave applied for but refused | Varied | Carries forward without the limit |
Check your state rules tooThe OSH Code sets annual leave for workers in covered establishments. Casual leave, sick leave and festival holidays usually come from your state's Shops and Establishments Act, and they vary by state. Where any law gives employees more, follow it.
What's inside the template
- Leave summary table with entitlement, carry forward and encashment for every leave type.
- Earned leave with the 180-day rule, accrual, 30-day carry forward and year-end encashment.
- Casual, sick, paternity, bereavement leave and compensatory off, with suggested numbers you can change.
- Maternity leave as per the Code on Social Security: up to 26 weeks for the first two children, 12 weeks after that or on adoption.
- Public holidays, including the three national holidays.
- How to apply, approvals, weekly offs during leave, probation and notice period rules.
- Leave encashment formula, with one fixed divisor, and payment within two working days on exit.
Free download
Leave Policy Template (Word)
- 4 pages, fully editable
- Every choice highlighted in yellow
- Updated for the labour codes
- No sign-up needed
Download (.docx)
How to roll out your policy
1
Fill in the highlighted valuesDecide casual and sick leave days, the leave year, the encashment divisor and approval rules, then delete the instructions box.
2
Check against your state lawCompare with your state's Shops and Establishments rules and keep whichever is more generous.
3
Set up the rules in your HR systemConfigure accrual, the 180-day eligibility, 30-day carry forward and year-end encashment so balances are always right.
4
Share it and get acknowledgementPublish the policy, explain the changes, and record each employee's acknowledgement.
How GoHRMS helps
Your leave policy, running itself
- Any leave types, accrual and carry-forward rules
- Apply and approve from the mobile app
- Holiday calendars per location
- Balances flow straight into payroll and F&F
See Leave Management
Frequently asked questions
A worker who has worked 180 days or more in a calendar year earns one day of leave for every 20 days worked, roughly 15 days for a full year. Adolescent workers earn one day for every 15 days.
Up to 30 days of unused annual leave can be carried forward to the next calendar year. Leave above that limit can be encashed at the end of the year. Leave that the employee applied for but was refused carries forward without the limit.
The OSH Code sets annual (earned) leave. Casual and sick leave usually come from your state's Shops and Establishments Act or from company policy, so the number of days varies by state.
Leave encashment is part of the wages due on exit, which the Code on Wages requires to be paid within two working days of the last working day. See our full and final settlement guide.
Tags:Leave policyOSH CodeEarned leaveLeave encashmentHR template
GC
Gizmosys Compliance Team
Our team writes and reviews HR policies for growing businesses across India. Want a policy tailored to your company and state? Talk to our HR consultants.
Sources:
Section 32, OSH Code annual leave (TaxClue) ·
OSH Code and Central Rules 2026 FAQs (Acuity Law) ·
Leave encashment and the 30-day cap (EZHRM).
This article and template are general information, not legal advice.