Templates
Leave policy template for Indian companies, and how leave usually works
A written leave policy saves more arguments than any other HR document. This guide explains the leave types most Indian companies offer, how carry-forward and encashment usually work, and gives you a template you can adapt. State rules differ, so treat the numbers as a starting point to confirm, not a final answer.
TL;DR
- Most Indian SMBs offer earned (privileged) leave, casual leave, sick leave, paid holidays, and statutory maternity leave.
- Minimum entitlements come from your State's Shops and Establishments Act (or the Factories Act for factories), and they vary. Confirm locally before you publish.
- Decide in writing: how leave accrues, what carries forward, the cap, what lapses, and when unused leave is encashed.
- Put approval rules, notice periods and loss-of-pay rules in the policy so managers do not invent them case by case.
- Use the template below, fill in your numbers, and have your labour consultant review it.
Why a written leave policy matters
Without a written policy, leave rules live in the owner's head and change depending on who is asking. That is how you end up with one branch allowing carry-forward and another not, a manager approving five days of casual leave in a row, and an exit settlement that turns into a dispute over 14 days of unpaid leave balance.
A policy does three things. It tells employees what they are entitled to before they ask. It gives managers rules to apply rather than judgement calls to defend. And it gives payroll something definite to calculate from.
Where the minimums come from
In India, leave for most private employers is set at State level. Shops, offices, clinics, hotels and similar establishments generally fall under the State's Shops and Establishments Act. Factories fall under the Factories Act, 1948, which provides annual leave with wages based on days worked. Paid national and festival holidays are usually set by a separate State law. The Centre's Labour Codes also deal with leave and are being brought into effect alongside State rules.
The practical consequence: the minimum number of earned, casual and sick days, the eligibility period and the carry-forward cap differ from State to State, and sometimes by type of establishment. A company with branches in Kerala, Karnataka and Tamil Nadu may need to meet three different minimums. Most employers simply set one policy at or above the most generous State minimum that applies to them.
Before you publish your policy, confirm the current leave entitlements, eligibility rules and holiday requirements for every State you operate in with your labour law consultant or CA. This article does not quote State-specific numbers because they vary and change.
The common leave types
| Leave type | What it is for | How it commonly works |
|---|---|---|
| Earned or privileged leave (EL/PL) | Planned holidays and personal time | Accrues through the year, often monthly. Usually needs advance notice. Commonly carried forward up to a cap, and often encashed on leaving. |
| Casual leave (CL) | Short, unplanned personal needs | A small number of days a year, taken one or two at a time. Usually lapses at year end and is not encashed. |
| Sick leave (SL) | Illness | Often needs a medical certificate beyond a set number of consecutive days. Some employers allow limited carry-forward. |
| Paid holidays | National and festival holidays | Most States require Republic Day, Independence Day and Gandhi Jayanti as paid holidays, plus festival holidays that differ by State. |
| Maternity leave | Pregnancy and childbirth | Under the Maternity Benefit Act, 1961, eligible women get up to 26 weeks of paid leave for the first two children, with shorter periods after that and for adoption or commissioning mothers. |
| Paternity leave | New fathers | Not a general statutory requirement for private employers, but a common benefit. Decide the number of days and say so. |
| Loss of pay (LOP) | Absence beyond available balance | Salary is reduced for the days. How a day's pay is worked out depends on your work week, so write it down. |
| Compensatory off | Working on a weekly off or holiday | A day off in lieu, usually to be taken within a set period. |
HR-VEND works out maternity, adoption and commissioning-mother entitlements from the dates; see Maternity and family in the user guide.
Carry-forward, lapse and encashment
Year end is where most leave disputes happen, because the rules were never written down. Decide each of these, per leave type:
- Leave year. Calendar year (January to December) or financial year (April to March). Pick one and use it everywhere.
- Accrual. Is the full year's leave credited on 1 January, or earned month by month? Monthly accrual avoids someone taking a year's leave in their second month and resigning.
- Carry-forward cap. How many unused days move to the next year, and the maximum balance anyone can hold. Check the minimum your State allows.
- Lapse. What happens to days above the cap. Usually they lapse; some employers encash them instead.
- Encashment. Whether unused earned leave is paid out each year, only on leaving, or both, and on what pay (basic, or basic plus dearness allowance) it is calculated. The tax treatment has limits; ask your CA.
- Negative balance. Whether staff can borrow leave they have not yet earned, and how it is recovered if they leave.
In HR-VEND, year end works out what lapses, carries forward and is encashed for everybody at once, per policy, and shows you the result before you commit it.
The leave policy template
Copy this into your own document. Replace everything in square brackets, and delete anything that does not apply to you.
1. Purpose and scope
This policy sets out the leave available to employees of [Company name] and how to apply for it. It applies to all [permanent / probationary / fixed-term] employees at all offices from [effective date]. Where a State law provides a higher entitlement for an office in that State, the higher entitlement applies.
2. Leave year
The leave year runs from [1 January to 31 December / 1 April to 31 March].
3. Leave entitlement
- Earned leave: [__] days a year, accrued at [__] days per completed month, available after [__] months of service.
- Casual leave: [__] days a year, credited [at the start of the year / monthly]. Not more than [__] days at a time.
- Sick leave: [__] days a year. A medical certificate is required for more than [__] consecutive days.
- Paid holidays: as per the holiday list published for each office before the start of the leave year.
- Maternity leave: as provided under the Maternity Benefit Act, 1961.
- Paternity leave: [__] days, to be taken within [__] weeks of the birth or adoption.
4. Applying for leave
Leave must be applied for through [HR system / form] and approved by the reporting manager before it is taken. Earned leave of more than [__] days needs [__] weeks' notice. Unplanned casual or sick leave must be reported to the manager by [time] on the day.
5. Carry-forward, lapse and encashment
Up to [__] days of unused earned leave may be carried forward, to a maximum balance of [__] days. Leave above this [lapses / is encashed] at the end of the leave year. Casual leave lapses at year end. On leaving, unused earned leave is encashed at [basic / basic plus dearness allowance] per day.
6. Leave without pay
Absence without approved leave, or beyond the available balance, is treated as loss of pay. One day's pay is calculated as [monthly salary ÷ working days in the month / monthly salary ÷ 30].
7. Compensatory off
An employee asked to work on a weekly off or holiday may take a compensatory day off within [__] days, with the manager's approval.
8. Holidays falling within leave
Weekly offs and paid holidays falling within a period of leave [are / are not] counted as leave.
9. Review
This policy is reviewed every year. Questions go to [HR contact].
Rolling it out
- Check the numbers against each State's rules with your consultant.
- Publish the holiday list for each office before the leave year starts.
- Share the policy and record acknowledgement. A dated acknowledgement is useful evidence later. HR-VEND tracks this under My Policies.
- Load opening balances so nobody starts the year at zero by mistake.
- Move requests into one place. Approvals on WhatsApp get lost; approvals in a system move the balance and reach payroll. See Leave requests.
New joiners should receive the policy on day one; it belongs on your onboarding checklist.
Frequently asked questions
How many leaves are mandatory in India for private companies?
Can unused earned leave be carried forward?
Is leave encashment compulsory when an employee leaves?
Is paternity leave mandatory for private companies in India?
Do I need a different leave policy for each State?
This article is general information for Indian employers, not legal or tax advice. Labour and tax rules differ by State and change over time, so confirm anything you act on with your CA or labour law consultant.