Leave policy in India: Employer’s guide in 2026

India’s leave policy is governed by state-specific labor laws and central acts, including the Factories Act, 1948, and the Shops & Establishments Act. Employees are typically entitled to earned leave of a minimum of 18 days, casual leave and sick leave of a minimum of 7 days annually, and more. Maternity leave stands at 26 weeks under the Maternity Benefit Act, 1961. 

India has a complex leave policy landscape, with entitlements varying across states, industries, and employee categories. Understanding these entitlements isn’t just a matter of offering competitive benefits; it’s also essential for compliance with Indian labor laws. 

Let us explore the leave policy in India in detail. Also, learn how an employer of record, such as Payoneer Workforce Management, helps handle leave administration end-to-end. The EOR helps with statutory entitlements, payroll (including holiday pay), onboarding, and more.

Payoneer Workforce Management helps navigate the leave policy in India, local labor laws, payroll and more seamlessly. Want to know more? Schedule a demo today!

What is vacation or annual leave in India?

Vacation or annual leave in India is also referred to as earned leave (EL) or privilege leave (PL). Employees are entitled to 15-18 days of leave per year, once they complete 240 days of service with the employer. 

In India, vacation/annual leave can vary across regions and industries, based on how a person is classified. “Employees” are individuals performing work of any kind, while “workers” are those employed in the manufacturing industry.

• Under the Factories Act, 1948, workers earn 1 day of leave for every 20 days worked in the previous calendar year.
• Under most Shops and Establishments Acts, employees earn 1 day of leave for every 20 to 30 days worked, depending on the state.

On average, this means that employees are entitled to 18 days of earned vacation time per year. Vacation days are typically earned after working for at least 240 days in a year, so new employees may need to complete a minimum period of service before being allowed to take leave.

Under the annual leave policy in India, public holidays are not counted as part of vacation time and are provided in addition to earned leave entitlements.

What are the public holidays in India?

In India, employees are typically granted an average of 8 public holidays per year (3 festivals + 5 national holidays). However, it may vary depending on the state where they live and their employer’s holiday policy.

Three national holidays are mandatory across the whole country:

• Republic Day: January 26th
• Independence Day: August 15th
• Gandhi Jayanti: October 2nd

Additional holidays (eg, Diwali, Eid, Holi, and Christmas) vary by state and religion, so employers usually publish a holiday list at the start of each year based on state regulations.

Here are the commonly observed public holidays in India:

How many days of sick leave are employees entitled to in India?

Employees in India receive 7 days of sick leave annually, though this can vary by state and employer. In some states, employees may be entitled to 12 days of sick leave annually, which means 1 day of sick leave per month. Sick leave typically doesn’t carry over to the next year and is not eligible for encashment.

What is the maternity leave policy in India?

According to the Maternity Benefit Amendment Act, 2017, female employees are entitled to 26 weeks of fully paid maternity leave in India. This leave is for first- and second-time mothers. For the third child and beyond, female employees are entitled to 12 weeks of maternity leave. 

The employee must have worked for a minimum of 80 days in the past 12 months preceding the expected date of delivery to be eligible for maternity leave.

How much is paternity leave in India?

In India, paternity leave is not mandated under federal law. However, many employers have increasingly begun offering paid leave to new fathers. It is at the discretion of the employer whether to provide paternity leave to the employee. Some organizations offer unpaid paternity leave for a specific timeframe. 

What is the leave encashment policy in India?

There is a unique leave encashment policy in India. Employees can convert unused paid leave into cash while they’re still employed or when they leave a company. 

Vacation time or earned leave is the only category of leave that typically accrues and carries forward year to year, and can be encashed. Casual and sick leave are generally not encashable, and usually lapse if unused in a calendar year.

Some employers allow employees to cash out earned leave once it passes a specific threshold (e.g., more than 30 or 45 days). 

According to the leave encashment policy in India, companies must pay out the full balance of any unused earned leave on resignation, retirement, or termination.

Is there a bereavement leave policy in India?

Many companies have a bereavement leave policy in India, which is 3 days, as part of their internal HR policies to support employees during the loss of a loved one, though it is not mandatory. 

This is especially important in India, where the death of a family member can often involve religious rituals and extended family responsibilities.

What are the other types of leave in India?

In addition to vacation, sick, casual, and maternity leave, several other types of leave may be offered in India. While some are mandated by law in specific situations, others are at the company’s discretion. Some of these laws include: 

Compensatory off

Also called comp off, this is time off granted to employees who work on a weekend or public holiday. It’s not legally mandated, but is widely practiced in India. 

Wedding leave

Many companies provide 3 days of paid leave when an employee gets married, as a gesture of goodwill, though it is not mandated.

Compassionate leave

Employees are entitled to a minimum of 5 days of compassionate leave in a year.

Loss of pay (LOP) / Leave without pay (LWP)

This is unpaid leave that employees can take after using up all their paid leave entitlements. 

Family and emergency leave

While not formally defined in Indian labor law, many companies offer family or emergency leave on a case-by-case basis. Typically unpaid, it is granted for urgent personal matters such as a family illness, accident, or crisis. 

Sabbatical leave

A sabbatical is a long-term break from work, often unpaid, that is granted to employees for personal growth, education, or health reasons. It is not required by law, but some companies include it as a policy benefit for employees who meet certain tenure criteria (e.g., 5 or more years of service).

Here is an example of calculating leave entitlements for an employee in India:

Anne is a software engineer at a Bengaluru-based IT firm, employed under the Karnataka Shops and Establishments Act. She joined on 1 January 2024 and worked 240 days during the year.

For 2025, Anne is entitled to:

• Earned Leave: 18 days (1.5 days per 20 days worked)
• Sick Leave: 7 days (as per Karnataka S&E Act)
• Casual Leave: 7 days (for unplanned absences)
• Public Holidays: 3 national holidays + state-declared festival holidays

Anne takes 8 earned leave days during the year. The remaining 10 days are carried forward to 2026, within the permissible 30-day carry-forward limit under the Factories Act, 1948.

What would happen if the leave policy in India is not handled by an EOR?

Managing leave policy in India without an EOR means navigating overlapping central and state labor laws independently. This indicates risks of non-compliance, payroll errors, and employee disputes. With an Employer of Record, leave entitlements are correctly administered, statutory obligations are met across all states, and HR teams get support to navigate complex compliance. 

Here is a detailed comparison of handling leave policy in India with and without an EOR:

Leave policy aspect	Without an EOR	With an EOR
Leave Entitlement Calculation	Chances of errors due to varying state rules and employee categories.	Accurately calculated per applicable law for earned, sick, casual, and maternity leave.
New Labor Code Updates	The employer bears responsibility for monitoring and implementing regulatory changes.	EOR updates policies to reflect the new Labor Codes.
Statutory Compliance	Employers must independently track central and state-specific leave laws.	EOR supports compliance with the Factories Act, 1948, Maternity Benefit Act, and state S&E Acts.
Public Holiday Tracking	Manual tracking of 3 national + state-specific holidays across multiple locations.	Automated holiday calendar management by state and establishment type.
Payroll During Leave	Manual calculation of wages during leave periods, which can cause a high error risk.	Seamless payroll processing during all leave periods at the correct statutory wage rates.
Leave Carry-Forward & Encashment	Complex to manage across states; risk of under/overpayment at year-end.	Managed in line with the 30-day carry-forward and mandatory encashment rules under the new Labor Codes.
Multi-State Operations	Separate compliance frameworks required for each state.	Single-point compliance across all Indian states through one EOR partner.

Are you ready to explore Payoneer Workforce Management in India?

Managing employee leave in India can be complex, with varying rules across states, industries, and employee classifications. As your Employer of Record (EOR), Payoneer Workforce Management helps streamline the process, helping you stay compliant with local labor laws, accurately tracking leave entitlements, and supporting with payroll responsibilities. 

Focus on growing your global team, and we’ll handle the admin.

Book a demo today!

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