Looking to hire employees in India? It’s essential to understand the local leave policy and what types of time off employees are entitled to. Understanding these entitlements isn’t just a matter of offering competitive benefits; it’s also essential for compliance with Indian labor laws.

It doesn’t matter whether you’re hiring full-time staff or contracting short-term workers. Staying aware of local regulations helps you mitigate legal risks and keep your employees happy. 

Let’s dig into the leave policy in India.

Annual leave policy in India

In India, vacation time (AKA 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.

Public holidays

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:

Holiday	Date
Republic Day	January 26th
Holi	March (day changes every year)
Good Friday	March/April (day changes every year)
Ram Navami	March/April (day changes every year)
Mahavir Jayanti	March/April (day changes every year)
Eid al-Fitr (End of Ramadan)	April (day changes every year)
Buddha Purnima	April/May (day changes every year)
Independence Day	August 15th
Raksha Bandhan	August (day changes every year)
Janmashtami	August/September (day changes every year)
Ganesh Chaturthi	August/September (day changes every year)
Muharram	July/August (day changes every year)
Gandhi Jayanti	October 2nd
Dussehra (Vijayadashami)	October (day changes every year)
Diwali (Deepavali)	October/November (day changes every year)
Eid al-Adha (Bakrid)	October (day changes every year)
Guru Nanak Jayanti	November (day changes every year)
Christmas Day	December 25th

Sick leave

Employees in India receive 7 days of sick leave annually, though this can vary by state and employer. Sick leave typically doesn’t carry over to the next year and is not eligible for encashment.

Maternity leave policy in India

According to the maternity leave policy in India, female employees who have at least worked 80 days are entitled to 26 weeks of paid maternity leave. 

For any subsequent children, this may be reduced. Employers must pay 100% of the employee’s wages during this leave period.

Paternity leave

In India, paternity leave is not mandated under federal law, though employers have increasingly begun offering paid leave to new fathers. 

Paternity leave is up to the discretion of individual companies to implement. Employers could offer fully-paid leave for a certain amount of time, or allow their workers to take unpaid leave for a specific timeframe, with the guarantee that their job will be waiting for them. 

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.

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.

Other types of leave in India

In addition to vacation, sick, casual, and parental leave, several other types of leave may be offered in India, some of which are mandated by law in specific situations, while others are at the discretion of the company. 

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.

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).

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!

FAQs

1) What is the vacation leave policy in India?

Employees in India typically receive 18 days of earned vacation time per year.

2) How many public holidays are mandatory in India?

India has three mandatory paid national holidays: Republic Day (January 26th), Independence Day (August 15th), and Gandhi Jayanti (October 2nd). The rest of the public holidays vary by state. 

3) How does leave encashment work in India?

The leave encashment policy in India allows employees to be paid for unused earned leave when they resign, retire, or sometimes during employment. The rules vary by state and employer.