Everything You Should Know About HR Leave Policy

Ever wondered how many paid leaves an employee can take? Or whether the company is following the right leave policies?

Taking leaves is the legal right of employees working under any organisation in the country. The employers should initiate the leave policy creation if they are all set to hire candidates. It is one of the essential policies that both employers and employees will access every day. The organisation should elucidate how many paid, unpaid leaves, and holidays they will offer for the workers. Besides holidays and weekends, employees can also take certain leave types, including sick leave, casual leave, bereavement, and more.

This guide will help HR professionals and employees understand the must-know rules, laws, and best practices in India

What is a leave policy?

Leave policy is the document that includes information about leave allocation for the upcoming annual year, created by the HR department under the management team’s guidance. HR professionals should be aware of local laws when creating documentation. In India, the Factories Act and the state-level Shops and Commercial Establishment Acts govern the business of leaves. Employers share the document with the employees once a year and also provide it to the new hires.

A few aspects impacting the company’s leave policy

• Company size
• Employment duration
• Employee designation
• Weekend policy
• Geographical location of the company
• Public holidays of the year

Why do companies need a leave policy?

Every employee has the right to take leave, and business owners have a statutory obligation to do so. Workers must spend quality time off work to maintain a work-life balance. Birth, death, illness, family events, and many other circumstances necessitate the individual to apply for leave.

If a well-crafted leave policy is in place, it would be much easier for an employee to step down from work and take up responsibilities in personal life. There would be no concerns about losing pay when taking time off.

Leave laws in India  

Occupational Safety, Health and Working Conditions Code, 2020

“A worker who has worked for at least 180 days in a calendar year is entitled to one day of leave for every 20 days worked.”

The Occupational Safety, Health and Working Conditions Code, 2020 replaced the Factories Act, 1948 under India’s new labour-law framework and came into force on November 21, 2025. Under the Code, a worker who has worked for at least 180 days in a calendar year earns one day of leave for every 20 days worked. The Code generally allows up to 30 days of unused leave to be carried forward to the next calendar year.

2026 update: The Ministry of Labour and Employment clarified in March 2026 that leave applied for but not granted can be carried forward without the usual 30-day limit.

National and Festival Holidays

“National and festival holidays vary depending on the state and applicable law.”

National and festival holidays are mainly governed by state-specific laws. For example, Tamil Nadu provides national and festival holidays under the Tamil Nadu Industrial Establishments (National, Festival and Special Holidays) Act, 1958. Therefore, the number and type of holidays can differ from one state to another.

Maternity Benefit Act – Code on Social Security, 2020

“Eligible working women are entitled to up to 26 weeks of paid maternity benefit after completing 80 days of work.”

The Code on Social Security, 2020 includes the maternity benefit provisions previously covered under the Maternity Benefit Act, 1961. Eligible women can receive up to 26 weeks of maternity benefit after actually working for at least 80 days in the 12 months before the expected date of delivery. For women with two or more surviving children, the maximum benefit is 12 weeks.

Shops and Establishments Act

“Leave entitlements for shops and commercial establishments vary by state.”

Shops and commercial establishments are governed by state-specific laws covering working conditions, holidays and leave. Therefore, there is no single leave entitlement that applies to all shops and establishments across India. Employers should follow the applicable state law and relevant provisions of the Labour Codes.

Typically, employees are entitled to one day of leave for every 20 days worked, with the option to carry forward a portion of unused leave. The act ensures employees in shops and establishments have a structured leave policy, promoting work-life balance and protecting their rights in the unorganised sector.

Importance of leave policy

Employee satisfaction 

• Mental peace is one of the huge factors considered while evaluating employee satisfaction in an organisation. Mental well-being requires some time off from the usual routine, and every worker in the organisation can use the leaves to rejuvenate.
• Employees must fulfill some personal commitments in addition to work responsibilities, and they should be able to take leaves in such circumstances without having to worry about their compensation being deducted.
• When employees know the number of leaves they can take in a year, they can prioritise leaves for the most important events.

Better work culture

• A well-documented policy for paid, unpaid, and holiday leave directs employees to use all their leaves in an organised manner. This reduces the risk of conflicts in leave planning and will make it easier for management to implement reliable resource planning.

Liberty with limitations

• Limitations are crucial in every business, so it will help workers to choose a path based on employer guidelines. 

To learn more, read HR policies and it’s importance

How Can You Create an Effective Leave Policy for Employees?

1. Choose the leave types for employees: Evaluate the employees’ needs and work demands to determine the suitable leave types.
2. Levy clear rules and regulations: It is not just about the leave balances and types that should be mentioned prior. Instructions include, employees should notify management at least [X] days in advance before taking leave or a proper doctor’s note for medical leaves.
3. Weekend policy declaration: Many firms follow regular workweeks (Monday through Friday), but a few have shifted to flexible schedules. The concept of hybrid work, 24/7 support, and other factors can impact the weekend policy. The company must lay out a suitable policy based on employees’ work styles and preferences.
4. Technology usage: After crafting a policy, HR departments face the challenge of informing employees about it. However, it is also hard for the workers to stay informed about the leave balances for them. This is why top companies utilise the best leave management software. For instance, DigiSME leave management software lets employers craft leave policies and announce the entire organisation effortlessly.

Wrapping up

In conclusion, crafting a comprehensive leave policy is essential for every organisation. It not only ensures compliance with legal requirements but also fosters a positive work culture, enhancing employee satisfaction and productivity. A well-defined leave policy allows employees to manage their personal and professional lives effectively, reducing stress and promoting work-life balance. Organisations can prevent misunderstandings and maintain smooth operations by clearly outlining leave types, rules, and regulations. Ultimately, a thoughtfully designed leave policy benefits both employers and employees, creating a harmonious workplace where everyone’s needs are respected and addressed.

Leave Policy Frequently Asked Questions