Leave Policy Explained: Types of Leave Every Company Needs

Every company’s leave policy needs at least five types of leave: annual (earned or privilege) leave, sick leave, casual leave, public and festival holidays, and statutory family leave such as maternity leave. Most organisations then add paternity, bereavement, compensatory off and leave without pay. For each type the policy should state who is eligible, how much is given, how it is applied for and approved, and what happens to unused balances.

This guide explains each leave type, what Indian law requires where it sets a rule, the choices you make yourself, and a section-by-section template you can adapt. If you run teams in several states or countries, read it alongside how to structure leave policies based on location, which covers the location layer.

Why a written leave policy matters

A written policy lets employees plan time off without negotiating each request, lets managers approve consistently, and gives payroll one set of rules for leave without pay, encashment and exit settlements. In India it also supports compliance: employers must keep attendance registers and wage records, and the Labour Codes, in force since 21 November 2025, set minimum standards for annual leave and maternity benefit. When rules are unwritten, approvals depend on the manager, and that is where most complaints of unfair treatment begin.

The leave types at a glance

Leave type	Purpose	Set by law in India?
Annual, earned or privilege leave	Planned rest and holidays	Yes, minimum for workers under the OSH Code; state laws may add rules
Sick leave	Illness or injury	Under state shops and establishments laws; ESIC cash benefit for insured employees
Casual leave	Short, unplanned personal needs	Under many state laws; otherwise policy
Public and festival holidays	National days and local festivals	Yes, state holiday laws
Maternity leave	Pregnancy, birth, adoption	Yes, Code on Social Security, 2020
Paternity leave	Support after birth or adoption	No general private-sector entitlement; policy choice
Bereavement leave	Death of a family member	Policy choice
Compensatory off	Rest for work on a holiday or weekly off	Required in some cases; otherwise policy
Leave without pay	Absence after paid leave is used up	Policy choice

Core leave types explained

1. Annual, earned or privilege leave

This is paid leave that builds up with service. Under section 32 of the OSH Code, a worker who has worked 180 days or more in a calendar year earns one day of annual leave with wages for every 20 days worked, can carry forward up to 30 days, and can ask for encashment at the end of the year. Holidays that fall within a period of leave are excluded from the leave counted. Your policy should state the accrual rate, when new joiners can start using leave, notice needed for planned leave, carry-forward and encashment limits, and how leave is paid on exit.

2. Sick leave

Sick leave covers illness and injury. In India, the number of days usually comes from the state shops and establishments law or your own policy. Employees covered by ESIC can also claim sickness benefit, a cash payment from ESIC when they are certified sick, subject to its conditions. Decide when a medical certificate is needed (for example, after two consecutive days), whether sick leave can be taken in half days, and whether unused days carry forward.

3. Casual leave

Casual leave handles short, unexpected needs such as a family errand or a home repair. Policies commonly cap how many days can be taken at once, do not allow it to be combined with annual leave, and let unused casual leave lapse at the end of the year. Check whether your state law fixes the number of days.

4. Public and festival holidays

Paid holidays in India are governed by state national and festival holiday laws, which typically fix national days and let the employer choose the remaining festival holidays. Publish a holiday list for each location before the year starts, and say whether employees can swap a festival holiday for one more relevant to them (often called an optional or restricted holiday).

5. Maternity leave

Maternity benefit now sits in Chapter VI of the Code on Social Security, 2020, which replaced the Maternity Benefit Act. The key rules your policy should reflect:

• Eligibility: the woman must have actually worked for the employer for at least 80 days in the 12 months before the expected delivery date.
• Duration: up to 26 weeks, of which not more than eight weeks may come before the expected delivery date. For a woman with two or more surviving children, the maximum is 12 weeks, with not more than six before delivery.
• Adoption and surrogacy: the Code gives an adopting mother and a commissioning mother 12 weeks from the date the child is handed over. The Code’s text limits the adoption benefit to a child below three months of age, and this condition was examined by the Supreme Court in 2026, so check the current position before you finalise the clause.
• Pay: at the average daily wage for the period of absence.
• Other entitlements: the Ministry of Labour’s employer compliance handbook lists a medical bonus of Rs 3,500, six weeks for miscarriage or medical termination of pregnancy, two weeks for tubectomy, two nursing breaks until the child is 15 months old, and a creche in establishments with 50 or more employees.
• Protection: an employer must not dismiss or discharge a woman for absence on maternity leave.
• Work from home: where the work allows it, the employer may let her work from home after the maternity benefit period on mutually agreed terms.

For employees covered by ESIC, maternity benefit is paid by ESIC once the employee qualifies under its conditions; the Code keeps the employer liable until then. Payroll must know which route applies to each employee.

Leave types most companies add by policy

• Paternity leave: the Code on Social Security does not create a general paternity leave right for private employers, so the length and pay are yours to set. Many employers offer a short paid period usable within a few months of birth or adoption.
• Bereavement leave: define which relatives are covered and how many days, and allow it at short notice.
• Compensatory off: where someone works on a weekly off or holiday, state how comp-off is earned, approved and how long it stays valid. Under the OSH Code, workers deprived of a weekly holiday because of an exemption must get compensatory holidays within the month or the two following months.
• Leave without pay: who can approve it, the maximum length, and its effect on accrual and benefits.
• Special leave: sabbaticals, study leave, marriage leave, or leave for medical caregiving, if they suit your culture and budget. For caregiving requests, see what HR needs to know before handling family and medical leave requests.

Leave policy template: the sections to include

1. Purpose and scope: who the policy covers (employees, interns, fixed-term staff) and which locations.
2. Leave year: calendar year or financial year, and how mid-year joiners and leavers are pro-rated.
3. Leave types and entitlements: one short subsection per type, with a table of days by location.
4. Accrual and eligibility: monthly or annual credit, and any waiting period during probation.
5. Applying for leave: the system used, notice periods for planned leave, and how to report unplanned absence.
6. Approval: who approves, how quickly, and grounds for refusing or deferring leave.
7. Documentation: when a medical certificate or other proof is needed.
8. Carry-forward and encashment: limits, timing and how encashment is calculated.
9. Holidays within leave and half days: how weekends and holidays inside a leave period are counted.
10. Leave on exit: payment for unused leave in the final settlement, which under the Code on Wages, 2019 is due within two working days of resignation, removal or dismissal.
11. Records: where balances are kept and how employees can check them.
12. Misuse and review: how unauthorised absence is handled and when the policy is reviewed.

Sample clause: “Employees must apply for planned annual leave through the HR system at least [X] working days in advance. The reporting manager will approve or decline within [Y] working days. Leave that has been applied for and refused will be carried forward in line with applicable law.”

Common mistakes

• Setting entitlements below the state or Code minimum for some locations.
• Counting holidays inside a leave period as leave days without checking the law.
• Leaving managers to decide exceptions informally.
• Forgetting that leave balances feed into the final settlement and its deadline.
• Not updating the policy for the Labour Codes. Our checklist of HR policies to rewrite for the Labour Codes helps.

Leave and attendance rules should match, so cross-check this policy with your time and attendance policy. To get a structured first draft, use the HRTailor.AI HR Policy Generator: choose the leave policy, set your country and company size, and edit the draft before adopting it.

Last reviewed: 26 October 2026. General information, not legal or tax advice.

Official sources

• India Code: Code on Social Security, 2020
• Ministry of Labour and Employment: Occupational Safety, Health and Working Conditions Code, 2020
• Ministry of Labour and Employment: Compliance Handbook for Employers under the Four Labour Codes

Related reading

• How to Create a Leave Policy for Your Company in India and What the Law Actually Requires
• How to Structure Leave Policies Based on Location
• What Are the Essential HR Policies a Growing Company Cannot Skip