Paid Time Off (PTO) in India

Last updated: October 25.2023.

Complex Leave Laws in India

Labor laws governed by states and type of industry.

Understanding leave laws in India is very complex. Similar to the United States, Canada, and China, every state in India has its own distinct PTO policy. However, in contrast to many countries, India’s leave policies are determined by the laws of the state where the company is legally registered, rather than the state where the worker is employed. Even though every state in India has a different regulation related to leave entitlements and paid time off, most state laws have similar provisions for major matters. Also, the type of business determines rules, as different sectors are subject to specific labor laws.

Main Acts Governing Labor Laws

Employers are required to follow the leave provisions mandated by national and state laws.

However, the specific economic sector in which a company operates determines its precise rules, as labor laws vary by the nature of business (industry). The two primary acts that outline the various leave types available to Indian employees and the working hours are:

• The Factories Act
• The State Shop and Establishment Act

The Factories Act specifically governs paid leave and other requirements for workers in the manufacturing industry. Although it doesn’t apply to employees in other sectors, it serves as a useful standard regarding PTO.

The Shop and Establishment Act governs other establishments like shops, IT companies, insurance companies, financial institutes, banks, and more. Each state has its own Shop and Establishment Act. This act details three types of leave: privilege (vacation) leave, casual leave, and sick leave. However, these provisions can vary between states. A company’s leave policy must at least meet the leave provisions set by that State’s Shop and Establishment Act, ensuring it isn’t less favorable than the stipulated guidelines.

Upcoming Labor Laws Change

On top of all the rules, there are anticipated changes to the labor laws that will likely affect these leave policies. Although this legislation concerning workers’ rights was passed in 2020, its implementation was postponed due to COVID-19. Now, it’s projected to come into effect either in 2023 or 2024. Until then, the complex existing rules concerning paid time off remain in place.

Types of Leave Offered in Indian Companies

These are the most common types of leave offered by Indian companies:

• Holidays
• Vacation (aka earned leave or privileged leave)
• Sick leave
• Casual leave
• Maternity or paternity leave
• Compensatory off
• Marriage leave
• Bereavement leave
• Leave without pay

Most of these leaves are mandatory, with a set minimum duration. Many companies in India go above and beyond the minimum requirements, and others offer an even broader range of leaves than mandated. However, the specifics of leave policies can differ significantly among employers. In any case, a company’s leave policy may not be less than specified by national and state laws.

Unlimited PTO

In India, like in many other countries, employers can provide their employees with unlimited PTO. However, if they choose to do so, it’s important for employers to track all PTO taken to remain compliant with Indian leave laws.

Vacation Leave in India

In India, vacation leave is commonly known as earned leave or privilege leave. The term comes from the fact that this type of leave is earned through active work on regular workdays, excluding weekends, holidays, and any days when the employee is not actively working. The accumulation of earned leave depends on the number of days the employee has worked for the company in the previous year and can be taken in the following year.

Vacation Leave Quota

The legal requirements for the duration of vacation vary by state and type of industry.

By law, employers in India are obligated to provide earned leave, although the specifics are subject to state labor regulations. The rules for accruing and the duration of this leave vary not just by state but also across different types of industries.

In most cases, private sector employees are entitled to a minimum of 15 days of earned leave per year, but again, this varies by state. The terms of paid time off are specified in employment agreements.

Leave Encashment

Although leave encashment is not a statutory requirement for employers, many of them choose to offer this option to their employees. This provides them an opportunity to receive monetary compensation for their unused leave days. Leave encashment is typically based on the employee’s basic salary. For instance, one day of earned leave balance is equivalent to one day’s worth of basic pay. Some companies use gross income instead of basic salary for this calculation.

Advance Notice

Earned leave lasting more than a week is classified as ‘long leave.’ Considering that extended absences can potentially disrupt work within a team, planning prior to the leave becomes crucial. Providing advance notice to the team and manager well in advance (typically at least 15 days or a month before leave) is necessary to maintain a seamless workflow, unless the situation is an emergency.

CarryOver

Employees generally have the option to carry over all their accrued but unused days into the following year. This is often limited to 30 days in most cases, but some employees who are covered by the Shops and Establishments Act can carry over from 45 to 60 days (again, it depends on the region). Some states allow carryover for up to 3 years.

When accrued leave exceeds this limit, it is automatically converted into cash. The specifics are always detailed in the leave policy of the company.

Factories Act

At least 12 days of paid vacation.

Eligibility: The Factories Act specifies that workers who have completed a minimum of 180 days in a calendar year are entitled to 12 working days of vacation.

This eligibility has been changed by the New Labour Code for New India under the OSH Code (Occupational, Safety, Health and Working Conditions Code) – 2020; this minimum number of days worked used to be 240 days before this new law. These Labour Codes also updated the rules governing leave entitlements, carryover, and the use of accumulated leave while remaining employed.

Young and Adult Workers

The vacation entitlement varies between young and adult workers. Young workers (under the age of 15) are entitled to more days of earned leave than adult workers. A young worker accrues 1 day of vacation for every 15 days worked, while adult workers accrue 1 day of vacation for every 20 days worked.

As a result, the duration of earned leave is:

• Young workers: 20 working days of vacation per year;
• Adult workers: 15 working days of vacation per year.

The Last Word

However, it’s important that company policy is in accordance with the rules established by the specific state and appropriate industry-set guidelines.

Shops and Commercial Establishments Act

Minimum vacation entitlement is from 12 to 18 days per year.

This Act governs establishments outside of factories, including shops, IT and service companies, and more. Each Indian state has its own version of the Shops and Commercial Establishments Act.

Employees begin accruing vacation either at the start of the calendar year or from their employment start date until December 31st of that year. Leave is calculated monthly throughout the year. While the law sets a minimum accrual rate of 5 days of vacation for every 4 months of service, most companies usually allow employees to accrue 1.25 days of vacation per month, though this can vary by state. The maximum amount of accrued, unused leave that can be rolled over to the next year varies by state: from 30 to as much as 60 days. Additionally, employees are entitled to compensation for their accrued leave, either upon leaving their jobs or during their employment.

Casual Leave in India

Up to 6 days of paid leave for unexpected personal events.

Casual leave is intended for short breaks for any urgent and unforeseen personal needs and demands authorization from management. The length of casual leave granted depends on the urgency and the specific circumstances. Employees usually have the benefit of taking three to seven successive days of casual leave, though the exact allotment can differ among employers, states, and industries.

Under the Shops and Establishment Act, employers are required to provide their employees with up to 6 days of paid leave to accommodate any urgent or unforeseen personal requirements. Generally, companies provide employees with a minimum of 0.5 days to a maximum of 3 days of leave per month based on certain criteria. If the leave exceeds 3 days, employees should take the earned leave. Casual leave cannot be carried over into the next year, cashed, or paid at termination. It cannot be taken in addition to privilege leave or sick leave.

Sick Leave in India

Up to 12 days per year.

Typically, the duration of sick leave ranges between 5 and 12 days per year.

State governments have the authority to set their vacation policies, which may contain both casual and sick leave. These policies can range from 1 day of leave for every 20 days worked, to a total of 15 days of vacation per year.

Employees are required to provide a medical certificate if the leave exceeds 2 or 3 days (because sick leave is prone to misuse). Sick leave cannot be carried over into the next year or paid at termination. It can be taken in addition to privilege leave.

Payout

Sick leave is paid by the employer. Employees receive 70%–100% of their average salary.

Maternity, Paternity, and Adoption Leave in India

Maternity Leave

6 months.

The Maternity Benefit Act is regulated by the central government, unlike earned leave, casual leave, and sick leave, which are governed by state laws.

Employers are required to provide 6 months (26 weeks) of paid leave to any woman who has worked for at least 80 days in the 12 months preceding the date of expected delivery. Leave can be taken up to 8 weeks before the expected delivery date and continued for at least 6 weeks after the birth. Working mothers are entitled to 26 weeks of paid maternity leave for the first two children. However, for any subsequent child, the paid leave entitlement is reduced to 12 weeks.

Employees are entitled to an additional month of leave due to medical conditions related to pregnancy, delivery, premature birth, miscarriage, medical termination, or a tubectomy operation, with an additional 2 weeks available in the latter case.

Employers must not require a pregnant employee to continue with their work for the 10 weeks preceding the expected delivery date.

Payout of Maternity Leave

Maternity leave in India is paid by the employer at a rate of 100% of the average wage. An employee may take longer leave than what is statutory, but this extended part of the leave is not paid.

Paternity Leave

Not required by law.

No labor law in India requires employers to provide their employees with paternity leave. Although the Central Government provides statutory paternity leave to its employees, this is still not mandated by law for the private sector.

On the other hand, even though paternity leave is not officially recognized in the private sector, most organizations with a progressive company culture are offering this benefit to their employees. Numerous large businesses are now including paternity leave in their employment contracts to attract and retain global talent. The duration of this paid time off is usually 1 to 4 weeks.

Parental Leave

Not required by law.

There is no statutory requirement for parental leave in India.

Adoption Leave

12 weeks.

Surrogacy and adoption provide eligible employees with 12 weeks of paid leave.

Employees are entitled to up to 12 weeks of maternity leave when adopting a child. The commissioning mothers (mothers who engage a surrogate mother to carry a child for them) are also eligible for 12 weeks of paid leave.

Bereavement Leave in India

Not required by law.

There is no law in India requiring employers to provide bereavement leave for their workers. It is up to an employer’s policy, but companies usually offer this type of leave. The duration of this leave varies greatly among companies; while most offer 2–5 days, some may offer up to 20 days.

Jury Duty Leave in India

Not required by law.

Military Leave in India

Not required by law.

Voting Leave in India

Not required by law.

Other Types of Leave in India

Marriage Leave

Though marriage leave isn’t mandated by law in India (like it is, for example, in Mauritius), the majority of companies allow this type of leave for their employees. The length of time offered varies from 1 day to 15 days, depending on company policy. However, the most common length is 3 working days. This leave is allowed only for the 1st legal marriage of an employee during their employment period with a company. A company’s human resources department can request a copy of the marriage certificate in order to authorize time off.

Compensatory Off

Compensatory leave, or “comp-offs,” is also known as time off in lieu in Western companies. This type of leave happens when employees work during holidays, on a non-working day, or extra hours. They are then awarded additional paid time off, instead of being paid overtime. Basically, this is an alternative to paying employees for their overtime or extra-time work.

Leave Without Pay or Loss of Pay Leave

In situations where an employee has exhausted all their paid time off balance but needs additional leave for an urgent matter, companies may authorize Leave Without Pay (LWP). This type of leave is also called Loss Of Pay (LOP) leave because it results in a loss of income for the worker.

Holidays in India

Providing paid leave for holidays is mandatory for employers.

Employers are required to provide paid leave for all their employees during public and religious festivals. Bank holidays vary among cities and states. Typically, state legislation has the same rules for most important matters. There are many festivals and religious holidays in India, but only the following three are fully covered by national public holidays:

• Republic Day, January 26
• Independence Day, August 15
• Gandhi Jayanti (Gandhi’s Birthday), October 2

Besides these three main ones, festivals and religious holidays like Budh Purnima, Christmas, Good Friday, Dussehra, Diwali, Eid, and Guru Nanak Jayanthi are also observed throughout the country.

Here is an approximate number of bank holidays in a few Indian states. These numbers represent a combination of national holidays and state-specific holidays:

• Maharashtra: Approximately 20–25 bank holidays
• Tamil Nadu: Approximately around 22–27 bank holidays
• West Bengal: approximately 22–28 bank holidays.
• Karnataka: Approximately 20–25 bank holidays.
• Uttar Pradesh: Approximately 18–23 bank holidays
• Gujarat: Approximately 20–24 bank holidays.
• Rajasthan: Approximately 20–25 bank holidays.
• Kerala: Approximately 20–26 bank holidays

Sources

1. Definitive Guide to Hiring in India, https://www.globalexpansion.com/countrypedia/india
2. Indian Labor Laws, https://www.india-briefing.com/doing-business-guide/india/human-resources-and-payroll/labor-law
3. Maternity Leave in India 2023: Rules, Importance & Benefits, https://www.acko.com/group-health-insurance/maternity-leave-policy/#maternity-leave-policy-rules-in-india
4. ​​Bank Holidays in India 2023 & 2024, https://www.goodreturns.in/bank-holidays.html
5. Public holidays in India – Wikipedia, https://en.wikipedia.org/wiki/Public_holidays_in_India

Check out our Leave Laws page to learn more about laws in various countries.