Statutory Leave

Indian leave law does not sit in one place, which is the first thing to understand about it. Different entitlements come from different statutes, and several of the most relevant are state legislation.

• Annual leave with wages. Required, with the entitlement expressed as a number of days earned for a number of days worked. The source is the Occupational Safety, Health and Working Conditions Code, 2020 for establishments within its scope, and state shops and establishments legislation for the rest.
• Weekly rest. A day of rest in each week, with rules about substitution.
• National and festival holidays. Set by state legislation, typically a small number of national holidays that must be granted plus a list from which festival holidays are chosen.
• Maternity benefit. Now in the Code on Social Security, 2020. Section 60 sets the benefit at the average daily wage, subject to the minimum wage fixed under the Code on Wages, 2019, and imposes a qualifying condition on the woman's period of employment. The duration of the benefit, and the protections against dismissal during it, sit in sections 61 to 65, which have not been checked against the enacted text and are not stated here.
• Leave connected to specific circumstances, such as miscarriage, medical termination and illness arising out of pregnancy, which sits in the same unread group of sections and should be taken from the Code rather than from a summary.

Casual leave and sick leave are the common surprise. In many states they are not separately mandated for all establishments, and where they exist they come from state legislation rather than a central statute. Most organisations grant them anyway, as policy, and that is where they get their force.

Shops and establishments legislation is state legislation, and it governs the majority of office-based workplaces. Each state has its own Act, its own leave entitlements and its own holiday requirements. Two offices of the same company in different states can have genuinely different statutory minimums.

This produces a familiar policy choice.

The third is common and is not a strategy. It arises when a policy is written once at a head office and applied everywhere.

Rules under the Codes are also notified state by state, so the position on any specific entitlement depends on where the establishment sits and what that state has notified. Verify the entitlement for each state of operation rather than assuming a national figure.

Annual leave with wages is the entitlement with the most detailed mechanics, and the ones most often mishandled.

• It accrues on days actually worked, at a prescribed ratio, rather than being granted in full on day one. A mid-year joiner therefore earns a proportion.
• It carries forward, subject to a cap on accumulation. A policy that forfeits all unused leave at year end runs against that.
• It is paid at the rate the statute prescribes, which is defined by reference to wages rather than to whatever the policy calls the daily rate.
• Untaken leave within the carry-forward limit generally has to be paid out at exit, and this interacts with the tax treatment of leave encashment.
• There are provisions about how much notice an employee gives, how many instalments leave can be taken in, and the employer's ability to refuse.

The forfeiture point causes the most disputes. An employer wanting employees to actually take leave, which is a reasonable goal, should encourage or require it to be taken rather than removing accrued entitlement, because accrued statutory leave is not simply the employer's to cancel.

One caution about everything in this section. The mechanics above describe how annual leave with wages is structured, and the structure is not in dispute: section 33 of the OSH Code requires the register to record leave, leave wages and overtime, so these are live obligations with a documentary trail. But the leave provisions themselves have not been checked against the enacted text for this entry, and neither have the state enactments. No accrual ratio, carry-forward cap, payment rate or qualifying period appears here for that reason. Take those from the Code and the applicable state rules before configuring anything.

• A single national policy that is below the statutory minimum in at least one state, usually discovered when an employee in that state raises it.
• Year-end forfeiture of accrued annual leave, applied uniformly.
• Leave paid at a rate lower than the statutory basis, because the policy defines a daily rate that excludes components the statute includes.
• Maternity treated as a policy category, with conditions attached that the statute does not permit.
• National holidays not granted, or converted into optional leave, where the state requires them.
• Probationers and fixed term employees excluded from leave accrual, when the entitlement does not distinguish in the way the policy assumes.
• Contract workers at the premises assumed to be entirely the contractor's concern, which is only partly true.

The common thread is a policy written as though leave were entirely within the employer's gift. Most of it is, at the margin above the statutory floor. None of it is below that floor.

Three decisions get most of it right.

First, establish the statutory minimum for each state where you have people, and treat that as the floor rather than the design. Write down which entitlement comes from which source, because that is the record that answers a question two years later.

Second, decide whether to run one policy or several, and make it a decision rather than an accident. One policy at the highest standard is defensible and simpler, and the cost difference is usually smaller than the administrative saving.

Third, separate statutory entitlements from discretionary ones in the policy document itself. An employee reading it should be able to tell which leave is theirs by law and which is granted by the organisation, because the two behave differently on exit, during disputes and when the policy changes.