How to Build a Leave Policy That's Fair and Easy to Manage
## Introduction
Few HR topics cause as many questions as leave. How many days do I get? Can I carry them forward? Will unused leave be paid out? Why did my colleague's request get approved when mine didn't?
A clear leave policy answers these questions before they're asked. It gives employees the time off they need, keeps your business running smoothly and makes sure you follow the law.
This guide explains how to build a leave policy that's fair to employees and easy for HR and managers to run, from choosing leave types to setting rules, meeting legal requirements and managing it all day to day.
## Types of leave to include
| Leave type | Purpose | Common practice |
|---|---|---|
| Earned or privilege leave (EL/PL) | Planned time off such as holidays | 12 to 21 days a year, often accrued monthly, can usually be carried forward |
| Casual leave (CL) | Short, unplanned personal needs | 6 to 12 days a year, usually not carried forward |
| Sick leave (SL) | Illness or medical appointments | 6 to 12 days a year, medical certificate for longer absences |
| Public and festival holidays | National and regional holidays | 3 national holidays plus festival holidays set by state rules |
| Maternity leave | Childbirth and recovery | Up to 26 weeks of paid leave for eligible employees |
| Paternity leave | Supporting a new child | Not mandatory in the private sector, but commonly 5 to 15 days |
| Adoption leave | Adopting a child | Up to 12 weeks for adopting mothers of a child under three months |
| Bereavement leave | Death of a family member | 3 to 5 days |
| Compensatory off | Working on a holiday or weekly off | One day off for each day worked |
| Leave without pay (LOP) | When paid leave is exhausted | Salary deducted for the days taken |
You don't need every type. Choose the ones that fit your team, your industry and the law in your state.
## Legal requirements in India
Leave in India is governed by a mix of central and state laws. Your policy must meet at least the minimum they set.
**Shops and Establishments Acts:** Each state has its own act for offices, shops and commercial establishments. These set minimum earned, casual and sick leave, along with rules on carry-forward, encashment, weekly offs and holidays. The rules vary noticeably from state to state.
**The OSH Code:** The Occupational Safety, Health and Working Conditions Code, in force since November 2025, covers factories and many other establishments. Workers become eligible for annual leave with wages after 180 days of work in a year, earning one day of leave for every 20 days worked. Leave can be carried forward up to a set limit and unused leave can be encashed.
**The Code on Social Security:** This covers maternity benefit, including up to 26 weeks of paid maternity leave for eligible women, 12 weeks for adopting and commissioning mothers and leave for miscarriage.
**National and festival holidays:** Republic Day, Independence Day and Gandhi Jayanti are compulsory paid holidays across India. States also require a set number of festival holidays.
Because requirements vary by state and are changing under the new codes, check the rules for every state where you have employees.
## Key rules to define
A leave policy works only if the rules are clear. Decide each of these upfront and write them down.
- **Leave year:** Calendar year (January to December) or financial year (April to March).
- **Accrual:** Is leave credited all at once at the start of the year, or earned monthly (for example, 1.5 days a month for 18 days a year)?
- **Probation:** Can new employees take leave during probation, or only after confirmation?
- **New joiners and exits:** How leave is prorated for employees who join or leave mid-year.
- **Carry-forward:** How many unused days can move to the next year, and is there a maximum balance?
- **Encashment:** Can unused earned leave be converted to cash, when (yearly or at exit) and on which salary component?
- **Notice periods:** How far in advance employees must apply for planned leave.
- **Approvals:** Who approves leave and how quickly they must respond.
- **Documentation:** When a medical certificate or other proof is required.
- **Sandwich rule:** Whether weekends or holidays between leave days count as leave.
- **Half-day leave:** Whether employees can take leave in half-days.
- **Leave during notice period:** Whether leave can be taken or adjusted against the notice period.
- **Leave without pay:** When it applies and how it affects salary.
## A sample leave policy structure
Here's a simple structure a small or mid-sized company could start from. Adjust the numbers to meet the rules in your state.
| Leave type | Entitlement | Accrual | Carry-forward | Encashment |
|---|---|---|---|---|
| Earned leave | 18 days a year | 1.5 days per month | Up to 30 days | At exit, on basic pay |
| Casual leave | 8 days a year | Credited at the start of the year | Lapses at year-end | No |
| Sick leave | 8 days a year | Credited at the start of the year | Up to 24 days | No |
| Public holidays | 10 to 12 days a year | Published at the start of the year | Not applicable | Not applicable |
| Maternity leave | Up to 26 weeks | As per law | Not applicable | No |
| Paternity leave | 10 days | Per child | Not applicable | No |
| Bereavement leave | 5 days | Per event | Not applicable | No |
| Compensatory off | 1 day per holiday worked | On approval | Use within 60 days | No |
Your written policy should also cover eligibility, how to apply, approval timelines, documentation and what happens when leave runs out.
## Making your leave policy fair
A fair policy is one employees trust. That comes from consistency, clarity and recognizing that people's needs differ.
- **Apply the same rules to everyone:** Leave entitlements should depend on clear criteria like tenure or role, not on who's asking or which manager approves.
- **Be transparent:** Publish the policy and let employees see their own balances and request status at any time.
- **Support life events:** Paternity, adoption and bereavement leave show employees you value them beyond their work.
- **Consider flexibility:** Floating holidays let employees choose festivals that matter to them. Half-day leave and flexible hours help with short appointments.
- **Encourage people to take leave:** A policy that looks generous on paper but where no one takes time off leads to burnout. Managers should set the example.
- **Include contract and part-time staff:** Where appropriate, give them prorated entitlements so they're treated fairly too.
## Making your leave policy easy to manage
Even the best-written policy fails if it's hard to run. These steps keep leave management simple.
- **Write it down and share it.** Put the policy in your employee handbook and walk new hires through it during onboarding.
- **Use one system for requests.** Emails, WhatsApp messages and paper forms get lost. A single system keeps every request and approval in one place.
- **Automate accruals and balances.** Let software credit leave, apply carry-forward, and calculate balances instead of tracking them in spreadsheets.
- **Connect leave to attendance and payroll.** Approved leave and LOP should flow straight into payroll, so salaries are always correct.
- **Plan team coverage.** A team leave calendar helps managers avoid too many people being away at once.
- **Set approval timelines.** Ask managers to respond within a fixed time, with reminders and escalation if they don't.
- **Review the policy every year.** Update it for legal changes, feedback from employees and how leave was actually used.
## How Mocha HRMS manages leave
- **Custom leave types and rules:** Set up entitlements, accruals, carry-forward and encashment to match your policy.
- **Leave requests on mobile:** Employees apply for leave and check balances from the Mocha HRMS employee app.
- **Quick approvals:** Managers approve or reject requests in a tap, with notifications for both sides.
- **Holiday calendars:** Publish holiday lists by location, so every office follows its own state's holidays.
- **Team leave calendar:** See who's away and plan coverage in advance.
- **Connected to attendance and payroll:** Approved leave and LOP flow straight into payroll with no manual work.
- **Leave reports:** Track balances, usage and trends across your organization.
With Mocha HRMS, your leave policy runs itself and employees always know where they stand.
## Conclusion
A good leave policy is clear, legally compliant, fair to every employee and simple to run. Choose the right leave types, define your rules upfront, meet your state's requirements and use a system that handles the day-to-day work.
Leave laws vary by state and are changing under the new labour codes, so review your policy with an HR or legal advisor at least once a year.
**Ready to take the hassle out of leave management?** Book a free demo of Mocha HRMS.
## Frequently asked questions
### How many days of leave should a company give in India?
It depends on state law and company policy, but a common total is 30 to 40 days a year, including earned, casual and sick leave plus public holidays.
### Is leave encashment mandatory?
For earned leave, many state laws and the OSH Code require encashment of unused leave in certain situations, such as at exit. Check the rules for your state.
### Can employees take leave during probation?
It's up to the company, subject to state law. Many companies allow casual and sick leave during probation and earned leave after confirmation.
### Is paternity leave mandatory in India?
Not for private companies under current law, but many employers offer it to attract and keep talent.
### What is the sandwich rule?
It's a policy where weekends or holidays falling between leave days are counted as leave. Companies can choose whether to apply it and should state it clearly.