In India, annual leave is generally referred to as earned leave (EL) or privilege leave (PL) and is governed by the Factories Act 1948 for factory workers and by state-level Shops and Establishments Acts for most other employees. Entitlement and rules vary by state but the most common formula is one day of earned leave per 20 days worked, with carry-over and encashment limits set by statute and contract.

Statutory entitlement

Under the Factories Act, one day of earned leave for every 20 days worked in the previous calendar year (15 for adults / 20 for adolescents). State Shops and Establishments Acts typically provide 12–21 days per year of earned leave.

Eligibility

Workers who completed 240 days of work in the previous calendar year qualify under the Factories Act. State Acts typically have similar service thresholds.

Employer obligations

  • Grant earned leave at the statutory rate applicable to the establishment (Factories Act or relevant state Shops Act).
  • Pay earned leave at the rate of basic wages plus dearness allowance and any cash equivalent of admissible food/concessions.
  • Allow accumulation up to the statutory ceiling (commonly 30–45 days depending on state).
  • Permit encashment of leave above the carry-over ceiling and on termination.
  • Maintain leave registers and records as required by the applicable Act.

Employee rights

  • Right to apply for earned leave with at least 15 days' notice (factories) or as per state rules.
  • Right to encashment of accumulated leave above the carry-over cap.
  • Right to encashment of all accrued earned leave on resignation, retirement, or termination.
  • Right to be paid leave wages at the statutory rate, in advance where the leave is for four or more days under the Factories Act.

Common pitfalls

  • Applying Factories Act rules to non-factory employees instead of the relevant state Shops and Establishments Act.
  • Ignoring different statutory entitlements between states (Karnataka, Maharashtra, Delhi, Tamil Nadu, etc. each have variations).
  • Not paying leave wages in advance for leave of four or more days, as required by the Factories Act.
  • Capping carry-over without permitting encashment of the excess, which the statute usually requires.

Factories Act formula

Under section 79, an adult worker who has worked at least 240 days in a calendar year is entitled to one day of leave for every 20 days worked in the previous year. For an adolescent it is one day per 15 days worked. Days lost to lay-off, maternity leave (up to 12 weeks), and authorised leave count as worked days for this calculation.

Shops and Establishments Acts

Most office, retail, and service-sector employees fall under their state's Shops and Establishments Act. These typically provide 12–21 days of earned leave per year, plus separate sick and casual leave. Karnataka, for example, provides 18 days; Maharashtra provides 21 days after one year; Delhi provides 15 days.

Accumulation and encashment

Earned leave can typically be accumulated up to 30 or 45 days (depending on state). Leave beyond the accumulation cap must usually be encashed at the end of the year. On separation, all accrued earned leave must be encashed at the latest drawn basic plus dearness allowance.

Frequently asked questions

How is earned leave calculated in India?

Under the Factories Act, one day of earned leave is granted for every 20 days worked in the previous calendar year. Under most state Shops Acts, employees receive 12–21 days of earned leave per year.

Is leave encashment compulsory in India?

Yes for accumulated leave above the statutory carry-over cap and for all unused earned leave on separation. Many employers also offer in-service encashment as a benefit.

Do casual leave and sick leave count separately from earned leave?

Yes. Most state Shops Acts provide separate quotas for earned leave, sick leave, and casual leave. Casual and sick leave are generally non-accumulating.

Sources

This page is provided for general guidance and does not constitute legal advice. Always check the cited primary source for current law before making employment decisions.