Leave policy, type by type
CL, SL, EL and the rest of the alphabet: what each leave type is for, how accrual and carry-forward actually work, what encashes and when, and how the whole policy becomes payroll arithmetic.
Rates and thresholds re-verified 27 July 2026. Statutory figures change by notification, so always confirm against the current official source before acting.
The core three: casual, sick, earned
Indian leave policy convention rests on three types. Casual leave (CL) covers short, unplanned personal needs, typically 7-12 days a year, non-cumulative, lapsing at year-end. Sick leave (SL) covers illness, with similar quantum, often requiring certification beyond two or three days, sometimes part-paid under shops-and-establishments rules. Earned leave (EL, also called privilege leave) is the substantial one: accrued against days worked: the factories framework's classic rate is one day per twenty worked, cumulative across years up to a cap, encashable, and the type that appears in full and final settlements. Statutory floors come from the Factories Act framework and each state's shops-and-establishments law; policy can exceed the floors, never undercut them.
Beyond the three: the leaves law and life add
Maternity leave, at 26 weeks paid for eligible women under the Maternity Benefit framework, is an entitlement, not a policy choice, with its own guide on this site. Paternity leave is policy-driven in the private sector. Compensatory off credits time worked on holidays or weekly offs, with expiry rules to stop silent accumulation. Leave without pay (LWP/LOP) is the residual (absence beyond balances) and the type payroll feels most directly, as a pay deduction. Many establishments add bereavement, marriage and study leaves; each is simply a policy object with its own accrual, approval and pay behaviour once encoded.
The leave types at a glance
| Type | Typical shape | Carry-forward | Encashable | Payroll effect |
|---|---|---|---|---|
| Casual (CL) | 7-12 days/yr, short unplanned needs | No — lapses | No | Paid absence; no pay-line change |
| Sick (SL) | 7-12 days/yr, certification beyond 2-3 days | Usually no | No | Paid; part-paid patterns exist in some state acts |
| Earned (EL/PL) | Accrues ~1 per 20 days worked | Yes, to a cap | Yes, in service per policy, and at exit | Encashment and FnF line; the balance with money attached |
| Compensatory off | Credited for holiday/weekly-off work | Short expiry | No | Paid absence; expiry discipline matters |
| Maternity | 26 weeks paid (eligibility per the Act) | — | — | Paid at the Act’s standard; protected employment |
| LWP / LOP | Absence beyond balances | — | — | Pay pro-rates down; PF/ESI follow actual wages |
Statutory floors vary by state and establishment type; encode your state’s actuals, not the convention.
A worked example
An employee with 14 days of EL takes a 5-day vacation (EL), two single sick days (SL, no certificate needed), and one emergency day (CL). In festival month she works the holiday and earns a comp-off, used within its 60-day expiry. In March she is short on balances and takes two days beyond as LWP: her paid days drop to 24 of 26, pay pro-rates, and PF follows the actual wages. Her EL balance, meanwhile, accrued 1.3 days a month against days worked and carried into April under the 30-day cap. Every one of those movements was a policy rule executing, no HR judgment calls, no month-end reconstructions, and a balance she watched live in the app throughout.
Figures are illustrative, for mechanism only. Verify current rates and your own structure before relying on any number.
Designing a policy that survives contact
Three design rules prevent most leave grief. Write the floors from your actual state act, not from a template — shops-and-establishments entitlements differ state to state, and a Bangalore policy pasted onto a Kolkata branch is non-compliant on day one. Decide the edge behaviours explicitly: sandwich rules (weekends inside leave), probation accrual, half-days, negative balances, every undecided edge becomes an argument later. And keep the type count honest: every exotic leave type you add is a rule payroll must execute and employees must understand; five well-defined types beat eleven clever ones.
Leave liability: the balance sheet nobody watches
Accumulated EL is money, every carried day is a future encashment or settlement at tomorrow's (higher) wage. Finance teams provision it annually; management teams are routinely surprised by it. The operational disciplines that keep it sane: caps enforced by the system rather than by year-end amnesties, encashment windows that drain excess at current wages instead of exit wages, and a quarterly report of liability by department, which also surfaces the manager whose team never takes leave, a different problem worth knowing about.
Holidays are policy too
National and festival holidays interact with leave more than policies admit: state shops-and-establishments acts prescribe notified holidays, festival lists vary by state and often by unit, and holiday-work triggers comp-off or premium pay per your rules. Multi-state employers should localise holiday calendars per work location: the Chennai office observing Pongal and the Delhi office not is correct localisation, and a single national calendar is the error.
How payroll software applies this
In PeopleDeck, each leave type is a policy object — accrual rate, carry-forward cap, encashment basis, certification rules, expiry, and the engine executes it: requests check balances and coverage, approvals feed attendance, LWP pro-rates pay automatically, comp-offs expire on schedule, and EL balances flow into encashment and FnF computations with their wage basis applied. Balances live in employee self-service, which is where the balance arguments go to die.
Go deeper: Attendance & leave · Self-service · FnF settlement
Primary sources: Ministry of Labour & Employment
Maintained by Databus Technology Solutions against the source notifications; the verification date above is refreshed whenever a figure changes. This guide explains rules and mechanics; it is not legal or tax advice. PeopleDeck applies statutory rates and generates upload-ready files; it never files returns on your behalf, and positions on contested questions belong with your consultant.
Frequently asked questions
What is the minimum leave an employer must give?
The statutory floors: earned leave per the factories or state shops-and-establishments framework (the one-per-twenty-days-worked pattern), plus notified festival/national holidays, plus maternity entitlements where applicable. State acts vary meaningfully; verify yours; policy generosity above the floor is your choice.
Can casual leave be carried forward or encashed?
Convention and most state frameworks treat CL as lapsing, no carry-forward, no encashment. Earned leave is the cumulative, encashable type. A policy that lets CL accumulate is usually a drafting accident that payroll then has to honour.
How does leave encashment get calculated?
Balance days × the policy's wage basis, commonly basic+DA/26 or /30, stated in the policy. On exit it enters the FnF with its tax treatment per current exemption limits; in-service encashment, where allowed, is fully taxable.
What happens when leave is taken beyond balance?
It becomes LWP: the month's paid days drop, and pay pro-rates accordingly, with knock-on effects on PF (contribution follows actual wages) and ESI. Unapproved absence marked as LWP versus disciplinary absence is a policy distinction worth writing down before the first dispute.
Do leave balances have to be shown to employees?
The labour-code direction and plain good practice both say yes — live balances in self-service end the balance-argument category entirely and cut HR queries measurably. An employee who can see accrual, usage and expiry plans leave like an adult.
Can unused earned leave lapse?
Above the carry-forward cap, yes — policies commonly cap accumulation (the factories pattern caps around 30 days) and either lapse or force-encash the excess. Whichever the policy says, the system must do consistently; silent lapses discovered at exit are FnF disputes in waiting.
How should probationers' leave work?
Decide explicitly: common patterns accrue EL from day one but gate usage until confirmation, with CL/SL available pro-rata. Whatever you choose, encode it — probation is the period where undocumented leave practice creates the most confusion per capita, because neither the employee nor the manager knows the defaults yet.
Policies encoded once, applied every month.
Applied on every payslip, files generated for upload — per employee, per month.
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