Leave carry-forward and encashment rules set for nationwide standardisation

India is moving towards a standardised national framework for leave carry-forward and encashment, with the Occupational Safety, Health and Working Conditions (OSH&WC) Code, 2020 expected to replace fragmented state-level systems once fully implemented, according to reporting cited by Mint.

However, the rollout remains incomplete as several states are yet to notify the final rules required to operationalise the labour codes nationwide.

What the new labour code proposes

Under the proposed framework, employees will be allowed to carry forward up to 30 days of earned leave, while any excess accumulation will be subject to encashment. Workers will also be entitled to seek annual encashment of accumulated leave beyond the prescribed limit.

The framework introduces:

• A uniform accrual rate of 1 day per 20 days worked
• A 30-day cap on carry-forward leave
• Annual encashment of excess accumulated leave
• A shift towards nationwide harmonisation of leave rules

Fragmented system set for overhaul

At present, leave entitlements in India are governed by state-specific laws, including the Shops & Establishments Acts and the Factories Act, 1948. This has created wide variations in entitlements across states.

As per the reports, some states currently allow accumulation of 45–60 days of leave, while others apply different limits on carry-forward and encashment. The new system aims to bring uniformity and simplification, though in some cases it may reduce higher existing accumulation thresholds.

Who will be covered under the new rules

The encashment provisions apply primarily to individuals classified as “workers” under the labour codes. This includes contract and fixed-term employees who meet the definition of worker under the law.

However, Mint's report said the framework excludes managerial, administrative, and certain supervisory employees earning above ₹18,000 per month. The final applicability will depend on how states implement the rules and define employment categories.

What changes in case of leave denial

A key shift under the OSH Code is protection against arbitrary leave rejection. If an employee applies for leave and it is denied by the employer, the leave can be carried forward without restriction.

Experts cited in Mint noted that such accumulated leave beyond 30 days can be encashed annually at the end of the calendar year, strengthening employee entitlements compared to several existing state frameworks.

While the proposed framework signals a move towards uniform labour standards across India, its implementation hinges on state-level notifications and administrative alignment.

Once enforced, the OSH Code is expected to simplify compliance for employers while standardising leave benefits for eligible workers across sectors, reducing regional disparities in workplace entitlements.