Leave Provisions Under the OSH Code, 2020
What Every Employer Must Change in the Leave Policy under the New Labour Code Regime
India’s new labour-law framework has brought a significant change to the way organisations must examine their leave, holidays and leave-encashment policies.
The Occupational Safety, Health and Working Conditions Code, 2020 (“OSH Code”) contains a dedicated Chapter VII — Hours of Work and Annual Leave with Wages, comprising Sections 25 to 32. The provisions cover working hours, weekly and compensatory holidays, overtime, night shifts and annual leave with wages.
The OSH Code was brought into force from 21 November 2025, and the Occupational Safety, Health and Working Conditions (Central) Rules, 2026 were notified on 8 May 2026 as G.S.R. 345(E). The Central Rules came into force upon publication in the Official Gazette.
An organisation’s existing Leave Policy should not simply be carried forward into the New Labour Code regime without a legal review. The organisation must examine the statutory entitlement, eligibility, accrual, carry-forward, encashment, separation settlement, weekly holidays, compensatory holidays and leave records against the new framework.
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1. Where are the Leave Provisions Located?
The principal statutory provisions are embedded in Chapter VII – Sec 25 to Sec 32
The Central Rules supplement these provisions through Rules 64 to 71, while Rule 76 specifically deals with the Register of Leave with Wages.
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2. First Important Question — Who is Covered?
This is perhaps the most important point for HR departments. The annual leave provisions of Section 32 are expressly framed around a “worker”. The Ministry of Labour & Employment’s 2026 FAQ specifically clarifies Leave provisions apply to workers under the OSH Code and to supervisors drawing wages not exceeding ₹18,000 per month.
The Ministry further states that the definition of worker includes sales promotion employees and working journalists. Therefore, employers should not automatically assume “Section 32 applies to every employee in the organisation.”
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3. The Core Entitlement — 1 Day for Every 20 Days Worked
Under Section 32(1)(ii), a worker who satisfies the statutory eligibility requirement is entitled to annual leave with wages at the rate of 1 day for every 20 days of work. There are special accrual rates for:
Adolescent workers: 1 day for every 15 days of work;
Workers employed below ground in a mine: 1 day for every 15 days of work.
This is a significant compliance point.
An employer’s Leave Policy should therefore not prescribe an annual earned-leave entitlement that is less favourable than the statutory entitlement applicable to the employee.
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4. The 180-Day Eligibility Rule
The entitlement under Section 32 is subject to the worker having worked 180 days or more in the calendar year. This is provided under Section 32(1)(i). However, the calculation is not simply a matter of counting days actually present at work.
Certain periods are specifically recognised for calculating the 180-day threshold.
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5. What Counts Towards the 180 Days?
Under Section 32(1)(iii), the following periods are counted for determining whether the worker has completed the required 180 days Lay-off, Maternity leave, Annual leave already availed. However, there is an important qualification The worker does not earn leave for the period counted for this eligibility purpose.
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6. Employees Joining During the Year
The OSH Code specifically addresses employees whose service begins after 1 January.
Under Section 32(1)(v), a worker whose service commences otherwise than on the first day of January becomes entitled to leave at the prescribed rate if the worker has worked for One-fourth of the total number of days remaining in the calendar year.
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7. Holidays Falling Between Leave Days
Section 32(1)(iv) contains an employee-friendly provision. Where holidays fall between the period of leave; or as prefixed/suffixed holidays, such holidays are excluded from the period of leave availed.
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8. Leave on Resignation, Discharge, Dismissal, Retirement or Death
This is one of the most significant provisions for payroll and Full & Final Settlement. Under Section 32(1)(vi), where a worker is discharged, is dismissed, quits employment, is superannuated or dies while in service, the worker or, where applicable, the heir/nominee is entitled to wages in lieu of the leave due under the statutory calculation.
Importantly, the provision operates even where the worker has not completed the normal qualifying period required to avail the leave.
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9. Statutory Timeline for Leave Encashment on Exit
The Code prescribes specific timelines. In case of discharge, dismissal or resignation/quitting Payment must be made before expiry of the second working day from the date of discharge, dismissal or quitting.
In case of superannuation or death Payment must be made Before expiry of two months from the date of superannuation or death.
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10. Carry Forward — The 30-Day Rule
Section 32(1)(vii) provides for carry-forward of unused leave. The general ceiling is:30 days for carry-forward to the succeeding calendar year.
This is an important change for organisations that historically permit accumulation of 45 days / 60 days / 90 days / 120 days or unlimited earned leave.
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11. But There is an Important Exception — Leave Refused by Employer
This is a critical protection for employees. Where a worker:
applies for leave with wages;
the leave is not granted in accordance with the Code and Rules,
the leave refused by the employer can be carried forward without limit. This is expressly provided under Section 32(1)(vii)(b). This has a major management implication.
The employer cannot simply allow leave applications to accumulate and then argue “Leave exceeding 30 days has lapsed.” If the employee had properly applied for leave and the employer refused it, the statutory exception may apply.
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12. Leave Encashment at the End of the Calendar Year
The Code goes beyond carry-forward. Under Section 32(1)(viii), a worker is entitled, on demand, to encash leave at the end of the calendar year. Further, under Section 32(1)(ix), where the worker’s total leave exceeds the 30-day carry-forward ceiling, the excess leave is eligible for encashment.
This requires a careful Leave Policy review. A policy saying “Earned leave can be encashed only at the time of retirement needs to be examined carefully against the statutory entitlement applicable to workers.
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13. A Critical Distinction — Carry Forward vs Encashment
These are two separate statutory concepts.
Carry Forward
Generally:
Maximum 30 days
Leave Refused by Employer
No statutory carry-forward ceiling
Excess over 30 days
Eligible for encashment
End-of-Year Demand
Worker has a statutory entitlement to demand encashment under Section 32(1)(viii).
This distinction should be expressly built into the HR Policy.
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14. Weekly Holiday — Section 26
Leave policy cannot be examined in isolation from weekly rest.
Under Section 26(1):
A worker cannot be required to work for more than six days in any week.
There are specific provisions for motor transport undertakings and governmental exemptions.
Where a worker is deprived of a weekly holiday under an applicable exemption, compensatory holidays are required under Section 26(3), subject to the statutory framework.
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15. Compensatory Holidays — Rule 68
The Central Rules prescribe the mechanics.
Under Rule 68, compensatory holidays must be appropriately scheduled and notified.
Except where work must continue throughout the day for technical reasons, not more than:
Two compensatory holidays
are to be given in one week.
The employer must display the notice concerning compensatory holidays by the end of the month in which the weekly holidays were lost, and subsequent changes must generally be notified at least three days in advance.
Any compensatory holiday due to a worker must be given before discharge or dismissal and cannot be treated as part of the notice period.
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16. Weekly Holiday Notice
Rule 67 deals with the weekly holiday.
The employer is required to display the weekly holiday notice at prominent places in the workplace; the 2026 framework also recognises digital display mechanisms.
HR compliance requirement
The weekly-off system should therefore be reflected consistently in:
shift schedules;
attendance records;
HRMS;
Notice of Periods of Work;
payroll;
weekly-off register/system.
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17. Working Hours Directly Affect Leave & Overtime Compliance
The leave chapter cannot be separated from working-hours compliance.
The Central Rules prescribe:
Maximum normal working hours:
8 hours per day / 48 hours per week
and the 2026 framework prescribes rest intervals and related working-hour requirements.
Overtime is separately governed by Section 27 and Rule 69.
The statutory overtime rate is:
Twice the ordinary rate of wages
and overtime requires the worker’s consent under Section 27.
This matters because HRMS systems should not treat weekly-offs, compensatory holidays, leave and overtime as independent modules.
They are interconnected statutory controls.
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18. Special Provisions — Sales Promotion Employees & Working Journalists
The Central Rules separately provide for holidays and leave for:
Sales Promotion Employees &
Working Journalists
under Rule 66.
The rule provides a separate leave framework including earned leave, medical leave, quarantine leave, casual leave and other specified categories, along with rules governing holidays, leave applications and encashment.
Therefore, employers covered by these categories should not simply apply the general worker leave template without examining Rule 66.
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19. Leave Register — A New Compliance Control
Leave entitlement is not merely a policy matter.
It is also a statutory record-keeping obligation.
Under Section 33, employers are required to maintain prescribed registers and records.
The Central Rules specifically provide under:
Rule 76 — Register of Leave with Wages
that the employer must maintain the record of leave with wages in:
FORM XX
electronically or otherwise.
The prescribed Form XX captures, among other matters:
worker details;
date of entry into service;
leave entitlement;
leave granted;
leave wages;
relevant absence/discharge information;
payment in lieu of leave.
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20. Preservation of Leave Records
Rule 76 requires the leave-with-wages record to be preserved for:
Five years after the last entry
and the record should not simply be destroyed thereafter unless it has been properly transferred to the new register.
This creates a practical HR control:
Your HRMS should be capable of maintaining an auditable historical leave record rather than merely showing the current year’s balance.
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21. The BIG Change for Existing Leave Policies
Many organisations currently operate policies such as:
CL — 7 days
SL — 7 days
EL — 15 days
EL accrual — 1 day for every 20 days worked
Carry-forward — 30 days
Encashment — only at separation.
This may or may not be compliant depending upon:
employee category;
applicable State legislation/rules;
establishment type;
applicable Central/State jurisdiction;
contractual/standing-order provisions; and
whether the employer provides a more favourable benefit.
Therefore:
Do not simply replace the old leave policy with the OSH Code numbers.
First determine the law applicable to the establishment and category of employee.
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22. Can an Employer Provide More Leave Than the OSH Code?
Yes, and this is an important principle.
The statutory provisions establish minimum statutory entitlements in the circumstances to which they apply.
An employer may provide more favourable benefits through:
employment contracts;
certified standing orders;
settlements;
awards;
HR policies; or
other applicable instruments,
subject to the applicable law.
Section 32(3) specifically preserves more favourable rights in relation to persons employed in mines where the award, agreement or contract provides for longer annual leave with wages.
Practical rule
More favourable benefit = generally permissible
Less favourable benefit = legally risky
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23. What Employers Should Change in Their Leave Policy
A Labour Code-compliant Leave Policy should now specifically address at least the following:
1. Applicability
Clearly identify which categories of employees are governed by Section 32.
2. Definition of Worker
Use the statutory classification rather than simply using the organisation’s internal designation.
3. Eligibility
Incorporate the 180-day requirement.
4. Accrual
Incorporate:
1 day / 20 days worked
and the special 15-day rate where applicable.
5. Mid-Year Joining
Provide the statutory one-fourth-of-remaining-days test.
6. Qualifying Period
Recognise the statutory treatment of lay-off, maternity leave and annual leave.
7. Holidays During Leave
Ensure statutory holidays are excluded as required.
8. Carry Forward
Provide the 30-day statutory ceiling, subject to the leave-refused exception.
9. Leave Refusal
Create a mechanism to record leave applications and employer refusals.
10. Encashment
Provide for year-end encashment on demand and excess-leave encashment as applicable.
11. Separation
Build in the statutory timelines for payment of leave wages.
12. Weekly Holidays
Align leave policy with the weekly-rest provisions.
13. Compensatory Holidays
Create a separate process for compensatory holidays.
14. Leave Register
Maintain Form XX.
15. HRMS
Configure the HRMS to correctly calculate eligibility, accrual, carry-forward and encashment.
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26. The Most Important Management Message
The new OSH framework does not mean that every organisation must suddenly give every employee an identical leave entitlement.
Rather, it requires organisations to move from a generic HR leave policy to a legally mapped leave architecture.
The correct approach is:
Employee Category → Applicable Law → Statutory Eligibility → Leave Accrual → Carry Forward → Encashment → Separation Settlement → Records
That is the real compliance transformation.
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27. Conclusion — Your Leave Policy Needs a Legal Health Check
The introduction of the OSH Code, 2020 and the Central Rules, 2026 provides employers with a strong reason to undertake a complete review of their Leave & Holiday Policy.
The review should not be limited to the number of CL/SL/EL days.
It should cover:
Eligibility + Accrual + Weekly Off + Compensatory Holiday + Carry Forward + Leave Refusal + Encashment + Exit Settlement + HRMS + Statutory Register.
The Ministry of Labour & Employment itself has clarified that the OSH Code’s leave provisions are not universally applicable to every category of employee and that the treatment of supervisors, managerial staff and other categories requires appropriate classification.
The Central Rules now provide the operational compliance architecture, including Rule 76 and Form XX for the leave-with-wages register.
Bottom Line for Employers
Do not merely amend the Leave Policy. Re-engineer the Leave Compliance System.
Your organisation should simultaneously review:
1. Leave Policy
2. Standing Orders
3. Appointment Letters
4. Employee Classification
5. HRMS Leave Configuration
6. Attendance System
7. Leave Register – Form XX
8. Leave Encashment Process
9. Full & Final Settlement SOP
10. Weekly-Off & Compensatory-Holiday Process
That is what will make the organisation Labour-Code ready, rather than merely having a policy carrying the words “New Labour Codes”.
