Annual Leave Under the OSH Code: 180 Days, One Day for Every 20, and the 30-Day Carry-Forward
Under the OSH Code, a worker who works 180 days or more in a calendar year earns one day of paid leave for every 20 days worked. Unused leave carries forward up to 30 days, and leave above that must be dealt with by payment. State laws apply where more generous. Review balances before 31 December.
Leave policies in most Indian companies were written around old factory and shop laws. The OSH Code sets its own rules for annual leave with wages, and since the leave year under the Code is the calendar year, 31 December is the date to get them right.
The rules
| Rule | What the Code says |
|---|---|
| Eligibility | A worker who has worked 180 days or more in a calendar year |
| Rate | One day of leave for every 20 days of work |
| Leave year | Calendar year, 1 January to 31 December |
| Carry-forward | Unused leave carries forward, but the total carried forward cannot exceed 30 days |
| Encashment | Leave above the carry-forward limit is paid; a worker can also encash leave in the cases the Code allows, such as on leaving |
The Code applies to establishments and workers within its scope. State shop and establishment laws can be more generous. Where they are, the more beneficial rule applies.
A worked example
A machine operator in Vapi works 280 days in 2026.
- ✓Leave earned: 280 ÷ 20 = 14 days.
- ✓Brought forward from 2025: 22 days. Taken in 2026: 4 days.
- ✓Balance at 31 December: 22 + 14 − 4 = 32 days.
- ✓Carry-forward limit: 30 days. The 2 extra days are paid at the worker's wage.
Common gaps in leave policies
- ✓Leave year runs April to March. Under the Code, the counting is by calendar year. Many companies keep their policy year but must make sure the statutory minimum is met for each calendar year.
- ✓No cap on carry-forward, or a cap without payment for the excess.
- ✓Leave earned only after a year's service, rather than on 180 days in the calendar year.
- ✓Leave encashment worked out on basic pay alone, when the Code's wage definition (with the 50% rule) may give a higher figure.
What to do before 31 December
- Compare your policy with the Code and with your state's shop and establishment law, and keep whichever is better for the worker.
- Set HRMS accrual at one day for every 20 days worked for workers covered by the Code.
- Run a year-end report of balances above 30 days.
- Budget for encashment of the excess in the January payroll.
- Tell employees how many days they will carry forward and how many will be paid.
Frequently asked questions
Do managers and supervisors get the same rules?
The Code's leave provisions apply to workers as defined in it, which generally excludes managerial and administrative staff above wage limits. Most companies apply one policy to all, at least as generous as the law.
Can we force employees to take leave instead of paying it?
You can encourage it and schedule shutdowns, but leave above the carry-forward limit at year end must be dealt with as the Code requires.
Is leave encashment taxable?
During employment, yes. On retirement or resignation, there is a tax exemption up to ₹25 lakh in a lifetime for non-government employees.
Sources
- ✓Working hours, overtime and leave under the labour codes 2026, LawSikho
- ✓Leave carry-forward and encashment rules standardised, People Matters
- ✓Leave and leave encashment under the labour codes, HL Kumar and Associates
This is a summary, not legal advice. Confirm with a labour-law professional for your state.
Written by
HR Manager, Airwix Technologies (Sleet)
Nihit Dobariya is the HR Manager at Airwix Technologies in Ahmedabad, where he runs HR and payroll for the team behind Sleet. He writes about payroll, PF and ESIC, professional tax, the labour codes and everyday HR practice for Indian employers, and checks each rule against the official notification before it is published.
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