How to create a leave policy

Choose your leave types

A workable starting set is three paid leave types plus leave without pay, with special leave added only where you mean to offer it. Keep the list short, because every extra type adds rules, balances and questions. Name each type the way your payslips and letters already do, so employees are not confused by two names for the same leave.

• Casual leave for short personal needs, often 1 day a month.
• Sick leave for illness, with a medical certificate after a set number of days.
• Earned leave for planned holidays, accrued as the year goes on.
• Leave without pay when paid balances run out, with approval.
• Special leave you choose to offer, such as paternity, bereavement or marriage leave, alongside maternity benefit as the law provides.

Respect the legal minimums

Your policy can be more generous than the law, never less. Under the OSH Code, a worker who completes 180 days of work in a calendar year earns one day of paid annual leave for every 20 days worked, with carry forward capped at 30 days, and the worker may ask for encashment of unused leave at the end of the year; see the leave entitlement rules. Maternity benefit of up to 26 weeks applies to a woman with 80 days of work in the preceding 12 months. Your state's Shops and Establishments rules may add their own leave provisions, so check them for every state where you have staff.

Worked example: a 50-person company's policy

A Kolkata software services company with 50 staff sets this policy: casual leave 1 day a month (12 a year), sick leave 0.5 a month (6 a year) and earned leave 1.5 a month (18 a year), all credited monthly. Casual leave cannot exceed 3 days at a time, earned leave of 3 days or more needs 7 days' notice, and sick leave beyond 2 days needs a certificate. Up to 30 days of earned leave carry forward, while casual and sick leave lapse at year end. The earned leave quota sits above the statutory figure: a worker with 240 days of work would be entitled to 240 / 20 = 12 days, and the policy gives 18.

Rules that prevent disputes

Most leave disputes are not about the quota; they are about edge cases nobody wrote down. Settle these in the policy text, so the answer is the same for everyone and does not depend on which manager is asked or what was allowed last time.

• Notice: how far ahead each leave type must be applied for.
• Back-dating: how many days after returning a sick leave application is still accepted.
• Sandwich rule: whether weekends and holidays between leave days count as leave.
• Probation: which leave types can be used before confirmation.
• Negative balance: whether leave can go below zero, and by how much.
• Combinations: which leave types cannot be joined, such as casual leave next to earned leave.
• Year end: carry forward limits, lapse and encashment.

Step by step

1. List leave types and quotas. Decide the paid leave types, the yearly quota for each and whether they are credited monthly or at the start of the year.
2. Check the legal minimums. Compare your quotas with annual leave, maternity benefit and your state's rules, and raise anything that falls short before the policy is signed off.
3. Write the rules per leave type. For each type, set notice, back-dating, maximum days at a time, half days, documents, use during probation and any negative balance limit.
4. Set year-end rules. Decide carry forward limits, what lapses and how encashment works, including a worker's request to encash unused annual leave at year end.
5. Configure it in your HR system. Put each rule into the system so it applies automatically. ZeniaHR's leave rules cover notice, back-dating, maximum days per spell, half days, documents, probation and sandwich modes per leave type, with recommended defaults.
6. Publish with examples. Share the policy with two or three worked examples, such as a leave that spans a weekend, and take acknowledgement from every employee.
7. Review once a year. Look at leave taken, lapsed and encashed by type, and adjust quotas or rules for the next calendar year with advance notice.

Frequently asked questions