Earned leave policy template
Copy the text below and replace everything in square brackets with your company details.
1. Purpose
The aim of this policy is to explain how employees of [Company Name] earn and use earned leave (EL), also called privilege leave, for rest and planned time away from work.
2. Scope
It applies to all employees. For workers covered by the OSH Code, the entitlement under this policy will never be less than the annual leave with wages provided by that Code and the rules of [State].
3. Entitlement
- Each employee earns [18] days of earned leave in a leave year, credited at [1.5 days per completed month of service].
- For a worker covered by the OSH Code who completes 180 days of work in a calendar year, the entitlement for that year is not less than one day for every 20 days worked.
- Leave accrues from the date of joining and is pro rated for employees who join or leave during the year.
- Earned leave may be availed after [completion of probation], although it accrues from the first month.
4. Using earned leave
- Spells of [5] days or more are applied for at least [15] days in advance.
- One spell may run from [1] to [15] days, unless the department head approves a longer break.
- Managers may ask employees to move planned leave away from [year-end closing, audits or peak season], giving at least [7] days' notice.
- Employees are encouraged to take at least one spell of [5] consecutive days each year.
5. Carry forward and year end
- Unused earned leave is carried forward to the next leave year, up to a maximum carried balance of [30] days.
- Days above the carry-forward limit are encashed with the [January] salary under the Leave encashment policy instead of lapsing.
- A worker covered by the OSH Code may also ask for encashment of unused leave at the end of the year, as the Leave encashment policy provides.
6. Earned leave at exit
The earned leave balance at exit is settled in the full and final settlement under the Leave encashment policy. Earned leave cannot be set off against the notice period unless the company agrees in writing.
7. Sundays and holidays inside a spell
Whether a Sunday or a declared holiday inside an earned leave spell is charged as leave is decided by the Sandwich leave policy.
8. Responsibilities
- Employees: plan earned leave early and hand over work before leaving.
- Managers: approve planned leave fairly, spread it across the year and avoid refusals that push leave into lapse or encashment.
- HR: credit earned leave correctly, run the year-end carry forward and share balance statements every [quarter].
9. Review
Before each year-end carry forward, HR reviews these rules against actual leave usage and the leave provisions of the OSH Code and the state rules.
What to include
The OSH Code minimum
A worker who completes 180 days of work in a calendar year earns one day of paid leave for every 20 days worked. Your entitlement can be higher but never lower, as the leave entitlement rules explain.
The 30-day carry-forward cap
Carry forward is capped at 30 days under the OSH Code, and a worker may ask to encash unused leave at the end of the year. Set your carry-forward limit and year-end encashment rule with both points in mind.
Planning rules
Set advance notice for long spells, a maximum spell and busy periods when leave may be moved. EL exists for planned breaks, and planning rules protect both the employee's holiday and the team's work.
Accrual versus availing
Separate when EL starts to accrue from when it can be used. Accruing from joining but availing after probation is a practical approach that is easy to explain to new joiners.
Settlement at exit
State how the EL balance is settled at exit and whether it can offset notice. Refer to the leave encashment policy so the calculation is defined in one place only.
Common mistakes to avoid
- Lapsing all unused earned leave at year end without offering encashment to covered workers.
- Setting the entitlement below one day for every 20 days worked for covered workers.
- Refusing earned leave all year and then lapsing the balance in December.
- Crediting a full year's earned leave upfront and then chasing recovery from early leavers.
- Letting employees set EL against notice period without any written rule.
Run it in ZeniaHR
Earned leave is a default type in the ZeniaHR Leave Ledger, accruing 1.5 days a month by default with pro rata for joiners and leavers and a cap on the maximum balance. The year-end run carries balances forward up to your cap and lapses the rest, and it is previewed before it runs, so encash days above the cap first. Leave encashment adds an earning in Direct Payroll, and employees see the balance after each application in My Self-Service.
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What is earned leave?
Earned leave, also called privilege leave or annual leave, is paid leave that accumulates with the days an employee works and is used for planned time off. Under the OSH Code, a worker who completes 180 days of work in a calendar year earns one day of paid leave for every 20 days worked, and employers may give more.
How many earned leaves can be carried forward?
Under the OSH Code, carry forward of annual leave is capped at 30 days, and a worker may ask for encashment of unused leave at the end of the year. For employees outside those provisions, the company sets its own limit, and the policy should say exactly what happens to days above it.
Is earned leave the same as privilege leave?
Yes. Earned leave, privilege leave and annual leave are different names for the same kind of leave in Indian workplaces: paid leave that builds up with service and is used for planned breaks. Use one name consistently in the appointment letter, the leave policy and the payslip to avoid confusion.
Can earned leave be used during the notice period?
Only if the policy allows it and the manager approves. Companies often prefer to encash the balance in the full and final settlement, because the notice period is meant for handover. If you do let EL offset notice, say so in writing and cap the number of days.