New labour code: What changes for your earned leave and encashment under the latest laws — explained

The new labour laws under the OSH Code have introduced some major changes in how employers structure leave policies. The reforms standardise earned leave entitlements across the country and also provide workers with the right to receive an annual encashment benefit.

With the implementation of the Occupational Safety, Health and Working Conditions (OSH&WC) Code, 2020, from 21 November 2025, employees are allowed to carry forward leaves of up to 30 days to the succeeding year.

“Where accumulated leaves exceed 30 days, workers shall be entitled to encash such excess leaves. Workers can also demand encashment of all their accumulated leaves at the end of the calendar year,” said Tarun Garg, Director of Deloitte India.

As of now, the new labour codes are not fully implemented, including the provisions thereon on leave encashment. This is primarily because several States are yet to finalise and notify their respective rules, which is a prerequisite for nationwide implementation, according to experts.

Hence, the encashment provisions under the new framework will also apply throughout the country once the codes are formally brought into force by the respective States, which will frame their rules.

What were the rules before and what changed now?

While leave encashment provision on separation of employees was present under the earlier framework as well, the rules around earned leaves differ widely across India.

Under the previous framework, before the labour codes came into force, leave policies were governed by state-specific laws such as the Shops & Establishments Acts and the Factories Act, 1948. Because these laws vary from state to state, rules around leaves were also not uniform, according to Dinkar Sharma, Company Secretary and Partner, Jotwani Associates.

“For instance, some states allow employees to accumulate 45–60 days of leave, while others have different rules for carry-forward and leave encashment,” he said.

However, post Labour Codes Implementation, a standardised national framework will apply and the key changes include:

• Uniform accrual rate: 1 day per 20 days worked
• Maximum carry-forward capped at 30 days
• Greater clarity on encashment upon separation
• Rationalisation of fragmented state laws

“Overall, the focus under the new code is towards simplification and uniformity, although in some states this may reduce the accumulation threshold,” he added.

Who all are entitled to this benefit?

The encashment of leave benefits those who fall within the category of “worker”. Therefore, they will also apply in case of contract workers and fixed-term workers who fall within the “worker” category, said Ahetesham Ahmed A. Thaver, Associate Partner, Labour and Employment, ALMT Legal.

However, the benefits will not apply to employees who are employed mainly in managerial or administrative roles or those working in a supervisory capacity while also drawing wages exceeding ₹18,000 per month, he added.

“The intent of the legislature is to ensure equitable working conditions across employment categories, though practical applicability may depend on rules, thresholds, and the nature of engagement,” Sharma said.

What happens if leave is denied by management?

A major employee-friendly provision is that if a worker applies for leave and the employer denies it, such leave can be carried forward without any cap, according to the experts. Such a provision prevents employers from arbitrarily rejecting workers' leave requests.

Under the OSH Code, earned leaves applied for by workers but not granted by the employer can be carried forward without any limit. Such leaves exceeding 30 days can be encashed by workers on demand annually at the end of the calendar year, according to Minu Dwivedi, Partner, JSA Advocates & Solicitors.

Currently, under State-specific laws, employees can encash leaves at the end of their employment. However, in certain states like Telangana, non-exempt employees are entitled to encash earned leave during the subsistence of their employment.

“Now, under the OSH Code, all employees qualifying as ‘workers’ are entitled to encash, on demand, accumulated annual leave in excess of 30 days at the end of the calendar year,” Dwivedi said.