The new labour laws under the OSH Code, 2020 are set to change how companies manage employee leave, introducing a 30-day carry forward cap, mandatory encashment of excess leave, and stronger safeguards against leave denial—aimed at ensuring workers don’t lose their entitled time off.
India’s new labour law framework is beginning to reshape workplace policies, and one of the most significant changes is in how companies handle employee leave.
With the implementation of the Occupational Safety, Health and Working Conditions (OSH&WC) Code, 2020 from November 21, 2025, employers are now required to align their leave policies with a more standardised and worker-centric structure.
The Labour Ministry’s latest FAQs provide much-needed clarity on how these provisions will work in practice—especially around leave accrual, carry forward and encashment.
What is the OSH Code and who does it cover?
The OSH&WC Code, 2020 consolidates 13 existing labour laws into a single framework to improve working conditions, safety, and welfare across sectors. The code primarily applies to workers, a category that includes:
-Factory workers, contract labour and migrant workers
-Sales promotion employees and working journalists
-Supervisors earning up to Rs 18,000 per month
Importantly, the leave-related provisions under the Code are not universally applicable to all employees. As clarified in the FAQs, these rules apply specifically to workers and certain supervisors within the defined wage threshold.
Key changes in leave policy:
The new framework introduces clear rules on how leave can be accumulated and utilised:
Cap on carry forward of leave
Workers can now carry forward up to 30 days of earned leave to the next calendar year.
Any leave beyond this limit cannot be indefinitely accumulated.
No limit if leave is denied
A major employee-friendly provision – if a worker applies for leave but the employer denies it, such leave can be carried forward without any cap. This prevents employers from arbitrarily rejecting leave requests and causing loss of entitlement.
Mandatory leave encashment
While the Code does not prescribe a maximum cap on encashment, it allows encashment of leave at the time of separation, encashment of excess leave (beyond 30 days) at year-end in practice. Workers are clearly entitled to monetise unused leave rather than lose it.
Eligibility remains worker-centric
The FAQs make it clear that leave encashment provisions apply to workers, including sales promotion employees under the Code’s definition.
What this means for employees
Suchita Dutta, Executive Director of Indian Staffing Federation (ISF), explains: Under India’s new Occupational Safety, Health and Working Conditions (OSH) Code, 2020 (implemented from November 2025), companies must revamp their leave policies to align with uniform national standards on annual leave with wages.
Key Changes in Carry Forward Rules
Employees can now carry forward up to 30 days of unused earned/annual leave to the succeeding calendar year. Any balance exceeding 30 days must be encashed (paid out in cash) by the employer at year-end, preventing indefinite accumulation.
If an employee applies for leave and the employer denies it, the refused leave can be carried forward without any limit, protecting workers from arbitrary denials.
Implications for Employees
This shift benefits employees by ensuring no leave lapses unused, providing mandatory cash compensation for excess days and strengthening the right to rest.
It also lowers eligibility for paid leave (after 180 days of work instead of 240 previously).
Companies must update HR policies, leave tracking systems, and handbooks to comply. Failure to encash excess leave or honour denied-leave carry-forwards could lead to disputes or penalties.
Overall, the revamp promotes better work-life balance, reduces employer liability from huge accumulated leave balances, and introduces clarity—while giving employees stronger legal safeguards on utilising or monetising their entitled time off.
Industry view: A shift towards accountability
Amrita Pandey, Head – People & Culture, Policybazaar.com, says: “The message from the new labour codes is clear that earned leave is an employee’s entitlement, not something that quietly lapses on a company’s balance sheet. The provisions around 30-day carry-forward, mandatory encashment of excess leave, and protection of denied leave bring much-needed accountability. At PB Fintech, we are ready to transition without any disruption to our workforce. For a sector that runs on the energy and commitment of its people,we believe that respecting an employee’s time off isn’t just a compliance requirement, it’s simply good business.”
Bigger picture: Why this reform matters
The leave policy revamp is part of a broader attempt to bring uniformity, transparency, and fairness into India’s fragmented labour law system. By clearly defining how leave is earned, carried forward and encashed, the government aims to reduce ambiguity and disputes between employers and workers, prevent loss of earned leave due to policy gaps, encourage better work-life balance, and limit excessive leave liabilities for companies.
At the same time, the worker-focused scope means that many white-collar employees outside the definition may not directly benefit, unless companies voluntarily extend similar policies.
Summing up…
The new leave rules under the OSH Code mark a clear shift: from discretionary company policies to legally enforceable employee entitlements.
For workers, this means stronger protection of their time off. For companies, it signals the need to quickly realign HR systems—before compliance risks turn into disputes.
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