Now employees can get earned leaves after 180 days work, annual encashment of earned leaves and more benefits under new labour code 2025 (AI generated representative image)
The new labour code 2025 (Occupational Safety, Health and Working Conditions Code, 2020) (OSH Code) was announced by the central government on November 21, 2025 and it brought about several significant changes for salaried employees. Some of these changes are:
- A standardised earned leave entitlement, along with carry forward and encashment entitlement for workers, which will apply uniformly to all workers across India, while still adhering to any specific state rule that may apply.,
- A worker’s right to encash earned leaves that exceed the set limits on an annual basis while still employed, instead of having to wait till they resign, retire or are terminated to access this benefit. This right was previously available only in certain states like Telangana under the local S&E Act.
In short, the new labour code 2025 has also introduced a provision that addresses an inequity. If an employer refuses to sanction leave that a worker has duly applied for, it cannot be forfeited and must be carried forward without a limit.
Earlier, if you for any reason couldn’t use the earned leaves, many states allowed those leaves to expire without any payment once the limit was crossed. Now, with the labour code 2025’s annual encashment feature, employees can convert unused leaves into compensation.
This annual encashment benefit helps in jobs where taking leave is difficult and so you may end up accumulating leave involuntarily. Hence the new labour code 2025 ensures that you get compensation for a large number of unused earned leaves.
Tarun Garg, Director, Deloitte India, says that as per the provisions of the new labour code (OSH Code), employees are allowed to accumulate and carry forward leaves of up to 30 days to succeeding year. Where accumulated leaves exceed 30 days, employees can be entitled to encash such excess leaves. Employees can also demand for encashment of all their accumulated leaves at the end of calendar year.
According to Garg, while provision of leave encashment on separation of employees was present under the earlier framework as well, the new labour code (OSH code) has introduced a new provision in relation to encashment of leave for ‘Workers’ at the end of every calendar year or on their demand at the end of calendar year.
According to Garg, a safeguard has also been introduced by the new labour codes. This safeguard is specifically recognised under the new labour code (OSH Code, 2020) wherein it is mentioned that if an employee who has applied for leave but such leave is not given by the employer, then such refused leaves shall be carried forward without any limit. This provisions clearly protects and safeguards the employees from losing their leave entitlement due to operational constraints.
However, note that these beneficial provisions are not applicable for employees engaged in a managerial or administrative capacity, or in a supervisory capacity earning above Rs 18,000 per month. Also the new labour codes have not yet been notified by several states, so the above mentioned provisions might not be implemented by your employer yet. However, whenever it is implemented, you will get these benefits under the new labour code.
Keep reading to know in detail what the benefits regarding leaves which employees can get under new labour code 2025.
What do these changes mean for employees?
Sonakshi Das, Partner, JSA Advocates & Solicitors, says that these concepts of earned leave carry forward, accumulation and exit-based encashments traditionally existed, and continue to exist, under the local shops and commercial establishment legislations (S&E Acts) applicable at the State level, and even under the previous regime of the Factories Act, 1948.
According to Das, the key to note here is that, the OSH Code (new labour code) does not subsume the State level S&E Acts which continue to remain in force as on date both legislations i.e. the applicable S&E Acts and the OSH Code, are to be read together, and harmoniously interpreted.
Das explains what it means for employees:
- Employees now eligible for earned leaves after completing 180 days of continuous work: According to Das, under the labour code (OSH Code), workers are now eligible for earned leaves after completing 180 days of continuous service in a calendar year, reduced from the 240-day requirement which existed under the erstwhile Factories Act, 1948, and which also continues to be the prevailing standard under some existing S&E Acts.
However, some states, such as Karnataka, do not prescribe any minimum eligibility period for earned leave under the applicable S&E Acts, meaning that covered employees in those states were already entitled to accrue earned leaves from the onset of their employment. As with other provisions on leave entitlements under the OSH Code, the superior benefit principle applies here as well.
- A uniform earned leave entitlement: According to Das, the new labour codes (OSH Code) has effectively created a statutory right for earned leave entitlement at the Central level.
For workers, this provision addresses an inequity: if an employer refuses to sanction leave that a worker has duly applied for, such leave cannot be forfeited and must be carried forward without a limit.
Who benefits: Das says that this is particularly relevant for workers in sectors or roles where leave approvals may be routinely delayed or rejected owing to operational constraints. As with other provisions on leave entitlements under the OSH Code, the superior benefit principle applies here as well.
- Annual encashment of earned leaves: Introduction of annual encashment of earned leaves can be seen as a significant monetary benefit for workers since in the absence of such benefit, in most states, unused earned leaves beyond the total accumulation cap would have lapsed at the end of the year, with no compensation.
Who benefits: According to Das, the annual encashment of leaves could be particularly beneficial for workers in resource-intensive roles, where taking leave may have been historically difficult in practice, as it would ensure that they are not financially penalised for involuntarily accumulated leaves.
The labour code further introduces structural accountability and offers workers greater predictability in financial planning. Importantly, the OSH Code sets a floor rather than a ceiling where applicable S&E Acts offer more favourable terms, employees may be reasonably entitled to the better of the two.
With the existing annual carry-forward limits under both the OSH Code and the applicable S&E Acts, workers will be eligible for exit-based earned leave encashments up to the total accumulated earned leave balance.
In other words, exit-based encashment of accumulated earned leaves cannot be on an indefinite number, and would be limited to or, can be availed up to a maximum of the total of the carried-forward earned leaves from the previous calendar year, and the available earned leave balance of the relevant/current calendar year.
Who is covered under these new changes? Is it only those earning up to Rs 18,000 per month?
According to Das, earned leave entitlements under the OSH Code (labour code), as characterised above, are applicable to ‘workers’, that is, persons employed in any establishment to perform manual, unskilled, skilled, technical, operational, clerical, or supervisory work drawing wages less than Rs 18,000 per month.
Das says: “Essentially, employees engaged in a managerial or administrative capacity, or in a supervisory capacity earning above Rs 18,000 per month, are not entitled to these benefits under the OSH Code.”
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