Earned Leave and Carry Forward Rules: New Codes 2026

Under the new labour codes that came into force on 21 November 2025, every eligible worker earns paid annual leave at a fixed rate, can carry forward only up to 30 days into the next year, and is entitled to have any leave beyond that cap paid out in cash. This page explains how the entitlement works under the Occupational Safety, Health and Working Conditions Code, 2020, so you can check whether your employer is calculating your leave correctly.

The OSH Code, 2020 replaced the leave-with-wages chapter of the old Factories Act with a single set of rules. Under Section 32 of the Code, an adult worker who is eligible earns one day of annual leave with wages for every 20 days of work performed in the calendar year. For young workers (adolescents), the rate is more generous at one day for every 15 days.

Days that count toward this accrual usually include days of lay-off, maternity leave (up to the statutory limit), and leave already earned in the previous year. Weekly holidays falling during a period of leave are not deducted from your leave balance. The result is that a full year of regular attendance typically produces somewhere around 15 to 18 days of earned leave, depending on how many days you actually worked.

This is a statutory floor. Your employer, an award, or a contract can give you more leave than the Code requires, but cannot give you less.

To become eligible for annual leave with wages in any calendar year, a worker must have worked for at least 180 days in that calendar year. This is a reduction from the old Factories Act threshold of 240 days, so more workers now qualify, and they qualify sooner.

A few points worth knowing:

• In your first year of joining, eligibility is calculated proportionately for the part of the year you actually worked, once you cross the qualifying threshold for that period.
• Leave provisions under the Code apply to “workers”. For supervisory staff, the protection generally extends only to those drawing wages up to the notified ceiling (commonly ₹18,000 per month); higher-paid managers usually rely on their contract or company policy instead.
• If you are unsure whether you count as a “worker”, the definitions in the Code and the parent law decide it. You can read the related labour pages linked below.

You do not have to use up all your leave in the same year. The Code lets you carry forward unused annual leave to the next calendar year, up to a maximum of 30 days. Anything you have not taken, up to that 30-day ceiling, simply rolls over and is added to what you earn next year.

There is one important worker-friendly exception. If you applied for leave and your employer refused it, the refused leave can be carried forward without being capped at 30 days. The cap is meant to stop indefinite hoarding, not to punish workers whose own leave requests were denied. Keep a copy of any leave application and the refusal, because that paper trail is what protects the extra days.

This is the part that changed most. Under the OSH Code read with the Code on Wages, if your unused annual leave balance at the end of the calendar year is more than 30 days, you carry 30 days forward and the excess is encashed, meaning the employer pays you in cash for those extra days. Year-end forfeiture of “use it or lose it” leave, which was common under older practice, is no longer the lawful default for annual leave under the Code.

How the payout is worked out:

• The encashment amount is calculated with reference to wages as defined under the Code on Wages, not a stripped-down basic figure.
• It is paid at the end of the calendar year for the excess over the cap.
• This is a labour-law entitlement. Do not confuse it with the income-tax exemption on leave encashment under Section 10(10AA), which is a separate tax question about how much of any encashment is tax-free. The two operate independently: the Code decides what you are paid, the tax law decides how that payment is taxed.

A careful word: the mandatory year-end encashment applies to the excess over the 30-day cap. It does not mean every unused day is paid out every year. Up to 30 days still simply carries forward.

When you resign, retire, or your service ends, any unused earned leave standing to your credit is part of your dues and should be paid out in your full and final settlement, calculated on your wages. This is over and above the year-end encashment rule and is a long-standing principle now carried into the Code framework.

If your final settlement leaves out accrued leave, that is a recoverable amount. See our detailed guide on the full and final settlement after resignation for the heads of payment you should check, including notice pay, gratuity, and leave encashment.

If your employer miscalculates, denies, or simply ignores your leave entitlement:

1. Ask for your leave record in writing. Employers must maintain registers of leave with wages. Request your accrual, carry-forward, and encashment figures in writing so you have a paper position.
2. Raise it internally first. A written, dated email or letter to HR citing Section 32 of the OSH Code creates a record and often resolves honest arithmetic errors.
3. Approach the Labour Commissioner / Inspector-cum-Facilitator. Non-payment of leave wages or encashment is a statutory default the labour authorities can act on.
4. Use the SAMADHAN portal. The Ministry of Labour and Employment's SAMADHAN online portal lets workers file industrial and labour disputes, including unpaid dues, and tracks them to a conciliation officer.
5. Draft your complaint cleanly. You can use our free RTI and complaint drafting tool to put your facts and the relevant section into a clear, dated representation.

For the broader rules on hours that feed your leave accrual, read working hours, overtime and spread-over under the OSH Code. Women workers should also see women at work rights under the new labour codes. For a plain-language walkthrough of using the right-to-information route to get government and PSU employment records, keep The RTI Playbook handy.

• Assuming all leave lapses at year-end. It does not. Up to 30 days carries forward, and the excess must be encashed, not forfeited.
• Confusing the labour entitlement with the tax exemption. The Code decides your payout; Section 10(10AA) only decides the tax on it.
• Not keeping proof of refused leave. Refused leave escapes the 30-day cap, but only if you can show you applied and were denied.
• Counting calendar days instead of worked days. Accrual is one day per 20 days worked, not per 20 calendar days.
• Letting the employer use bare basic pay for encashment. Encashment is computed on wages as defined under the Code on Wages.

You must have worked at least 180 days in the calendar year. This is lower than the old 240-day Factories Act threshold, so eligibility now comes sooner.

One day of annual leave with wages for every 20 days you actually work (one day per 15 days for adolescent workers). A full working year typically yields roughly 15 to 18 days.

Up to a maximum of 30 days into the next calendar year. Leave that your employer wrongly refused after you applied can be carried forward beyond that cap.

The excess over 30 days must be encashed by the employer at the end of the calendar year and paid in cash, calculated on your wages under the Code on Wages.

No. The OSH Code entitlement decides what you are paid for unused leave. Section 10(10AA) is a separate income-tax rule about how much of that encashment is tax-free. They apply independently.

Yes. Unused earned leave standing to your credit is part of your dues and should be paid in your full and final settlement on exit.

• The Occupational Safety, Health and Working Conditions Code, 2020, Section 32 (Annual leave with wages), Government of India.
• Ministry of Labour and Employment, additional FAQs on the Labour Codes, 2026, labour.gov.in.
• Press Information Bureau, OSH Code 2020 factsheet, pib.gov.in.
• Commencement of the four labour codes with effect from 21 November 2025.