Leave Policy for Indian SMEs: Free Template

Short answer: a leave policy for an Indian SME should cover earned leave, sick leave, casual leave, public holidays, maternity leave, loss of pay and how to apply. A common starting point is 8 to 12 days each of casual and sick leave and 12 to 18 days of earned leave a year, adjusted so quotas, carry-forward and encashment meet your state's shops and establishments Act. Below is a free template you can copy and adapt, with the legal minimums to check first.

This guide is for owners and HR managers of businesses with 10 to 200 employees who need a written policy, often for the first time.

Why a written leave policy matters

• Fewer disputes: everyone knows how many days they get and how to apply.
• Legal compliance: the OSH Code, your state's shops and establishments Act and the Code on Social Security set minimums your policy must meet.
• Correct payroll: clear rules on loss of pay and encashment mean salaries are right the first time.
• Fair treatment: the same rule applies to everyone, which matters most for company-policy items like the sandwich rule.

Leave types to include

Typical quotas are drawn from Indian HR practice guides, including greytHR and HROne. They are not legal requirements.

Legal minimums to check before you write

Earned leave

Under Section 32 of the OSH Code, in force since 21 November 2025, a worker who has worked 180 days or more in a calendar year earns 1 day for every 20 days worked, can carry forward up to 30 days, and can encash leave at year end (OSH Code text). Many state Acts are more generous; for example, Telangana gives 15 days a year with a 60-day cap. See our state-wise guide to earned leave rules.

Casual and sick leave

These come from state law, so quotas differ. Tamil Nadu and Telangana give 12 days sick plus 12 days casual; Maharashtra gives 8 days casual; Gujarat gives 7 days casual and 7 days medical. If your state Act sets a minimum, your policy must meet it.

Maternity leave

Maternity benefit is now part of the Code on Social Security, 2020 (Chapter VI, sections 59 to 72), which replaced the Maternity Benefit Act, 1961. Under Section 60 (King Stubb & Kasiva summary):

• 26 weeks of paid leave, of which no more than 8 weeks before delivery.
• 12 weeks for a woman who already has two or more surviving children.
• 12 weeks for an adopting or commissioning mother, from the date the child is handed over.
• Eligibility: at least 80 days actually worked in the 12 months before the expected delivery.
• Establishments with 50 or more employees must provide a crèche facility.

In March 2026 the Supreme Court struck down the old rule that limited adoption leave to children under three months, so adoptive mothers get 12 weeks whatever the child's age (India Briefing). If your policy still refers to the Maternity Benefit Act, 1961, update the reference.

National and festival holidays

Each state has its own National and Festival Holidays Act. Republic Day (26 January), Independence Day (15 August) and Gandhi Jayanti (2 October) are national holidays everywhere, and many states add 1 May. The total number of paid holidays differs: for example, 9 in Tamil Nadu, 10 in Karnataka and 13 in Kerala (Mynd Solution). An employee who works on one of these holidays usually gets double wages, or wages plus a compensatory day off.

Sandwich rule

The sandwich rule counts weekends or holidays between two leave days as leave. It isn't set by law; it is company policy (Keka). If you use it, write it down, apply it to everyone, and say which leave types it covers. Many companies exclude sick leave.

Free leave policy template for Indian SMEs

Copy this into a document, replace the text in square brackets, and check the numbers against your state's Act.

Mistakes to avoid

• Copying a policy from another state. Leave quotas and carry-forward caps are set by state law.
• Leaving out loss of pay. Without a clear rule, every LOP deduction becomes an argument.
• Referring to repealed laws. The Maternity Benefit Act, 1961 and the Factories Act, 1948 have been replaced by the labour codes.
• Not tracking balances. A good policy fails if balances live in a spreadsheet nobody updates. A leave management system credits leave and applies the rules automatically.

Run your leave policy in Aajar

Aajar lets you enter this policy once and applies it automatically. On every plan, from ₹20 per user per month, you can set up sick, casual and earned leave with monthly credits, your leave-year start, carry-forward caps, separate rules for staff on probation, a holiday calendar, weekly offs, alternate Saturdays, half-day leave and the sandwich rule. Leave beyond the balance is blocked and must be applied as loss of pay, which then flows into payroll. Comp off comes with the Growth plan. Start free for 3 months; no card is needed.

Frequently asked questions

How many leaves are mandatory in India?

There is no single national number. The OSH Code requires 1 day of earned leave per 20 days worked for workers, state shops and establishments Acts set casual, sick and earned leave quotas, and state holiday Acts set paid holidays. Your minimum depends on your state and whether your staff count as workers under the OSH Code.

Is paternity leave mandatory in India?

Not for private employers. Central government employees get 15 days. Many private companies give 5 to 15 days as a policy benefit.

Can a company refuse leave?

A manager can refuse or reschedule leave for business reasons, but statutory leave can't be taken away. Under the OSH Code, earned leave that was applied for and refused carries forward without a cap.

Is the sandwich rule legal?

No law requires or bans it. It is a company policy choice, so it should be written into the policy and applied consistently.

What is the notice period for applying for leave?

The law doesn't set one. Most policies ask for 7 to 15 days' notice for planned leave, allow same-day casual leave, and let sick leave be applied for afterwards.

This template is a starting point, not legal advice. Check it against your state's laws or with an employment lawyer.