Leave & Leave Encashment: OSH Code vs the State Shops & Establishments Acts
In one line: Under Section 32 of the OSH Code, 2020, a worker earns 1 day of leave for every 20 days worked after crossing a 180-day threshold in a calendar year — but State Shops Acts still apply wherever they’re more favourable to the worker, per Section 120.
For employees falling under the “worker” category, leave and leave-encashment provisions sit under the Occupational Safety, Health and Working Conditions Code, 2020 (“OSH Code”). Leave is one of the few areas under the four Codes that doesn’t wait on notified Rules — the statutory provisions are already operative on their own. The provisions themselves are fairly straightforward; the confusion in HR circles comes from the parallel existence of the State Shops & Establishments Acts (“Shops Acts”).
The Statutory Basis
- Section 32, OSH Code, 2020 — Leave eligibility, accrual rate, and carry-forward.
- Section 79, Factories Act, 1948 (superseded) — Predecessor provision; required 240 days of work per calendar year.
- Section 120, OSH Code, 2020 — Overriding effect of the Code over inconsistent laws, awards, agreements, or contracts of service — subject to a “more favourable benefit” carve-out.
On Leaves: Eligibility & Accrual Rate
A worker is entitled to leave in a calendar year (1 January to 31 December) if he has worked 180 days or more in that year. This is a reduced threshold compared to Section 79 of the Factories Act, 1948, which required 240 days of work in a calendar year before leave could be availed — and even then, only in the following year. Section 32 removes that one-year wait entirely.
| Provision | Eligibility threshold | Accrual rate |
|---|---|---|
| OSH Code, Section 32 (general worker) | 180 days in the calendar year | 1 day leave per 20 days worked |
| OSH Code, Section 32 (adolescent worker) | 180 days in the calendar year | 1 day leave per 15 days worked |
| Factories Act, 1948, Section 79 (superseded) | 240 days in the calendar year | 1 day leave per 20 days worked, usable only next year |
What counts toward the 180-day count: Any period of lay-off, maternity leave, or annual leave already availed by the worker in that calendar year counts toward the 180 days — provided the worker does not earn fresh leave during that interregnum. Any holiday falling within a stretch of leave (or immediately before/after it) is excluded from the leave count. This closes off the common HR practice of treating intervening holidays as part of a worker’s earned leave.
Mid-year joiners: A worker whose service starts after 1 January is entitled to leave at the same 1-day-per-20-days rate if he has worked at least 1/4th of the remaining days in that calendar year. (Under the Factories Act, this proportion was 2/3rd — a much higher bar.) For example, a worker joining on 1 March 2026 would need to work roughly 77 days that year, inclusive of paid holidays, weekly offs, and other granted leave.
Leave Carry-Forward & Encashment During Employment
- Carry-forward cap: Unused leave from a calendar year carries forward to the next year, capped at 30 days total carry-forward.
- No cap if leave was refused: If a worker applied for leave with wages and it was not granted, the carry-forward is unlimited.
- Encashment on demand: A worker may encash the whole of his leave balance at the end of the calendar year, purely on his own demand — the OSH Code places no ceiling on how much can be encashed this way.
- Encashment of excess carry-forward: Separately, a worker can encash the excess whenever his carry-forward balance crosses 30 days.
These are two distinct, optional routes — a worker isn’t required to exercise either.
Post-Employment Leave Encashment
When a worker is discharged, dismissed, resigns, is superannuated, or dies while in service during a calendar year, the worker (or heir/nominee) is entitled to wages in lieu of the leave standing to his credit immediately before the employment ends.
Notably, this encashment is calculated at the standard rate of 1 day of leave per 20 days worked — even if the worker had not completed the 180-day eligibility threshold for that calendar year. In other words, a worker resigning mid-year without having crossed 180 days still gets that year’s leave encashed at the same rate, on top of separately encashing whatever leave he had already accumulated.
| Exit reason | Payment deadline |
|---|---|
| Discharge, dismissal, or resignation | Within 2 days of cessation |
| Superannuation or death | Within 2 months of the event |
Interplay With State Shops & Establishments Acts
Leave eligibility, accrual rate, and carry-forward limits vary considerably by state under the Shops Acts:
| State | Eligibility | Accrual | Max carry-forward | Encashment during employment |
|---|---|---|---|---|
| Delhi Shops Act | 12 months’ continuous service | 15 days/year; plus 5 days privilege leave after 4 months, 1 day per additional month | 45 days | Not provided for |
| Maharashtra Shops Act | 240 days of work in a year (also 5 days for 60 days worked) | [figure in source unclear — verify against the Bombay Shops & Establishments Act before publishing] | 45 days | Available only if employer refuses leave applied for 15 days in advance |
| Karnataka Shops Act | No precondition | 1 day per 20 days worked | 20 days | — |
Editorial flag: The Maharashtra leave-accrual figure in the source draft (“a person get dayd days of leaves for having worked 240 days”) is garbled and couldn’t be parsed as a number — I’ve left it as a flagged gap rather than guessing. Please confirm the correct figure against the Bombay Shops & Establishments Act, 1948 (or Maharashtra’s current Shops Act) before this goes live.
Which Law Prevails? Section 120
Section 120 of the OSH Code governs conflicts between the Code and other laws, awards, agreements, or contracts of service:
The provisions of this Code shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in the terms of any award, agreement or contract of service — provided that where an employee is entitled to more favourable benefits under such other law, award, agreement, or contract for a given matter, he continues to get that more favourable benefit, even while receiving Code benefits for other matters.
In effect: where a State Shops Act gives less favourable leave benefits than the OSH Code, the Code prevails. Where the Shops Act is more favourable, a matter-by-matter (severable) approach applies — the worker keeps the better leave benefit under the Shops Act while still receiving OSH Code benefits on other matters. This reading draws on the ejusdem generis principle in Section 120(1), the Supreme Court’s ruling in Amar Chandra Chakraborty v. Collector of Excise, Govt. of Tripura, and the Pepsico India Holding P. Ltd. v. Grocery Market & Shops Board precedent affirming that more favourable State-law benefits survive alongside Central Code benefits.
Practical bucketing for employers: Since most Shops Acts (Telangana being a notable exception) don’t provide for in-employment leave encashment, employers should track two separate buckets for affected workers — leave availed/accrued under the applicable Shops Act pre-OSH Code, and leave earned under the OSH Code itself — since each bucket is governed by a different rulebook.
Scope: Worker vs Employee
The OSH Code’s leave provisions under Section 32 apply only to workers, not to “employees” more broadly. Employees outside the worker definition remain governed entirely by the applicable State Shops Act. Sick leave and casual leave — neither of which is addressed in the OSH Code — also continue to be governed by the Shops Acts regardless of worker/employee classification.
Frequently Asked Questions
How many days of leave is a worker entitled to under the OSH Code? Under Section 32, a worker who has worked 180 days or more in a calendar year is entitled to 1 day of leave for every 20 days worked. Adolescent workers earn 1 day for every 15 days worked.
How is the 180-day eligibility threshold different from the Factories Act? The Factories Act, 1948 required 240 days of work in a calendar year before leave could be availed the following year. The OSH Code lowers this to 180 days and lets the worker use the leave in the same year, without waiting for the next one.
How much leave can a worker carry forward to the next year under the OSH Code? Unused leave carries forward up to a maximum of 30 days. If the worker applied for leave with wages and was refused, there is no limit on the leave that can be carried forward.
When must leave encashment be paid after a worker leaves the job? For discharge, dismissal, or resignation, encashment must be paid within 2 days of the cessation of employment. For superannuation or death, it must be paid within 2 months.
Do OSH Code leave rules override the State Shops and Establishments Acts? Under Section 120, the OSH Code prevails over less favourable Shops Act provisions. But where a Shops Act or agreement gives a worker more favourable leave benefits, those more favourable provisions continue to apply for that specific matter.
Do the OSH Code leave provisions apply to all employees? No. The leave provisions under Section 32 apply only to workers as defined under the OSH Code. Employees who fall outside that definition continue to be governed by the applicable State Shops and Establishments Act.
Verified by Labour Code Advisor’s compliance desk against the official gazette notifications. Last updated: .