Leave management system: leave types, rules and how to choose software
The leave types Indian businesses handle, what the Labour Codes say about earned and maternity leave, carry-forward and encashment rules, and what software must do.
Last updated 21 October 2026
What is a leave management system?
A leave management system lets employees apply for leave, managers approve it and HR see balances, without registers or email chains. It holds each leave type’s rules, such as accrual, carry-forward limits and encashment, applies the right policy for each location, updates attendance, and passes paid and unpaid days to payroll.
Where ERPStack is today
ERPStack is in development. It is not yet available to download or buy, and the features on this page are planned, not shipped.
Sign upWhich leave types must a leave management system handle?
Some leave is set by law, some by state shops and establishments laws or standing orders, and some only by company policy. Software has to hold all three without hard-coding any of them. The four Labour Codes were made effective from 21 November 2025 (PIB release), so the central rules below come from the Codes.
| Leave type | Where the rule comes from | What the system tracks |
|---|---|---|
| Earned or privileged leave | OSH Code section 32: one day for every 20 days worked, once the worker has worked 180 days or more in the calendar year (OSH Code, FAQ) | Days worked, accrual, carry-forward and encashment |
| Casual leave | State shops and establishments laws, standing orders or company policy | Annual quota, usually not carried forward |
| Sick leave | State shops and establishments laws, standing orders or company policy; ESI sickness benefit for insured employees | Quota, medical certificate rules, ESI cases |
| Maternity leave | Code on Social Security, 2020: 26 weeks for a woman who has worked at least 80 days in the preceding 12 months (Labour Ministry handbook) | Eligibility, expected date, the 26-week span and the medical bonus |
| Paternity leave | Not provided by the Labour Codes for private-sector employees; a company policy | Whatever days and eligibility your policy sets |
| Compensatory off | OSH Code section 26: compensatory holidays where an exemption removes a weekly holiday; otherwise company policy | Comp-off earned against a worked holiday, with an expiry date |
| Loss of pay (LOP) | Unpaid absence when no balance is left or leave is unapproved | LOP days passed to payroll for the month |
Maternity benefit applies to factories, mines and plantations, and to shops and establishments with ten or more employees on any day of the preceding twelve months, under the First Schedule of the Code on Social Security, 2020, as reproduced in the Labour Ministry’s handbook. The Code replaced the Maternity Benefit Act, 1961.
Do leave rules differ from state to state?
Yes. Shops, offices and other commercial establishments are covered by each state’s own shops and establishments law, which sets its own entitlements for earned, casual and sick leave and its own national and festival holidays. States also make rules under the Labour Codes. Two branches of the same company in different states can therefore have different minimum entitlements.
For software, that means leave policies have to attach to a location or legal entity, not to the whole company, and the holiday calendar has to be set per state. Check your state labour department’s website for the current entitlements before setting up a policy.
How should accrual, carry-forward and encashment work?
Section 32 of the OSH Code sets out the annual leave arithmetic in detail. These are the rules a system has to model:
| Rule | What section 32 says |
|---|---|
| Eligibility | 180 days or more worked in the calendar year; lay-off, maternity leave and annual leave count towards the 180 |
| Accrual | One day for every 20 days of work (every 15 days for adolescent workers) |
| Joining mid-year | Leave at the same rate if the worker works a quarter of the remaining days of the year |
| Holidays inside leave | Holidays falling within the leave are not counted as leave taken |
| Carry-forward | Up to 30 days; leave applied for and refused carries forward without limit |
| Encashment | On demand at the end of the calendar year, and for leave above the 30-day carry-forward limit |
| On exit | Wages for leave due, within two working days of discharge, dismissal or resignation, and within two months of retirement or death |
Your policy can be more generous than this, never less. Write the policy down first, then set it up in software, so accrual is calculated rather than typed in each month.
What should leave management software do?
- Let employees apply from a phone and see their balance before they apply.
- Route each request to the right approver, with a deputy when the approver is away.
- Accrue leave from actual days worked in attendance, not a fixed monthly credit.
- Apply carry-forward caps and encashment at year-end automatically.
- Hold different policies and holiday calendars per state or location.
- Block overlapping requests and show who else on the team is away.
- Pass paid leave and loss-of-pay days to payroll at the monthly cut-off.
- Keep the leave register the OSH Code asks for under section 33, from the same data.
How do you choose a leave management system?
| Question to ask | What a good answer looks like |
|---|---|
| Can you define any leave type? | Your own types, quotas, eligibility and expiry, without code |
| Is earned leave accrued from attendance? | Days worked come from attendance, with the 180-day test applied |
| Are carry-forward and encashment automatic? | Caps applied at year-end, encashment passed to payroll |
| Does it handle more than one state? | Policies and holidays per location or entity |
| Is maternity leave tracked properly? | Eligibility check, the 26-week span and return date |
| Is it linked to payroll? | Loss-of-pay and encashment reach payroll without re-typing |
| Can you export everything? | Balances, history and registers in open formats |
How will ERPStack handle leave?
ERPStack is an ERP for Indian small and mid-sized businesses that Perimattic is building, with HR alongside accounting, inventory and sales. For leave, the plan:
- Leave types you define, with accrual, carry-forward caps and encashment rules.
- Earned leave accrued from attendance, with the OSH Code’s 180-day test.
- Policies and holiday calendars per state or branch.
- Mobile apply-and-approve with balances shown up front.
- Loss-of-pay and encashment passed straight to payroll.
Status: ERPStack is in development and none of this is available to use yet. Sign up to tell us how your leave policy works.
This page is general guidance, not legal advice; laws were checked on 22 October 2026. State rules and shops and establishments laws vary, so confirm the rules that apply to your establishment.
More on HR and payroll
Leave management, answered
How many earned leaves does an employee get in India?
Under section 32 of the Occupational Safety, Health and Working Conditions Code, 2020, a worker who has worked 180 days or more in a calendar year earns one day of leave with wages for every 20 days worked. State shops and establishments laws and company policy can give more; check which applies to your workplace.
Is paternity leave mandatory for private companies in India?
No. The Code on Social Security, 2020 provides maternity benefit but does not provide paternity leave, and the OSH Code does not either. Paternity leave in a private company is a policy choice, so a leave system should let you define it with your own number of days and eligibility.
Can unused earned leave be encashed?
Under the OSH Code, a worker can carry forward up to 30 days of unused leave, can encash leave above that limit, and is entitled on demand to encash leave at the end of the calendar year. On leaving, the worker is paid wages for leave due, within two working days of a discharge or resignation.
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