The New Labour Code 2025 has introduced a significant shift in how employee leave benefits are structured in India, especially for workers who were previously at a disadvantage when it came to leave policies. One of the most impactful changes is that employees can now become eligible for earned leave after completing just 180 days, or roughly six months, of continuous service. This is a notable improvement over earlier frameworks where the eligibility period was longer, often extending up to 240 days under older laws like the Factories Act. By reducing this threshold, the new code ensures that employees can start accessing leave benefits much earlier in their employment journey.
Another major reform introduced under the Occupational Safety, Health and Working Conditions Code (OSH Code) is the standardisation of earned leave across India. While earlier leave policies varied significantly from state to state, the new labour code aims to create a more uniform system, while still allowing state-level laws to offer better benefits where applicable. This balance ensures that employees are not deprived of more favourable provisions already available under certain state regulations, and instead receive whichever benefit is more advantageous.
One of the most employee-friendly aspects of the new labour code is the provision related to leave carry forward. Employees are now allowed to accumulate earned leaves up to a limit of 30 days, and more importantly, if an employer refuses to grant leave that has been properly applied for, those leaves cannot be forfeited. Instead, they must be carried forward without any limitation. This provision addresses a long-standing issue where employees, particularly in high-pressure roles, would lose their earned leave simply because operational demands prevented them from taking time off. The new rule ensures that employees are no longer penalised for circumstances beyond their control.
In addition to protecting leave accumulation, the labour code has introduced a highly beneficial feature in the form of annual leave encashment. Previously, in many cases, employees could only encash their unused leaves at the time of resignation, retirement, or termination. Now, the new framework allows workers to encash unused earned leaves on an annual basis while they are still employed. This change is particularly valuable for individuals working in demanding environments where taking leave may not always be practical. Instead of losing these leaves, employees now have the option to convert them into financial compensation, thereby enhancing their overall earnings and financial planning.
This reform also introduces a sense of fairness and accountability in employer-employee relationships. By ensuring that denied leaves are not lost and by providing an option for annual encashment, the new labour code protects workers from exploitation and creates a more transparent system. It recognises the realities of modern workplaces, where employees may not always have the flexibility to take leave, and compensates them accordingly.
However, it is important to understand that these benefits are not universally applicable to all categories of employees. The provisions primarily apply to ‘workers’ as defined under the OSH Code, which includes individuals engaged in manual, skilled, technical, operational, or clerical roles earning below a certain wage threshold, typically ₹18,000 per month. Employees in managerial or administrative positions, or those in supervisory roles earning above this threshold, are not covered under these specific provisions. Additionally, since labour laws in India operate under both central and state jurisdictions, the implementation of these changes may vary depending on whether individual states have formally notified and adopted the new code.
Another key aspect to consider is that the new labour code does not replace existing state-level Shops and Establishments Acts but instead works alongside them. This means that employees may be entitled to benefits under both frameworks, and in such cases, the principle of the “better benefit” applies. In other words, if a state law offers more favourable leave provisions than the central code, employees can avail those instead. This ensures that the new labour code acts as a baseline or minimum standard rather than limiting existing benefits.
Overall, the New Labour Code 2025 represents a progressive step toward improving employee welfare in India. By reducing the eligibility period for earned leave, protecting employees from losing their leave due to rejection, and introducing annual encashment, the code not only enhances work-life balance but also provides financial security. It acknowledges that in many industries, taking leave is not always feasible and ensures that employees are compensated fairly in such situations.
In simple terms, the new labour code transforms earned leave from a benefit that could be lost into an asset that holds real value. For employees, this means greater flexibility, better financial planning, and stronger protection of their rights in the workplace.
