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Important factors to consider while structuring a good leave policy

authorIcon By Ketan 8 minute read topicIcon Leave

Any HR policy is a formal statement that lays down the rules and regulations for a particular HR function.

Of all the HR policies, the leave policy grabs the maximum attention of employees right from day one of their association with the company.

A robust leave policy:

  • Provides adequate information and clarity to the employees
  • Is fair
  • Complies with the applicable statutes
  • Is commensurate with the industry norms and nuances of the local culture

Structuring of HR policies, including the leave policy, reflects the company’s professionalism, culture and leave management system through its language, tone and ‘friendliness’ quotient. It’s about helping the employees utilize leaves to which they are entitled.

Recipe for a good leave policy
In India, the Factories Act - 1948, and the state-level Shops and Commercial Establishment Acts principally govern the business of leaves.

While scripting the leave policy, the HR Head must:

  • Affirm applicability of laws. This is important as each Indian state has a Register of Leave, which must be maintained, under the relevant state’s Shops and Commercial Establishment Act.
  • Gather sufficient data on industry norms, leave practices followed at key competitors’ workplaces.
  • Understand nuances of the local culture. For example, a branch office may be located in Kerala where all Malayalees celebrate Onam (the harvest festival) and Vishu (the new year) irrespective of their religion! In such instances, Onam and Vishu maybe included in the leave policy as Restricted or Regional Holidays only for employees based out of Kerala.

Review by key stakeholders
Once a draft policy is ready, the HR Head should obtain the considered views of the key stakeholders, i.e. senior management team members and a few trusted industry HR veterans. After making suitable changes, the HR Head should get the final consent of these stakeholders.

The final leave policy document should carry the signatures of the MD/COO and the HR Head before its communication to the employees.

Important questions to answer
Answering the following questions would help the HR Head structure the leave policy that is appropriate to the workplace and company’s needs:

  • What does this policy endeavor to achieve in my company? Does the policy ensure that employees ‘earn’ their leaves only after their probation period? How do I ensure that employees don’t take too many leaves and then exit the organization earlier than expected? Does the leave policy ensure fair and uniform rules for all employees? What message does it convey?
  • What kind of policy and procedures would support the growth of the desired work culture?
  • How will I monitor its implementation?
  • Will this policy influence my company’s ability to attract quality candidates and the company’s brand image? If yes, how?
  • Will this policy foster the values of the company? For example, if the company has an ‘employee-first’ philosophy of ‘care and concern’ as a value, it might want to have a leave policy that reflects this philosophy and value. The CHRO can involve employees too while drafting the policy.
  • How would this policy affect the business performance? This is an important question, especially when the company wants to introduce a new, non-statutory leave (for example, bereavement leave).
  • What could be the potential business impact of this policy? Will employees abuse friendly leave policies? If leaves are not granted on time, will that hurt employee loyalty? If approval process is not defined clearly or doesn’t happen fast, how can HR intervene?
  • Will you or won’t you allow encashment? Some companies encourage time-off in lieu of encashment, whereas others’ business does not allow them to do so.

The CHRO while introducing a new type of leave, beyond statutes, must ensure review of industry norms and the impact of the proposed leave on the workforce’s availability, cost and motivation.

Many times, HR professionals tend to succumb to the ‘popularity’ syndrome and pay inadequate attention to the long-term implications of the proposed leave. Being an industry leader in employee-related practices is always good but not without ensuring sustainability of the business.

Key ingredients of a good leave policy
The following are key ingredients that constitute a good leave policy:

  • Objective - This captures the intent of the policy. Typically, it would say, “To define the entitlements, procedures and guidelines for employees to avail leave.”
  • Scope - This section limits the beneficiaries of the policy. Largely, the scope would state that “This policy is applicable to all the employees on permanent rolls of the company, including trainees, probationers and apprentices.”
  • Eligibility - This is customarily a table showing:
    • Types of leave
    • Annual entitlement/quota of each leave type
    • The number of times (occasions) a specific leave can be availed
    • Quantum of leave applicable per occasion
    • Minimum/maximum duration of the leave
  • Procedure - This section specifies how employees can avail their leaves. It is the sequence of actions to be taken by the employee, reporting manager, reviewing manager (in specific circumstances) and the HR department.
    Note: A prolonged approval process, by design or by practice, could imply bureaucracy and to an extent, lack of delegation and trust.
  • Guidelines - This is a detailed section that covers:
    • Leave accrual process
    • Certain mandatory provisions (especially, for privilege/earned leave in terms of the minimum number of leaves that can be availed in a year)
    • Accumulation limits for each type of leave
    • Encashment criteria, including applicable income tax
    • Provisions for prefixing/suffixing leaves with holidays
    • Treatment of intervening holidays
    • Documents required
    • Leaves that can be carried forward or not to the next leave year
    • Impact on notice period, if any, during a separation from the company

Exceptions - This section is generally added at the end of the leave policy and stereotypically says, “Any exceptions to this policy requires the approval of the HR Head or MD/COO.”
The HR Head must distinguish clearly between a policy and a procedure (sequential instructions) while structuring the leave policy. The policy is "the what and the how many" and the procedure is “the how to."

Features of a good leave policy
You can identify whether a leave policy is good if it incorporates the following features:

  • It incorporates the effective date, revision number and revision date.
  • It is logically divided and has numbered sections.
  • It has the name of the policy clearly written on each page.
  • It has a contemporary (technology-enabled procedure, new types of leaves, mobile-friendly, etc.) approach.
  • It has a clear, straightforward language that is easy to understand and remains consistent throughout.
  • It has short and precise sentences without any typos.
  • It has keywords, which are well defined to ensure zero ambiguity.
  • It is bilingual (at the very least); it is displayed in English and in the local language spoken by the bulk of the employees. This aids in meaningful communication of the policy.
    Note: For legal purposes, the English version of the policy will be the primary reference.
  • It safeguards the company from potential claims.
  • It has a defined review and audit period, which is generally once in two years (usual review period for all HR policies).
  • It requires employees to provide their contact details during their leave period.


What is the ultimate purpose of the leave policy?
It is to communicate to the employees that the company provides different types of leave (as per the applicable statutes, the company’s philosophy and prevailing industry norms) and the policy has
‘employee-friendly’ rules, limits and procedures.

Leaves are also extremely important for employees to attend to personal matters, such as banking transactions, family functions, etc. Employees also need some down time for vacations, travel, which helps them rejuvenate and come back to work with renewed vigor.

More than the types and number of leaves, it is the nature of the procedure of availing leaves that determine the employees’ perception of how ‘friendly’ the leave policy is.

The CHRO must remember that a well-structured HR policy is also a tool to communicate the company’s values and expectations.

Leave policy is not just about granting leaves; it is about helping employees to know about their entitlements and to make it easy for employees to avail them effectively.

A good leave policy enables a CHRO to achieve one of his/her objectives: happy and engaged employees, who have decent work-life balance.


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