Unlimited leave policies have become a badge of progressive HR culture. Startups put them in job descriptions. Founders talk about them on LinkedIn. But when HR professionals in India actually try to implement one, something uncomfortable surfaces – a legal grey zone that most policy documents quietly sidestep.
The core tension: India’s labour laws don’t care what you call your leave policy. Shops and Establishments Acts across states mandate earned leave accrual, and with it, earned leave encashment rules on separation. How does “unlimited leave” – by definition unaccrued – interact with a statutory right to encashment? That question has no clean answer, and conversations across the HR community reveal just how much ambiguity practitioners are working through.
Why the Unlimited Leave Debate Surfaces at Separation
The issue rarely comes up during day-to-day operations. Most employees under an unlimited leave policy simply take time off as needed, and no one keeps a ledger. The problem surfaces at full and final settlement, when HR has to calculate dues — and discovers there’s no leave balance to encash, because the policy never accrued one.
Neela Dodiya, a People professional exploring this for her organisation, put the question plainly to the HR community:
“Is anyone here working in an organization that has implemented an unlimited leave/time-off policy in India? If yes, I would love to understand how you are handling aspects such as leave accruals and leave encashment/statutory requirements from a compliance standpoint.” – Neela
The responses were split, reflecting genuine disagreement among practitioners — not just uncertainty.
Kartik Mandaville, who has navigated this at Springworks, was direct about his reading of the law:
“IMO this isn’t allowed. Leave encashment at resignation is a legal right and is not an option. Company policy cannot usually override statutory earned leave obligations under applicable Shops and Establishments laws. The issue with ‘true unlimited leave’ is that earned leave in India is generally accrual-based and often linked to separation payout/encashment. If there is no accrual or ledger at all, how is final settlement computed?” — Kartik Mandaville
This is the crux of the problem. The statutory framework for earned leave in India was designed for a world of fixed accrual. Unlimited PTO – a concept imported largely from US tech culture – doesn’t map cleanly onto it.
The Legal Reality Under Shops and Establishments Acts
India doesn’t have a single national law governing earned leave for private sector employees below a certain threshold. Instead, Shops and Establishments Acts vary by state, and most of them codify a right to earned leave at a rate of one day per 20 or 22 days worked, with encashment rights at separation.
Wristy, a Global People Advisor and leader with deep experience in Indian labour compliance, offered a nuanced counterpoint:
“Leave Accrual or Encashment is not mandated under S&E Acts in India. There is a need for careful reading of laws.” — Wristy, Global People Advisor
And later:
“Yes. Earned Leave is a legal requirement in India. And so it becomes unlimited earned leaves. S&E Acts mention maximum leave encashment, and not that leave encashment is a mandate. Please note, companies are not strictly mandated to encash leaves; the payment of earned leave upon resignation or retirement is a standard, legally recognized benefit.” — Wristy
This distinction matters. Some practitioners argue that the statutory requirement is for the leave itself to exist — not for a specific encashment mechanism — and that as long as employees are not denied leave, a policy without accrual can still be compliant. Others, like Abhijeet, proposed a middle-ground architecture:
“Food for thought to satisfy both the situations: To have a leave accrual policy in the first place and unlimited negative leave balance. In case employees have positive leave balance at resignation will get encashment but employees with negative leave balance will not face any deduction.” — Abhijeet
The Practical Compliance Framework That Works
Given the legal ambiguity, HR professionals implementing unlimited leave in India tend to land on one of three practical approaches:
Accrual with a generous cap: The company accrues earned leave at the statutory minimum rate, but sets a high or rolling cap. Employees effectively have access to far more leave than they accrue, but the system maintains a ledger for settlement purposes. This satisfies the statutory structure while preserving flexibility.
Hybrid minimum accrual + discretionary PTO: The company maintains a statutory earned leave bucket (say, 12–18 days per year) and separately provides open-ended discretionary PTO. Settlement is computed on the earned leave bucket only. The “unlimited” part is treated as a benefit, not a statutory entitlement.
Legal opinion first: Given that interpretation varies by state, several HR leaders recommended engaging a labour law firm before implementing any unlimited leave structure — particularly if the company operates across multiple states with different S&E Acts.
Wristy’s practical advice summarised the stakes: “It would be useful to connect with a good legal firm in this case.”
What This Means for Startups and Progressive HR Teams
The appeal of unlimited leave is real. It signals trust, reduces administrative overhead, and resonates with talent in competitive markets. But in the Indian context, implementing it without a compliance architecture is a risk that only surfaces when it’s most painful — during offboarding, when a departing employee raises a formal grievance about unpaid earned leave encashment.
The deeper lesson from this community discussion is that progressive HR policies borrowed from other markets need to be re-engineered for Indian statutory reality — not just translated. Unlimited leave, done right in India, requires a clear answer to the question: when this employee resigns, what do we owe them, and where does that number come from?
That’s not a policy question. It’s a legal one. And the HR community is still working it out.
