Leave policy is easy to write for a company sitting in one office in one city. It gets complicated fast when the team is fully remote and scattered across a dozen states. Which state’s earned leave rules apply? Can you keep a single PTO pool? What happens to unused leave at the end of the year? And how does any of this hold up now that the OSH Code has come into force while states are still notifying their own rules?
HR professionals we spoke to are working through exactly these questions. One HR lead at a 40-person IT services company laid out the situation clearly.
“Context: ~40 employees, IT services, fully remote, spread across 12+ states with only 1-2 people in most. Client projects need constant coverage. Current policy is a single 18-day PTO pool with no earned leave and no carry-forward.”
Navya, HR, remote IT services company
That setup is common among startups and services firms. It is also, in most states, not compliant with the earned leave rules in their Shops and Establishments Acts.
Which state’s earned leave rules apply to remote employees
This is the first question every distributed company hits. Shops and Establishments Acts are tied to the establishment, not to where an individual employee happens to log in from. That gives remote companies a sensible starting point.
“S&E Acts are establishment-based, so most remote companies follow the registered state and top up wherever an employee’s state gives more. Check this for your setup.”
Kartik, Founder & CEO, Springworks
In practice, that means using the registered office state as the baseline and checking whether any state where employees live offers a higher minimum. With only one or two people in most states, running separate policies for each one becomes an administrative headache. The suggestion in the discussion was one policy set at the highest common minimum, so nobody is under-provided and HR is not managing a dozen variants.
Why a single PTO pool rarely meets earned leave rules
Many small companies combine casual and sick leave into one pool and call it PTO. It feels simpler and more flexible. The problem is that most state laws expect distinct leave types, with earned leave carried forward.
“I have heard that many small companies run a single PTO pool like this, but the state S&E Acts (Gujarat, Maharashtra, Karnataka and others) appear to require three leave types (earned, casual and sick), with carry-forward of earned leave.”
Navya, HR, remote IT services company
“carry forward is mandatory in Karnataka. 18 earned leaves and 12 sick leaves are mandatory. earned leaves have to be carried forward.”
Kartik, Founder & CEO, Springworks
Even if the total number of days in a PTO pool matches the sum of the statutory minimums, a pool with no carry-forward fails the earned leave test. The cleaner fix is to separate earned leave from casual and sick leave, keep earned leave accruing and carrying forward, and keep the other two simple.
How the OSH Code changes carry-forward and encashment
The Occupational Safety, Health and Working Conditions Code adds a central layer to all of this. Under Section 32, a worker who has worked 180 days or more in a calendar year earns one day of annual leave for every 20 days worked. Unused leave can be carried forward up to 30 days, and the excess beyond that can be encashed. State rules still matter, because a state that gives a more generous benefit continues to apply, so the working approach is to compare benefit by benefit and keep whichever is better for the employee.
Until every state finishes notifying its rules, the safest approach is to build the policy to whichever is stricter, the current state rules or the OSH Code.
Carry-forward also solves a problem every HR team knows well: the December leave rush, when half the team tries to use up their balance at once.
“Cap carry-forward (say 30-45 days), encash the excess every year, and nudge people to take leave in quarters. That stops the year-end rush.”
Kartik, Founder & CEO, Springworks
If your policy caps carry-forward, make sure the cap is not lower than what the OSH Code or your state allows, and spell out how encashment is calculated, including which wage components are used and whether the divisor is 26 or 30 days.
Balancing earned leave with client coverage
For services firms, the real anxiety is not compliance. It is whether a client project falls apart when someone takes two weeks off. The answer in the discussion was process, not restriction.
“Shared team leave calendar, a backup named on each client project, and a notice window for planned leave longer than 3 days.”
Kartik, Founder & CEO, Springworks
This is worth taking seriously, because the alternative, quietly discouraging leave, is exactly what produces the year-end rush and the burnout that follows it. A named backup on every project means leave becomes a planning problem with a known answer rather than a favour employees have to ask for.
Earned leave rules for remote teams come down to a few decisions made carefully. Pick the registered office state as the baseline and top up where another state gives more. Separate earned leave from casual and sick leave instead of running a single pool. Let earned leave carry forward within the OSH Code’s 30-day limit and encash the excess. Then build coverage processes so people can actually use the leave they earn. Before finalising, run the draft past a labour lawyer or qualified compliance expert, especially while state rules under the new codes are still being notified.
