Managing leave around public holidays in India
Reviewed by Mellow Editorial Team, HR & payroll content team
Public holidays in India do not automatically extend leave entitlements, but how you manage the overlap between statutory holidays, optional holidays, and employee leave directly affects payroll, compliance, and workforce planning.
What counts as a public holiday in India
India has three national holidays — Republic Day (26 January), Independence Day (15 August), and Gandhi Jayanti (2 October). These are mandatory paid holidays for all establishments across the country.
Beyond these three, public holidays vary by state. Each state government issues an annual list of gazetted holidays, and establishments are typically required to observe a set number from that list. The exact count depends on the applicable state Shops and Establishments Act or the relevant industry-specific legislation.
On top of gazetted holidays, many employers offer a list of optional or restricted holidays — usually festivals that vary by religion or region. Employees can choose a fixed number from this list each year. These are entirely employer-defined and should be written clearly into your leave policy.
With the four Labour Codes now in force from 2025, it is worth reviewing whether your leave and holiday policies align with the consolidated framework, particularly the Code on Wages and the Occupational Safety, Health and Working Conditions Code, which carry provisions around paid holidays and compensatory leave.
When a public holiday falls inside a leave period
This is where most payroll disputes arise. The general principle, followed by most courts and HR practitioners, is that a public holiday falling within a period of approved leave is not counted as a day of leave — the employee is entitled to that holiday regardless. So if someone takes five days of annual leave and a gazetted holiday falls in the middle, you should deduct only four days from their leave balance.
However, this is not universally codified for all categories of workers. Your leave policy should state this explicitly. Silence in the policy tends to favour the employee's interpretation anyway, and rightly so.
The position is clearer for factories and establishments covered under state-specific rules, where holiday entitlements are more precisely defined. For other establishments, the employer's standing orders or HR policy become the operative document.
When a public holiday falls on a weekend
If a gazetted holiday coincides with a Saturday or Sunday — and your employees work a five-day week — the question of whether a substitute holiday is given is not always straightforward. There is no universal statutory requirement to provide a compensatory off in this situation.
Some state governments issue substitution notifications for specific holidays. Some industries and companies have internal policies granting a compensatory day. The safest approach is to state your policy clearly in writing and apply it consistently. Inconsistent application across departments or employee levels creates unnecessary grievance.
Payroll implications of public holidays
Employees who are required to work on a mandatory public holiday are generally entitled to wages at a premium rate, often double the ordinary rate, though the exact requirement depends on the applicable state law or standing orders. Confirm the rate under the legislation that governs your establishment.
For employees on fixed monthly salaries, a public holiday within the working month does not reduce their pay. The issue arises mainly for daily-wage workers, where you need to ensure the holiday pay is included in the salary calculation and reflected accurately in payroll records.
Form 16 and Form 24Q do not capture leave or holiday data directly, but accurate payroll records underpin correct TDS calculation. If an employee receives overtime pay or a holiday premium, that amount is part of gross salary and must be included when computing taxable income and applying the appropriate slab under the new tax regime.
Building a clear leave and holiday policy
A well-drafted policy removes ambiguity and reduces the back-and-forth at the time of leave applications. It should cover:
- The full list of mandatory and optional holidays for the year, published before 1 April
- What happens when a public holiday falls within approved leave
- Whether substitute holidays are given when a gazetted holiday falls on a weekly off
- The rate of pay for employees who work on a public holiday
- How optional holidays are requested and approved
Publish the holiday list at the start of each financial year. Employees plan personal travel and family commitments around it, and late communication creates friction. If your workforce spans multiple states, you will need state-specific holiday calendars, which adds a layer of complexity to payroll processing and leave management — particularly relevant if you use a centralised HR system.
Document every departure from the standard policy — for example, when a holiday is moved due to operational requirements — and ensure affected employees receive written notice and the compensatory arrangement is recorded.
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