Public holidays in India and how they affect pay
Reviewed by Mellow Editorial Team, HR & payroll content team
Public holidays in India fall into two categories: national holidays, which every employer must observe, and restricted holidays, from which employees can choose a limited number. How each type affects pay depends on the category, your state, and the terms of employment — but the core rules are consistent across most workplaces.
National holidays versus restricted holidays
India has three national holidays that are gazetted for the entire country: Republic Day (26 January), Independence Day (15 August), and Gandhi Jayanti (2 October). All establishments must give employees a paid day off on these dates.
Beyond these three, employers maintain a list of restricted holidays — typically festivals, regional observances, and state-specific occasions. The number varies, but most employers offer around ten to twelve restricted holidays per year. Employees choose a fixed number from this list (commonly two or three, though this varies) and are entitled to paid leave on their chosen days.
The practical difference matters. A national holiday is non-negotiable. A restricted holiday requires the employee to formally opt in, usually in advance, and the employer can decline the request in some circumstances — for instance, if the work is urgent or the employee's role is operationally critical.
How public holidays interact with pay
If an employee does not work on a national holiday, they receive their regular day's pay. No deduction is permitted.
If an employee is required to work on a national holiday — this happens in manufacturing, healthcare, hospitality, and similar sectors — they are generally entitled to either a compensatory day off or additional pay. The exact entitlement depends on the applicable state shops-and-establishments act or the relevant central legislation. In practice, many employers pay double wages for work done on a national holiday, but confirm the rule for your specific state.
Restricted holidays are paid if the employee opts for them and the employer approves. If an employee works on a day they had opted as a restricted holiday, the same principle applies: compensatory leave or additional pay is standard practice.
One point employers often miss: if a public holiday falls on a Sunday or another weekly off day, most establishments are expected to grant an alternate paid holiday. This is not uniformly codified at the central level, but it is common practice and is often specified in employment contracts or standing orders.
State variation and the Labour Codes
India's four consolidated Labour Codes — the Code on Wages, the Industrial Relations Code, the Occupational Safety Code, and the Code on Social Security — are in force from 2025. These codes rationalise several earlier central laws but leave significant room for state-level rules.
This matters for public holidays because states notify their own lists of public and restricted holidays each year, and the number of compulsory paid holidays can differ. An employer with offices in multiple states needs to maintain separate holiday calendars. A company with staff in Maharashtra, Tamil Nadu, and West Bengal will have three different lists, potentially with very little overlap beyond the three national holidays.
When running payroll across states, the safest approach is to pull the official gazette notification from each state government at the start of the financial year, build the calendar into your payroll system, and communicate the full list to employees before April.
Payroll treatment — what to calculate
For salaried employees on a monthly fixed pay structure, a public holiday is simply a non-working paid day. Nothing changes in the payroll calculation unless they work on that day.
For daily-wage or piece-rate workers, the rules under the Code on Wages require that they receive a holiday allowance for national and festival holidays. The calculation is typically based on the daily wage rate, though the precise formula can depend on state rules.
TDS, EPF at 12% each for employee and employer, and ESI contributions are all calculated on the gross salary for the month. A public holiday does not alter those deductions — you are still paying the employee for that day, so it forms part of the wage on which contributions are calculated.
Where employers sometimes go wrong is in treating an unapproved absence on the day before or after a public holiday as a reason to withhold pay for the holiday itself. Several state acts contain provisions preventing this practice, or at least limiting it. Review the relevant state act before applying such a policy.
Communicating the holiday calendar clearly
Publish the annual holiday list before the financial year begins. Specify which holidays are compulsory, which are restricted, and how many restricted holidays each employee may take. State the process for opting in — written request, notice period, manager approval.
Include a clear policy on what happens if an employee is asked to work on a public holiday: whether they receive compensatory leave, additional pay, or a combination. Ambiguity here leads to disputes. A one-page holiday policy appended to the offer letter or employee handbook covers most questions before they arise.
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