Sick pay in India: what employers must provide
Reviewed by Mellow Editorial Team, HR & payroll content team
Employers in India are not required by central law to provide paid sick leave as a standalone entitlement in every sector — but several statutes and state rules do mandate it, and the rules vary significantly by industry and location.
Where the obligation comes from
There is no single central law that gives every employee in India a universal right to paid sick leave. Instead, the obligation is spread across several pieces of legislation:
- The Factories Act, 1948 grants workers earned leave that can be used for illness, but does not create a separate sick leave category.
- State Shops and Establishments Acts are the most common source of sick leave entitlements for office and service-sector employees. Most states mandate between 7 and 15 days of paid sick leave per year, though the exact number differs by state.
- The Employees' State Insurance (ESI) Act, 1948 provides cash benefits during sickness for eligible employees — this is different from employer-paid leave and is covered separately below.
- The four Labour Codes, which consolidate and update older central legislation, carry forward and in some cases harmonise leave provisions. These Codes are in force from 2025, though state-level implementation continues to roll out. Employers should check the notified rules for each state where they operate.
The practical result: an employee working in a software firm in Karnataka has a different sick leave entitlement from a factory worker in Maharashtra or a shop assistant in Delhi.
ESI: the sickness benefit most employers overlook
For employees whose wages fall below the ESI wage threshold, the Employee State Insurance scheme provides a sickness benefit paid by the ESIC (Employees' State Insurance Corporation), not by the employer directly.
Eligible employees who are medically certified as unfit to work can claim a cash benefit from ESIC for a defined number of days in a year. Extended sickness benefit applies for certain long-term illnesses, covering a longer period at a different rate. The employer's role is to register covered employees, make the joint ESI contributions each month, and ensure employees know how to access ESIC dispensaries and file claims.
Importantly, when an ESI-eligible employee is on certified sickness leave and receiving the ESIC benefit, the employer's obligation to pay full salary during that period is reduced — the ESIC cash benefit substitutes for part of the income. Employers should not confuse this with the separate earned or casual leave entitlement that employees can still accumulate.
What most employment contracts actually provide
Beyond statutory minimums, most organised-sector employers offer a structured leave policy that includes:
- Casual leave — short, unplanned absences, often 7–12 days a year
- Sick leave — for medical reasons, often requiring a certificate for absences beyond two or three consecutive days
- Earned leave — accrued leave that can be used for any purpose, including illness
In practice, these three buckets operate together. A well-drafted policy specifies whether sick leave carries forward to the next year (many do not), whether it can be encashed (typically it cannot), and what documentation the employer may ask for.
The law generally permits employers to ask for a medical certificate for extended sick leave, but it is poor practice to demand one for a single day's absence — and some state rules restrict this.
Obligations during long illness and the risk of termination
If an employee is ill for an extended period, the employer faces a more complex situation. Indian labour law — particularly for workmen covered under the Industrial Disputes Act, 1947, and its successor provisions under the Labour Codes — provides strong protections against arbitrary termination.
Terminating an employee solely because of a prolonged illness, without following due process, exposes the employer to claims of unfair dismissal. For non-workmen (managers and supervisors), the terms of the employment contract and applicable state rules govern what happens after long-term absence.
A reasonable approach is to:
1. Keep written communication about the absence and any medical certification received.
2. Define in the employment contract what happens after paid sick leave is exhausted — typically, the employee moves to unpaid leave or uses earned leave.
3. Follow the standing orders or HR policy consistently across all employees.
Practical steps for employers
Identify which laws apply to you. Your industry, state, and headcount determine which statutes govern your leave obligations. A factory in Tamil Nadu, an IT company in Pune, and a startup in Gurugram all face different rules.
Register for ESI if you cross the threshold. Failure to register and contribute is a compliance violation that attracts penalties. If you use a payroll or employer-of-record service like how Mellow runs payroll across six countries, ESI registration and contributions should be handled as part of that service.
Write a clear leave policy. State the number of sick leave days, the documentation required, carryover rules, and the process for extended absence. Distribute it in the offer letter and employee handbook.
Apply the policy consistently. Inconsistent treatment of sick leave is a common source of employee grievances and, in some cases, discrimination claims.
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