Complete Labour Law Compliance Guide for Employers in India

1. Executive Answers

What governs Indian employers now? Four Codes replaced 29 central labour laws: the Code on Wages, 2019; the Code on Social Security, 2020; the Occupational Safety, Health and Working Conditions Code, 2020 (OSHWC Code); and the Industrial Relations Code, 2020 (IR Code). Compliance is now measured against the Codes, the Central Rules of May 2026, and the rules of the State where each establishment operates. Residual legacy-law references in policies, registers and contracts are a liability, not a safe default.

Where is the exposure concentrated?

1. Wage definition (the 50% rule). Exclusions from "wages" (such as HRA, conveyance, and employer contributions) are capped at 50% of total remuneration. Any excess is added back to wages. This recalculates the base for PF, gratuity, bonus, overtime, and full-and-final settlement. Salary structures built on a low basic component are the largest single source of underpayment risk.
2. Deduct-and-not-deposit liability. Employee contributions withheld from salary but not remitted to EPFO or ESIC attract the most severe criminal and monetary consequences in the social security framework. Directors and officers in charge can be personally prosecuted.
3. Contract labour structure. The OSHWC Code prohibits contract labour in core activities, subject to defined exceptions, and makes the principal employer the backstop for wages and welfare. Disguised employment through contractors is now easier to challenge.
4. Timelines are tighter and enforced electronically. Wages on termination or resignation are due within two working days. Returns, registers and registrations move to electronic, inspector-cum-facilitator-led enforcement.
5. Gratuity and fixed-term employees. Fixed-term employees accrue gratuity pro rata, with eligibility after one year of service, rather than the five-year requirement for permanent staff.

Risk mitigation priorities (in order): (i) re-test every salary structure against the 50% rule; (ii) reconcile PF/ESI remittances to payroll deductions for the last 36 months; (iii) map every establishment to its State registration, licence and rule set; (iv) audit contractors and the nature of work they perform; (v) refresh appointment letters, policies, standing orders and grievance mechanisms to Code terminology.

Penal architecture in brief. The Codes combine fines, imprisonment for repeat or serious offences, and compounding for first-time contraventions. Penalty quantum varies by Code and offence category; indicative ranges are in Section 5.

2. Scope & Applicability

2.1 Who is covered

The Codes apply to establishments, factories, mines, plantations, docks, building and construction sites, and shops and commercial establishments, including IT/ITeS and service businesses, unless a threshold below excludes them. "Employee" is defined broadly across the Codes and includes managerial and supervisory staff for several purposes. The IR Code retains a separate definition of "worker" that excludes most managerial and supervisory personnel for industrial dispute purposes.

2.2 Headcount and structural triggers

2.3 Central vs. State jurisdiction

• Appropriate government. The Central Government is the appropriate government for establishments of the Union, railways, mines, oil fields, major ports, banking and insurance, and specified central public sector undertakings and related entities. The State Government is the appropriate government for all other establishments. Private-sector employers therefore deal mostly with State rules, inspectors and registration systems.
• State rule dependency. Registration process, inspection scheme, overtime caps, shop-hours, weekly-off patterns, and some thresholds are set by State rules. Rajasthan, for example, finalised its OSH Rules effective 30 June 2026, while other States remain at draft or final stages.
• Interstate operations. A multi-state employer holds separate registrations per establishment and files in the State of each location. The OSHWC Code's single registration and pan-India contractor licence framework reduces duplication, but wage rates, welfare funds, professional tax, and Labour Welfare Fund contributions remain State-specific.

2.4 Employers outside the thresholds

Below-threshold employers are not outside the Code. Minimum and floor wage obligations, timely payment of wages, non-discrimination in remuneration, appointment letters and payment of wages on separation apply irrespective of headcount.

3. Detailed Guide

3.1 Code on Wages, 2019

Core definitions and obligations

• Wages: Include basic pay, dearness allowance and retaining allowance. Specified items (HRA, conveyance, statutory bonus, employer PF contribution, gratuity, overtime, commission, and similar) are excluded, but excluded items above 50% of total remuneration are added back. The Ministry has clarified that this definition applies across all four Codes.
• Minimum and floor wages: Minimum wages apply to all employees across scheduled and non-scheduled employment. The Central Government fixes a national floor wage, and States cannot set minimum wages below it.
• Payment timelines: Daily-wage workers by end of shift; weekly by the last working day of the week; fortnightly within two days of fortnight end; monthly by the 7th of the following month. On removal, resignation or retirement, all dues within two working days.
• Overtime: Not less than twice the normal rate of wages. Rules prescribe hourly rate computation from monthly wages.
• Equal remuneration: No discrimination on gender, including transgender persons, in wages for same or similar work.
• Deductions: Only authorised deductions, within the aggregate cap prescribed by the Code (50% of wages).
• Statutory bonus: Payable within eight months of financial year-end to eligible employees, at a minimum of 8.33% and a maximum of 20% of wages, subject to the ceilings in the Code and Rules.
• Records and filings: Wage slips (electronic permitted), registers of wages, deductions, overtime, and advances, and annual returns in the prescribed electronic format. Maintain records for the period prescribed under the Rules.

3.2 Code on Social Security, 2020

EPF

• Mandatory for establishments with 20 or more employees, and voluntary above-ceiling coverage is permitted. Contribution is 12% each from employer and employee on PF wages; the statutory ceiling for mandatory contribution is Rs 15,000 per month, with higher wages contributing at the employer's option subject to rules.
• Payment and ECR filing: by the 15th of the following month. Delays attract interest and damages at prescribed rates.
• Maintain UAN, KYC and nomination records, and file annual returns where required.
• The EPF Scheme, 1952 is being superseded under the Code, so scheme-linked forms and terms should be tracked on notification.

ESIC

• Applicable to establishments with 10 or more employees for wages up to Rs 21,000 per month, with extended coverage for hazardous processes. Employer contribution is 3.25% and employee contribution is 0.75% of wages.
• Contribution and return filing by the 15th of the following month, on half-yearly contribution periods.
• Register employees from the date of joining and maintain accident and sickness records.

Gratuity

• Payable at 15 days' wages per completed year of service on retirement, resignation, superannuation, death or disablement, generally after five years of continuous service.
• Fixed-term employees qualify pro rata after one year of continuous service. Note that the Social Security Code text itself does not carry the one-year qualification, while the IR Code does, so employers should align contract language, policy and actuarial provisioning to the Central Rules and Government clarifications.
• Payment within 30 days of becoming due. Gratuity calculation uses the Code wage definition, which can raise liability for CTC structures with low basic pay.
• Nominations on prescribed forms; maintain a gratuity register and, where required, insure or fund the liability.

Maternity benefit and other social security

• 26 weeks of paid maternity leave for the first two children, with creche, work-from-home and related provisions as prescribed. Creche facility applies above the prescribed establishment size.
• Employees' compensation obligations and, for platform and gig work, aggregator contributions (a percentage of annual turnover capped at a percentage of amounts paid to workers) with registration of gig and platform workers on the Government portal.

3.3 OSHWC Code, 2020

Registration and licensing

• A single electronic registration for establishments, and a single contractor licence valid across India, replace multiple legacy registrations. Display of registration and licence details is mandatory.
• Employers must give appointment letters to every worker with terms including designation, wages, social security coverage, and conditions of service.

Working conditions

• Hours: 8 hours per day and 48 hours per week, with spread-over limits, rest intervals and weekly off as prescribed. Overtime requires consent and is capped per quarter under State rules.
• Annual free health check-up for workers above the age threshold prescribed in the Rules.
• Women may work night shifts with consent and prescribed safeguards (transport, security, CCTV or equivalent, and grievance channel).
• Safety: Safety committees and safety officers at prescribed worker thresholds in factories and hazardous establishments, hazard identification, personal protective equipment, emergency plans, and incident notification (accidents and dangerous occurrences) in prescribed time.
• Welfare: potable water, sanitation, canteen, creche and first aid at levels set by establishment size and type.

Contract labour and migrant workers

• Contract labour is prohibited in core activities, with exceptions (for example, normal function does not ordinarily require full-time workers, sudden volume increases, or work of such nature that it can be done by specialised contractors). Principal employers must verify contractor licences and ensure wage payment and welfare compliance, and are liable for unpaid wages if the contractor defaults.
• Inter-state migrant workers are covered by the Code, with employer and contractor obligations for journey allowance, portal records and welfare.

Filings: Electronic annual return in prescribed form and registers under the OSH Rules. Accident and dangerous-occurrence reports follow the timelines in the Rules.

3.4 Industrial Relations Code, 2020

• Fixed-term employment is recognised for all sectors, with equal wages, benefits and hours as permanent workers, pro rata statutory benefits, and non-renewal not treated as retrenchment. Contract wording and renewal practice need documentary discipline to avoid recharacterisation.
• Standing Orders: Mandatory for industrial establishments with 300 or more workers, and Model Standing Orders 2026 apply by default where the employer has not certified its own. Smaller employers should still document service rules.
• Grievance Redressal Committee: Required for establishments with 20 or more workers; maintain composition, meeting records and disposal timelines.
• Retrenchment, layoff and closure: One month's notice (or pay in lieu), compensation of 15 days' average pay per completed year of service, and a deposit of 15 days' wages per retrenched worker into the Worker Reskilling Fund. Establishments with 300 or more workers need prior government permission.
• Strikes and lock-outs: 14 days' notice is required in all industrial establishments, with prohibition during conciliation and for a period after proceedings conclude.
• Trade unions: Recognition of sole negotiating union (51% membership threshold) or negotiating council. Change in service conditions requires 21 days' notice to affected workers.
• Dispute forums: Industrial Tribunals with two members, with conciliation and settlement procedures set by the Central and State rules.

3.5 Registers, returns and records (consolidated)

Maintain, in electronic form where permitted: register of employees and appointment letters; wage register and wage slips; overtime, deductions and advances registers; attendance and leave records; PF/ESI/Gratuity nomination and contribution records; contractor, contract worker and licence records; accident, safety inspection and health check-up records; grievance and disciplinary records. Retain for the period prescribed by the applicable Rules, and in practice for the longest applicable limitation period for wage and social security claims.

4. Table / Checklist

Operational checklist

• Registration certificates, licences and nominations current for every establishment
• Salary structure tested against the 50% wage definition
• PF/ESI payroll-to-challan reconciliation completed
• Appointment letters issued to all workers in Code format
• Contractor licence, wage register and PF/ESI evidence collected quarterly
• GRC and, where applicable, safety committee constituted with minutes
• Fixed-term contracts reviewed for gratuity, renewal and benefits parity
• State rule tracker maintained for each location

5. Common Mistakes

1. Preserving legacy salary structures. Retaining a low basic component and large allowances without testing the 50% rule understates PF, gratuity, bonus and overtime. Consequence: recovery of shortfalls with interest and damages, fines under the Code on Wages, and employee claims at exit.
2. Delayed or short remittance of PF and ESI. Missing the 15th-of-month deadline or contributing on a partial wage base. Consequence: interest and damages, assessment proceedings, and prosecution. Deducting employee share and not depositing is treated as an aggravated offence with imprisonment exposure for the person responsible.
3. Misclassifying contractors and consultants. Treating individuals engaged under the employer's control, with fixed hours, as independent consultants, or using contractors for core activities. Consequence: the principal employer is treated as liable for wages and social security, licence-related penalties, and potential absorption claims.
4. Skipping the contractor licence check. Engaging contractors without a valid licence or beyond licence scope. Consequence: the principal employer faces penalties under the OSHWC Code, and wage default risk shifts to it.
5. Weak register and record maintenance. Non-electronic or incomplete wage, attendance, overtime and nomination records. Consequence: adverse presumptions in inspections, fines per contravention, and inability to rebut wage claims.
6. Ignoring State-specific amendments. Applying one centralised policy across States with different overtime caps, shop hours, Professional Tax and Labour Welfare Fund rules. Consequence: State-level fines, notices and inspection findings that sit outside Central compliance reviews.
7. Delayed full-and-final settlement. Using a 30-45 day settlement cycle. Consequence: breach of the two-working-day rule, with wage claim and penalty exposure.
8. Retrenching or closing without the Code process. Skipping notice, compensation, Reskilling Fund deposit, or prior permission where required. Consequence: reinstatement with back wages, and prosecution for contravention.
9. Fixed-term contracts that read as probation. Contracts missing tenure, benefits parity or gratuity treatment. Consequence: recharacterisation as permanent employment and disputes over notice and retrenchment compensation.
10. Treating the Codes as an HR update, not an enterprise risk. No ownership across Legal, HR, Payroll and Operations. Consequence: inconsistent practice, repeated offences, and personal liability for officers in charge.

6. Action Plan: 30-60-90 Day Audit and Remediation Framework

Days 1-30: Diagnose and stabilise

1. Entity and establishment map: list every entity, location, headcount, workforce category (employee, fixed-term, contract, gig/platform) and applicable State.
2. Registration inventory: confirm Shops and Establishments, EPF, ESIC, OSHWC, contractor, Professional Tax and Labour Welfare Fund registrations, with expiry dates.
3. Payroll stress test: recompute wages under the Code definition for each salary band; quantify the impact on PF, gratuity, bonus and overtime.
4. Remittance reconciliation: match 36 months of PF/ESI deductions to deposits; close any deduct-and-not-deposit gaps first.
5. Quick fixes: stop-gap corrections for overdue payments, expired licences and missing nominations.

Days 31-60: Remediate and document

1. Salary and policy redesign: approve revised structures, gratuity provisioning, overtime computation and exit settlement timelines.
2. Contract reset: reissue appointment letters in Code format; update fixed-term, consultant and contractor agreements with compliance, audit and indemnity clauses.
3. Contractor audit: verify licences, scope of work (core vs non-core), wage registers, and PF/ESI evidence; replace non-compliant vendors.
4. IR governance: constitute the GRC, adopt or certify Standing Orders where 300+ workers, and document retrenchment and strike-response protocols.
5. Safety and welfare: hazard review, safety committee and officer appointments, health check-up programme, and women-night-shift safeguards where applicable.

Days 61-90: Embed and monitor

1. Compliance calendar: monthly, quarterly, half-yearly and annual deadlines by State, with named owners and escalation paths.
2. Register digitisation: migrate registers to electronic systems with audit trails and retention rules.
3. Controls: payroll-to-statutory reconciliations each month; quarterly contractor re-verification; internal sign-off by Legal and HR.
4. Board reporting: a dashboard of open gaps, quantified exposure and remediation status.
5. Validation: independent compliance audit to confirm closure and prepare an inspection-readiness file.

Frequently asked questions