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Compliance
India’s employment laws are governed by both central and state-level statutes. The central government has consolidated major labor laws into four new labor codes: the Code on Wages, Industrial Relations Code, Social Security Code, and Occupational Safety, Health and Working Conditions Code. These new codes are expected to standardize compliance across India, although their implementation varies by state. Enforcement is overseen by labor commissioners and various ministries, depending on the region.
While Indian law does not mandate written contracts for all roles, a formal employment agreement is strongly advised. Contracts should specify job titles, duties, compensation, benefits, probation periods, working hours, confidentiality, and termination clauses. The lack of a written agreement can complicate enforcement and resolution of disputes. Employers are also required to issue appointment letters, especially for roles governed by the Shops and Establishments Acts of various states.
The Factories Act and Shops and Establishments Acts regulate working hours. Typically, the maximum working hours are 9 per day and 48 per week, with a weekly rest day. Overtime must be paid at twice the ordinary wage. Shift work, night shifts, and work on public holidays are subject to state-specific restrictions. Employers must maintain attendance and overtime registers to ensure compliance.
The Code on Wages mandates timely wage payment—by the 7th of the following month for establishments with fewer than 1000 employees, or the 10th otherwise. Minimum wages vary by state and skill category. Employers must maintain wage registers, issue payslips, and avoid unlawful deductions. Bonuses and gratuity are also mandatory under specific statutes like the Payment of Bonus Act and Payment of Gratuity Act.
Employers must register eligible employees under the Employees’ Provident Fund (EPF), Employees’ State Insurance (ESI), and other statutory schemes. EPF applies to establishments with 20 or more employees and requires a 12% contribution from both employer and employee. ESI covers health insurance for employees earning below a certain threshold. The Social Security Code is expected to unify these schemes and simplify contributions.
Foreign workers must hold a valid Employment Visa and register with the Foreigners Regional Registration Office (FRRO). The visa requires a minimum salary of USD 25,000/year (subject to exceptions for certain sectors like NGOs or language teachers). Employers are responsible for compliance with visa terms and must avoid employing foreign nationals in roles reserved for Indian citizens.
Termination must follow due process. For misconduct, a domestic inquiry must be held. For layoffs, notice periods vary from 1 to 3 months, depending on the contract and applicable law. Retrenchment in larger firms requires government notification and the payment of severance. Gratuity, pending wages, and earned leave encashment must be settled at termination. Failure to follow procedure can lead to labor court litigation.
Inspectors under various labor departments monitor compliance with wage, safety, and welfare standards. With the introduction of the Shram Suvidha portal, inspections are now more centralized and data-driven. Non-compliance may lead to fines, prosecution, or debarment from government contracts. Employers are advised to conduct internal audits and retain all relevant HR documentation.
AYP helps companies navigate India’s evolving labor landscape by managing employment contracts, ensuring social security contributions, and aligning practices with local laws. Through our EOR model, we take responsibility for payroll, statutory filings, and risk management across all Indian states.
Expanding into India? Let AYP ensure your HR operations are compliant and streamlined.
