What Indian employers must comply with — provident fund and state insurance thresholds and rates, minimum wages, gratuity and bonus, POSH obligations, the Factories and Shops Acts, and the current position on the four labour codes.
Labour compliance is triggered by headcount, not by revenue, which is why growing businesses cross into it without noticing. Each threshold below brings a registration, a monthly obligation and an annual return.
Provident Fund
- Applies to establishments employing 20 or more persons.
- Contribution — 12% of basic wages, dearness allowance and retaining allowance by the employee, matched by 12% from the employer. A portion of the employer's share is directed to the pension scheme.
- A statutory wage ceiling applies for mandatory coverage, though many employers contribute on higher wages voluntarily.
- Deposit by the 15th of the following month, with the electronic return.
- Once the Act applies, it continues to apply even if headcount later falls below the threshold.
- Employees above the wage ceiling may be excluded, subject to the conditions in the scheme.
State Insurance
- Applies to establishments employing 10 or more persons in most States, covering employees within the wage ceiling of ₹21,000 per month (₹25,000 for employees with disability).
- Contribution — 0.75% of wages by the employee and 3.25% by the employer.
- Deposit by the 15th of the following month.
- Provides medical, sickness, maternity, disablement and dependants' benefits.
- Contribution periods run April to September and October to March, with corresponding benefit periods.
Both thresholds count every person employed, not just those on the payroll. Contract workers and, in many circumstances, workers engaged through a contractor count towards the headcount. A business with fifteen employees and eight contract workers is generally within the provident fund threshold, and the principal employer carries responsibility where the contractor defaults.
Minimum Wages
Minimum wages are fixed by the appropriate government — the State for most establishments — and vary by scheduled employment, skill level (unskilled, semi-skilled, skilled, highly skilled), and geographical zone within the State. They are revised periodically, and a variable dearness allowance component is commonly revised twice a year.
Practical consequences: check notifications for each State you operate in, apply the correct skill classification, and remember that paying above the minimum in total is not a defence if the wage structure allocates less than the minimum to the components the notification specifies.
Gratuity
- Applies to establishments with 10 or more employees.
- Payable on resignation, retirement, death or disablement, after five years of continuous service. The five-year condition does not apply where employment ends by death or disablement.
- Calculated as 15 days' wages for each completed year of service, based on the last drawn wage.
- Subject to a statutory maximum.
- Nominations should be obtained from every employee and kept current.
Bonus
- Payable to employees drawing wages up to the prescribed limit, who have worked at least 30 days in the accounting year.
- Minimum 8.33% of wages, maximum 20%, computed under the Act's allocable surplus mechanism.
- Payable within eight months of the close of the accounting year.
- Newly set up establishments have an initial exemption period linked to when they first derive profit.
Prevention of Sexual Harassment
- Every workplace with 10 or more employees must constitute an Internal Committee.
- The committee must be headed by a woman employed at a senior level, include at least two members from among employees, and include one external member from a non-governmental organisation or familiar with the issues.
- At least half the members must be women.
- An annual report must be filed with the District Officer.
- The policy must be displayed, and awareness programmes conducted.
- An inquiry must ordinarily be completed within 90 days.
- Non-compliance attracts a fine and, on repetition, cancellation of licences or registration.
The external member is not optional and is the most common defect. An Internal Committee constituted entirely from within the organisation is not validly constituted, and an inquiry it conducts is open to challenge on that ground alone — regardless of how fairly it was carried out.
Shops and Establishments, and Factories
- Shops and establishments registration is required under the State law, usually within 30 days of commencing. It governs working hours, weekly holidays, leave, overtime, and conditions for the employment of women and young persons.
- The Factories Act applies to premises with 10 or more workers where a manufacturing process is carried on with power, or 20 or more without power. It covers licensing, safety, health, welfare, working hours, overtime and annual leave with wages.
- Contract labour registration is required by the principal employer, and licensing by the contractor, above the prescribed number of workmen.
The Four Labour Codes
The Codes on Wages, Industrial Relations, Social Security, and Occupational Safety, Health and Working Conditions consolidate a large number of existing statutes. Because labour is a concurrent subject, they require both central notification and State rules to become fully operative, and States have moved at different speeds.
Check the position State by State rather than assuming a national answer. Until the applicable code is in force in a given State, the existing statutes continue to govern employment there. A business operating across several States may be under different regimes at the same time. Where the codes do take effect, the most significant practical change for most employers is the broadened definition of "wages", which can raise provident fund, gratuity and bonus liabilities.
Related Guides
- Labour Law Compliance Checklist
- Labour Law Compliance Calendar 2026–27
- Introduction to the POSH Act, 2013
Key Facts About Labour Law Compliance Guide
- Applies in: All states across India, under the relevant central law.
- Mode: Mostly online via the official government portal.
- Typical timeline: Ranges from a few days to a few weeks depending on the case.
- Non-compliance: May attract penalties, interest or late fees.
- Expert help: TaxClue completes the entire process end to end for you.
At how many employees does provident fund become mandatory?
20 or more persons employed. Contribution is 12% of basic wages, dearness allowance and retaining allowance from the employee, matched by the employer, deposited by the 15th of the following month. Once the Act applies it continues to apply even if headcount later falls.
What are the ESI contribution rates and threshold?
State insurance applies at 10 or more employees in most States, for employees drawing up to ₹21,000 per month (₹25,000 where the employee has a disability). The employee contributes 0.75% of wages and the employer 3.25%, deposited by the 15th.
Over 90% of compliance penalties in India arise from missed due dates — timely handling can save businesses thousands of rupees each year.
Labour Law Compliance Guide: a key compliance topic in Indian tax and corporate law that businesses and individuals must understand to remain compliant.