India’s labor laws are governed by a combination of federal and state regulations, creating a complex compliance landscape for employers. The four labor codes—Code on Wages, Code on Social Security, Industrial Relations Code, and Occupational Safety Code—aim to streamline these laws but are not yet fully implemented. State-specific variations further complicate compliance, especially in areas like working hours, leave entitlements, and termination procedures.
Key highlights include:
- Employee Classification: Employee Classification: Workers in India are categorized into five main groups:
- Workmen: Protected laborers with statutory benefits.
- Non-Workmen: Managers and supervisors with fewer statutory protections.
- Contract Workers: Third-party hires for non-core tasks.
- Fixed-Term Employees: Contract-based workers with benefits equivalent to permanent staff.
- Gig & Platform Workers: Freelancers gaining limited social security under new labor codes.
- Working Hours & Overtime: Standard working hours are capped at 48 hours per week, with daily limits varying by state. Overtime must be compensated at twice the regular wage.
- Leave Entitlements: Employees are entitled to annual leave (15–30 days), sick leave (7–14 days), and maternity leave (26 weeks). Leave policies vary across states.
- Notice Periods & Termination: Notice periods range from 30 days to 3 months depending on employee classification, state laws, and employment contracts. Employers must provide proper documentation and follow due process for terminations, including notice letters and severance pay where applicable.
- POSH Act Compliance: Employers with 10+ employees must establish Internal Complaints Committees (ICCs), draft anti-harassment policies, conduct training programs, and file annual compliance reports.
Introduction
India's labor laws govern one of the world's largest workforces. The country produces 1.5 million engineering graduates annually and stands as a global talent powerhouse. Our role as India's employer of record has shown us how these regulations transformed from decades-old rules into four modern labor codes:
- The Code on Wages
- The Occupational Safety, Health, and Working Conditions Code
- The Industrial Relations Code
- The Code on Social Security
Managing employment laws in India creates distinct challenges for businesses. The regulations change based on state boundaries, industry types, and company sizes. Businesses planning to hire in India must grasp these intricate requirements. Our years of helping multinational companies have led us to create this piece that explains India's labor law framework for 2025.
The content explains the essential aspects of managing your Indian workforce. You'll find details about employee classifications and termination procedures that will help your business stay compliant while tapping into India's talented workforce.
The Evolution of India's Labor Laws: 2025[toc-hide]
India's labor laws mix federal and state rules, making it complex for new businesses. Businesses struggled to deal with over 29 central and 200 state labor laws. This created a compliance nightmare for employers. India has introduced the India labor codes, four unified laws that change workplace rules. The 2024 amendments by the Ministry of Corporate Affairs make it easier for businesses to follow the rules.
The four labor codes :
The Indian government started a mission to unite 29 central labor laws into four detailed codes:
- The Code on Wages, 2019: Unites laws related to wages, bonuses, and equal remuneration
- The Industrial Relations Code, 2020: Deals with trade unions, industrial disputes, and employment conditions
- The Code on Social Security, 2020: Covers provident funds, insurance, and maternity benefits
- The Occupational Safety, Health and Working Conditions Code, 2020: Deals with workplace safety and employee wellbeing
These changes try to find a balance between giving employers freedom and protecting workers. Employers need to check their policies to make sure they follow these new rules. The Ministry of Labor and Employment keeps updating the rules to help everyone stay in line.
Our experience helping businesses through these changes shows how this consolidation reduces compliance burdens and creates employment opportunities by balancing worker protections with business needs.
How does the Code on Wages impact salaries and equal pay in India?[toc=The Code on Wages]
The Code on Wages, 2019 consolidates four previous laws related to wages, bonuses, and equal pay including the Equal Remuneration Act into a single framework. It aims to simplify wage-related compliance while ensuring fair pay practices across industries.
Key Provisions
- National Floor Wage: Sets a minimum wage threshold that no state can go below.
- Uniform Wage Definition: "Wages" include basic pay, dearness allowance (DA), and retaining allowance. At least 50% of total compensation must consist of these components.
- Equal Pay for Equal Work: Mandates gender-neutral pay policies for employees performing similar work.
- Timely Wage Payments: Requires wages to be paid within specific timelines (daily wages by the end of each shift, monthly wages by the 7th day of the following month).
Scope & Applicability
- Applies to all employees across organized and unorganized sectors, including those in supervisory or managerial roles.
- Covers all establishments, including factories, shops, and service providers.
How does the Industrial Relations Code simplify employment relations?[toc=The Industrial Relations Code]
The Industrial Relations Code, 2020 consolidates three previous laws related to trade unions, industrial disputes, and employment conditions. It aims to streamline industrial relations by balancing worker rights with employer flexibility in managing layoffs and fixed-term contracts.
Key Provisions
- Fixed-Term Employment: Fixed-term employees are entitled to the same benefits as permanent employees (e.g., provident fund, gratuity) without requiring long-term commitments from employers.
- Layoff Flexibility: Employers with fewer than 300 workers no longer need government approval for layoffs (previous threshold was 100 workers).
- Grievance Redressal Committees: Mandatory for establishments with more than 20 employees to address workplace disputes.
- Strikes & Lockouts: Workers must provide a 14-day notice before initiating strikes or lockouts.
Scope & Applicability
- Applies to all industries and establishments employing workers under formal contracts or agreements.
- Covers both workers employed under fixed-term or permanent contracts and employers managing establishments with more than 20 employees.
How does the Code on Social Security benefit gig workers and employees?[toc=The Code on Social Security]
The Code on Social Security, 2020 merges nine previous laws related to provident funds, insurance schemes, maternity benefits, gratuity payments, and employee compensation into one unified framework. It expands social security coverage to gig workers and platform workers while strengthening existing benefits for traditional employees.
Key Provisions
- Universal Social Security Coverage: Extends benefits like provident fund (PF), insurance schemes, maternity leave, and gratuity payments to all workers—including gig/platform workers and inter-state migrants.
- Maternity Benefits: Provides up to 26 weeks of paid leave for women employees (for the first two children) and medical bonuses in case of miscarriage or complications. The Code also provides specific provisions for additional leave following a miscarriage or medical termination, emphasizing the support offered to women during these sensitive circumstances.
- Gig Worker Contributions: Aggregators like Uber or Zomato must contribute 1–2% of their annual revenue toward social security funds for gig/platform workers.
Scope & Applicability
- Applies to all workers in organized sectors as well as gig/platform workers in unorganized sectors.
- Covers traditional employees registered under applicable schemes as well as companies employing formal staff or engaging gig/platform workers.
How does the OSH Code improve workplace safety standards?[toc=The OSH Code]
The Occupational Safety, Health, and Working Conditions (OSH) Code consolidates thirteen previous laws related to workplace safety into one comprehensive framework. It focuses on ensuring safe working environments across industries while standardizing working hours and welfare measures.
Key Provisions
- Workplace Safety Standards: Employers must ensure hazard-free workplaces by conducting regular safety audits and providing necessary safety equipment (e.g., PPE).
- Working Hours & Overtime Rules: Maximum working hours are capped at eight hours/day; overtime is paid at twice the regular rate but limited to 125 hours per quarter.
- Crèche Facilities & Welfare Measures: Establishments with more than 50 employees must provide crèche facilities for children of working parents. Welfare provisions also include sanitation facilities, drinking water, canteens (in larger workplaces), etc.
Scope & Applicability
- Applies across industries such as factories, mines, construction sites, IT firms, and other establishments employing ten or more workers.
- Covers both workers employed in hazardous industries or establishments with formal contracts as well as businesses employing ten or more workers across sectors.
How are employees classified under Indian Labor laws?[toc=Employee Classification]
Understanding how employees are classified in India is crucial for businesses to stay compliant with labor laws. In our experience of helping global companies hire, pay, and manage employees in India, we have seen many businesses struggle with the legal distinctions between different types of workers. Whether you are an employer expanding into India or an employee seeking clarity on your rights, knowing these classifications is essential.
Workmen vs. Non-Workmen: What's the difference?
Indian labor laws broadly classify employees into Workmen and Non-Workmen under the Industrial Disputes Act, 1947. The distinction is significant because workmen are entitled to stronger labor protections, including dispute resolution mechanisms, while non-workmen fall under managerial and administrative roles.
- Workmen refer to employees engaged in manual, technical, operational, or clerical work. These workers are protected by labor laws, including overtime pay, retrenchment benefits, and grievance redressal mechanisms.
- Non-Workmen include those in managerial, administrative, or supervisory roles earning above a certain threshold. They are not covered under key labor protections for workmen but are still governed by employment contracts and company policies.
Contract Workers and Fixed-Term Employees: What’s the Difference?
With the rise of flexible employment, many businesses hire contract workers and fixed-term employees (FTEs). While they may seem similar, there are important legal differences.
- Contract Workers are hired through a third-party contractor and are not considered direct employees of the company. The contractor is responsible for their wages, benefits, and compliance with labor laws. However, the principal employer (the company using the workers) is still liable for their working conditions.
- Fixed-Term Employees (FTEs) are hired directly by the company for a specific duration. Unlike contract workers, they get the same benefits as permanent employees for the duration of their contract, including gratuity (if tenure exceeds five years), provident fund, and medical benefits.
Gig Workers and Platform Workers: What's the difference?
The rise of gig work and digital platforms has changed the way employment is structured in India. Recognizing this, the Code on Social Security, 2020, introduced a legal framework for gig workers and platform workers.
- Gig Workers are individuals who take on freelance, temporary, or on-demand jobs, often working independently for multiple employers. This category includes consultants, independent drivers, and delivery agents.
- Platform Workers work through digital platforms like Uber, Zomato, Swiggy, and Ola. Unlike traditional employees, they do not have fixed salaries but earn based on tasks completed.
The new labor codes mandate that gig and platform workers must be covered under social security schemes, including health insurance, provident fund, and maternity benefits. However, businesses hiring gig workers should clearly define their contracts to avoid disputes over employment status.
Overall Comparison of Employee Classifications in India
What should foreign employers know about minimum wages in India?[toc=Minimum Wages]
The Code on Wages of 2019 established a national "floor wage" that serves as a baseline minimum wage for all states and sectors. States can set their own minimum wages but must stay above this central floor wage. This creates a varied compliance landscape where rates differ substantially between regions.
Multinational companies we guide through India's employment landscape should know that minimum wages have two key components:
- Basic minimum wage: A fixed amount
- Variable Dearness Allowance (VDA): Adjusted periodically based on the Consumer Price Index
Minimum wages in India follow multiple categories:
- By geographical area (Zone A, B, or C)
- By industry sector
- By skill level (unskilled, semi-skilled, skilled, and highly skilled)
- By occupation type
The revision cycle makes things more complex. The central government reviews minimum wages every five years, while many states revise more often - some twice a year. Companies must watch these changes carefully. Non-compliance can lead to penalties up to ₹50,000, and repeat offenders may face imprisonment.
Proper worker classification and minimum wage regulation compliance are the foundations of labor laws in India. Our team can help you navigate India's minimum wage requirements - reach out today!
What should global employers know about employment contracts in India?[toc=Employment Contracts]
Employment contracts are a cornerstone of legal compliance and employee management in India. While written contracts are not legally mandated by Indian federal labor law, our experience as an Employer of Record in India has shown that having a well-drafted employment contract is essential for protecting both employer and employee interests.
A well-laid-out employment contract should include:
- Job title and detailed description of duties and responsibilities
- Compensation structure including salary, bonuses, and benefits
- Employment duration (indefinite or fixed-term)
- Termination clauses with notice periods and severance calculations
- Confidentiality provisions and intellectual property ownership
- Probationary period terms (typically 3-6 months)
- Dispute resolution procedures
Our experience guiding multinational companies shows that employment contracts are crucial to the onboarding process. They protect both employer and employee interests while clarifying duties and rights.
What are India's mandatory Social Security Contributions?[toc=Social Security Contributions]
India's social security system revolves around three main programs that every employer must join:
- Employees' Provident Fund (EPF): Companies with 20+ employees must participate. Both employer and employee put in 12% of the employee's basic salary and dearness allowance. The employer's share splits into 8.33% for the Employees' Pension Scheme and 3.67% for the EPF account. This rule applies to employees earning up to ₹15,000 monthly, while others can join voluntarily.
- Employees' State Insurance (ESI): This covers workplaces with 10+ employees earning up to ₹21,000 monthly (₹25,000 for differently abled employees). Employers give 3.25% while employees contribute 0.75%, adding up to 4% of monthly wages. Benefits cover complete medical care, sickness benefits (70% of wages for up to 91 days), maternity benefits, and disability coverage.
- Gratuity: Companies with 10+ employees must provide this retirement benefit after five years of continuous service. It equals 15 days' wages for each completed year, with tax exemptions up to ₹20 lakh.
What are the registration and documentation requirements for hiring employees in India?[toc=Registration Requirements]
Companies must get several key registrations before hiring employees in India. These requirements are essential:
- Tax registrations: Foreign nationals working in India must get a Permanent Account Number (PAN) for tax registration. Employers need a Tax Deduction Account Number (TAN) to withhold taxes from employee salaries.
- Social security registrations: Companies with 20+ employees must register with the Employees' Provident Fund Organization (EPFO). Those with 10+ employees earning up to ₹21,000 monthly need to register with the Employees' State Insurance Corporation (ESIC).
- Shop and Establishment registration: Commercial establishments must register under their state's Shops and Establishments Act within 30 days of starting operations.
What are the working hours and overtime regulations in India?[toc=Working hours & Overtime]
Indian law limits standard working hours to 48 weekly, usually spread over six days. Daily limits vary by state. Delhi and Mumbai allow 9 hours daily, Chennai permits 8 hours, and Kolkata sets an 8½-hour limit.
Work beyond these limits counts as overtime. The Factories Act and state rules require double pay for overtime hours. Managers, supervisors, and government employees don't get overtime benefits.
Though laws set maximum work hours, enforcement differs between organized and unorganized sectors. Our experience with multinationals shows that clear overtime policies help maintain compliance and keep workers happy.
Do you need help setting up compliant compensation and benefits in India? Our team knows how to guide global businesses through these requirements while keeping their workforce satisfied. Contact us!
What are the leave entitlements for employees in India?[toc=Leave Entitlements]
Leave entitlements are a vital compliance area for businesses hiring in India. Our experience as an Employer of Record in India has helped numerous global companies navigate these mandatory provisions that affect employee satisfaction and legal compliance.
Indian annual leave follows a well-laid-out framework. Employees get one earned leave for every 20 days worked, which adds up to 15-30 days per year based on the state. Workers also receive 8-10 casual leave days and 7-14 sick leave days yearly. These allowances differ by state and company policy.
India's maternity benefits stand out globally. The Maternity Benefit Act gives 26 weeks of paid leave for the first two children and 12 weeks after that. Companies with more than 50 employees must provide crèche facilities.
Many progressive employers offer 1-2 weeks of paternity leave as a competitive benefit, though central law doesn't mandate it.
The country observes three national holidays (Republic Day, Independence Day, and Gandhi Jayanti) and 5-10 regional holidays based on the state.
What are the workplace safety requirements for employers in India?[toc=Workplace Safety]
The Occupational Safety, Health and Working Conditions Code applies to establishments with 10+ workers. Employers must provide workplaces that are free from hazards causing injury or disease. The code requires free annual health examinations for specific employee classes. Companies need to maintain proper ventilation, temperature, sanitation, and lighting. They should implement facilities for drinking water and waste management. First-aid boxes must be available during all working hours.
The Code sets up occupational safety boards at national and state levels to advise governments on standards and regulations. Safety committees with employer and worker representatives are mandatory in certain establishments. Companies should conduct regular safety audits and take appropriate measures to prevent workplace accidents.
What are the sexual harassment prevention requirements under India’s POSH Act?[toc=India's POSH Act]
The Sexual Harassment of Women at Workplace Act of 2013 applies to every employer with 10+ employees. Companies must set up an Internal Complaints Committee at each branch to address sexual harassment grievances. A detailed policy prohibiting workplace harassment needs development and distribution. Regular awareness programs should educate employees about their rights and obligations. Annual returns must be filed.
Companies can face penalties up to ₹50,000 for violations. Compliance is vital for legal and reputational reasons.
What are the legal requirements for termination and separation in India?[toc=Terminations & Separation]
Companies must carefully follow legal procedures that depend on employee classification and separation reasons when ending employment in India. Our experience with multinational companies has shown how mistakes in these procedures can get pricey and might lead to reinstatement orders.
Notice Period & Severance Pay
Employers must provide notice or compensation before terminating an employee. In most cases, the standard notice period is 30 days or salary in lieu. However, for industrial establishments with 100+ employees, retrenchment requires three months’ notice and government approval.
Severance pay obligations depend on the type of termination. In cases of retrenchment, employees are entitled to 15 days’ wages per completed year of service. Additionally, employees with five or more years of service qualify for gratuity act, which equals 15 days’ wages per year and is tax-free up to ₹20 lakh.
Termination Process & Documentation
A legally compliant termination requires employers to follow due process. This includes issuing a notice, conducting an inquiry in cases of misconduct, and providing a termination letter outlining the reasons. Employees must also receive their full and final settlement, including unpaid salary, leave encashment, gratuity, and bonuses. Experience and relieving letters should be provided to ensure a smooth transition.
Types of Terminations in India
Different types of termination require different legal considerations:
How Wisemonk helps you navigate Employment Laws in India?[toc=How Wisemonk helps]
Wisemonk is an Employer of Record (EOR) in India that simplifies compliance with India’s complex labor and employment laws. We help global businesses manage everything from minimum wage compliance, leave entitlements, and termination procedures to POSH Act implementation and social security registrations like EPFO and ESIC. Our expertise ensures your business remains fully compliant with India’s evolving labor codes while creating a seamless experience for your employees.
In addition to India's labor laws compliance, Wisemonk offers a wide range of services, including payroll management, tax optimization, employee benefits administration, background verification, GCC (Global Capability Center) setup, company registration in India and offshore team building. With Wisemonk as your partner, you can focus on growing your business while we handle the complexities of hiring and managing employees in India.
Do you need help managing your Indian workforce the right way? Our team is ready to help you navigate India's labor regulations. Contact us!
FAQs
What are the four new labor codes in India?
The four new labor codes in India are the Code on Wages, the Industrial Relations Code, the Code on Social Security, and the Occupational Safety, Health and Working Conditions Code. These codes consolidate and simplify numerous existing labor laws.
How does employee classification affect termination procedures in India?
Employee classification significantly impacts termination procedures. For 'workmen' with at least one year of continuous service, employers must provide a one-month notice period or equivalent wages, and retrenchment compensation. Non-workmen typically have different termination requirements based on their employment contracts and applicable state laws.
What are the key social security contributions required from employers in India?
The main social security contributions in India include the Employees' Provident Fund (EPF), Employees' State Insurance (ESI), and gratuity. EPF and ESI involve both employer and employee contributions, while gratuity is a retirement benefit paid by employers to employees with five or more years of continuous service.
How do minimum wage regulations vary across India?
Minimum wage in India varies significantly across states, industries, and skill levels. There are over 1,200 different minimum wage rates nationwide, determined by factors such as geographic location, skill level, industry type, and company size. Employers must stay updated on the applicable rates for their specific location and industry.
What are the legal requirements for addressing workplace sexual harassment in India?
Under the Sexual Harassment of Women at Workplace Act (POSH Act), employers with 10 or more employees must constitute an Internal Complaints Committee, develop a comprehensive anti-harassment policy, conduct regular awareness programs, and file annual compliance reports. Failure to comply can result in penalties up to ₹50,000.
How do termination requirements differ in India compared to Western countries?
Terminating an employee in India has its own set of rules. These rules are different from those in Western countries. Employers must give notice, which can last from 30 days to several months. They also have to pay severance, including gratuity, which is important.
What is the Code on Wages and how does it impact my company?
The Code on Wages brings together all wage laws in India. It sets a minimum wage standard for all states and sectors. This makes it easier for employers to follow wage rules. It ensures workers get fair pay.
What registration and compliance steps must foreign employers take before starting operations in India?
Foreign employers have to follow several steps before starting in India. They need to register their business with the Ministry of Corporate Affairs. They also need to get the right licenses and register for taxes like GST. Following these steps is key to avoid fines.
How do I ensure compliance with the new labor codes in India?
To follow the new labor codes, employers need to understand each code well. They must keep up with laws on wages, work relations, social security, and health. Getting help from legal experts who know Indian labor laws is a good idea.
What common mistakes should global companies avoid when hiring in India?
Global companies often make mistakes like bad documentation and misclassifying workers. They also might not follow local labor laws on benefits. Knowing these common errors and how to avoid them can help companies run smoothly in India.
What rights do employees have under the Trade Union Act in India?
The Trade Union Act, 1926, grants employees the right to form and join trade unions, engage in collective bargaining, and protect their interests. It ensures legal recognition of unions, allowing them to negotiate wages, working conditions, and resolve industrial disputes through collective action.
