As an employer in India, your core legal obligations include: paying at least the minimum wage, contributing to EPF (12% of basic salary) and ESI (3.25% of gross salary where applicable), establishing an Internal Committee under the POSH Act for sexual harassment prevention, paying gratuity after 5 years of service, maintaining a safe workplace, and filing regular returns under various labour laws. Non-compliance can result in fines up to Rs 3 lakh and imprisonment up to 3 years for repeat offences.
Why this matters
India has a complex web of labour laws -- over 40 central labour acts and hundreds of state-specific rules have historically governed employment. The government consolidated these into 4 Labour Codes (implemented from November 2025): the Code on Wages, Code on Social Security, Industrial Relations Code, and Occupational Safety Code. Whether you have 1 employee or 1,000, these laws apply to you. Getting compliance wrong does not just mean penalties -- it means disrupted operations, employee lawsuits, and potential imprisonment. Understanding your obligations upfront protects both your employees and your business.
Your core obligations
1. Pay at least minimum wages
Under the Code on Wages, 2019, every employer must pay at least the minimum wage set by the Central or State Government. The National Floor Wage acts as a baseline, and states can set higher minimums.
Key details:
- Minimum wages vary by state, skill level (unskilled, semi-skilled, skilled, highly skilled), and zone (metropolitan, non-metropolitan)
- Wages must be paid within 2 working days of the end of the pay period for daily-rated workers, and within 7 days for monthly-rated workers
- Wages must be paid only through bank transfer (digital payment) for establishments with 20+ employees
In practice: Check your state's minimum wage notification. These are revised periodically (usually annually). Paying below minimum wage is a criminal offence punishable with a fine up to Rs 50,000.
Important: "Wages" under the Code on Wages includes basic pay plus dearness allowance, and excludes bonus, house rent allowance, overtime, gratuity, retrenchment compensation, and commissions.
2. Provident Fund (EPF) contributions
If you employ 20 or more persons, you must register with the Employees' Provident Fund Organisation (EPFO) and contribute to EPF:
| Component | Employer Contribution | Employee Contribution |
|---|---|---|
| EPF | 3.67% of basic salary | 12% of basic salary |
| EPS (Pension) | 8.33% of basic salary (up to Rs 15,000) | -- |
| EDLI (Insurance) | 0.50% | -- |
| Total employer | 12.50%+ | 12% |
Key deadlines:
- Monthly EPF deposit: 15th of the following month
- Annual return: 25th April
- Late payment: Interest at 12% per annum + damages up to 100% of arrears
In practice: Register on the EPFO portal (unifiedportal-emp.epfindia.gov.in). Generate monthly ECR (Electronic Challan cum Return) and deposit before the 15th. Even a single day's delay attracts interest.
3. Employee State Insurance (ESI) contributions
If you employ 10 or more persons (in some states, 20+) and the establishment is covered, you must register for ESI:
| Component | Rate |
|---|---|
| Employer contribution | 3.25% of gross wages |
| Employee contribution | 0.75% of gross wages |
| Applicable to employees earning | Up to Rs 21,000 per month |
Benefits for employees: Medical care, sickness benefit, maternity benefit, disability benefit, and dependent benefit.
In practice: Register at esic.gov.in. Monthly contribution is due by the 15th of the following month. Non-payment attracts 12% simple interest plus damages.
4. Gratuity payment
Under the Payment of Gratuity Act, 1972 (now part of the Code on Social Security), you must pay gratuity to any employee who has completed 5 or more years of continuous service when they leave, retire, or in case of death/disablement.
Formula: Last drawn salary x 15/26 x completed years of service
Maximum limit: Rs 20 lakh (enhanced from Rs 10 lakh)
In practice: For fixed-term employees under the new Labour Codes, gratuity is payable on a pro-rata basis even for contracts of less than 5 years. This is a significant change from the old law.
5. POSH Act compliance (sexual harassment prevention)
The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 applies to EVERY employer, regardless of the number of employees. Your obligations:
- Constitute an Internal Committee (IC) if you have 10+ employees (Presiding Officer must be a senior woman, one external member)
- Display the POSH policy prominently in the workplace
- Conduct awareness training annually
- File annual POSH report with the District Officer (due 31st January each year)
- Take action on complaints within 90 days
In practice: The IC must include at least 4 members, with the presiding officer being a senior woman employee. Even if you have fewer than 10 employees, you must refer complaints to the Local Complaints Committee.
Important: Non-compliance with the POSH Act can result in a fine up to Rs 50,000, and repeat violations can lead to cancellation of business licences.
6. Workplace safety and health
Under the Occupational Safety, Health and Working Conditions Code, 2020:
- Provide a safe working environment
- Maintain proper ventilation, lighting, sanitation, and first-aid facilities
- Provide annual health check-ups for employees in hazardous occupations
- Maximum working hours: 8 hours per day, 48 hours per week
- Overtime wages: At least twice the normal rate
7. Employment contracts and termination
Under the Industrial Relations Code, 2020:
- Issue appointment letters to every employee (mandatory under the new Codes)
- Provide reasonable notice before termination (30-90 days depending on duration of service and establishment size)
- Pay retrenchment compensation: 15 days' average pay for every completed year of service
- Fixed-term workers get equal benefits as permanent workers, including gratuity after 1 year
Registration requirements checklist
| Requirement | Threshold | Portal/Authority |
|---|---|---|
| EPF registration | 20+ employees | unifiedportal-emp.epfindia.gov.in |
| ESI registration | 10+ employees | esic.gov.in |
| Professional Tax | Varies by state | State PT authority |
| Shops & Establishment | All establishments | Municipal/state authority |
| POSH Internal Committee | 10+ employees | Self-constituted |
| GST (if applicable) | Service > Rs 20L | gst.gov.in |
| TDS registration | All employers paying salary | incometax.gov.in |
What if things go wrong
If you fail to register for EPF/ESI
Register immediately. The EPFO and ESIC can conduct inspections and impose retrospective liability for all months since you crossed the threshold. Voluntary late registration is treated more leniently than forced compliance after an inspection.
If an employee files a sexual harassment complaint
Immediately refer it to the Internal Committee. The IC must complete its inquiry within 90 days. Do not retaliate against the complainant -- this is a separate offence. Follow the IC's recommendations and file the annual report.
If you miss EPF/ESI payment deadlines
Pay immediately with interest. Late EPF deposits attract interest at 12% per annum on the employer's contribution, plus damages ranging from 5% to 25% of arrears depending on the delay period.
If an employee claims wrongful termination
Ensure you have documentation: appointment letter, performance records, warning letters, and termination notice with the reason. Under the Industrial Relations Code, termination of a worker employed for more than 1 year requires 1 month's notice or pay in lieu.
Documents and resources you need
- EPFO Portal: unifiedportal-emp.epfindia.gov.in
- ESIC Portal: esic.gov.in
- Labour Ministry: labour.gov.in (Labour Codes and rules)
- POSH Act guidance: wcd.nic.in (Ministry of Women and Child Development)
- State labour department: Contact for Shops & Establishment registration
- Income Tax (TDS): incometax.gov.in
Common myths
Myth: Small businesses with less than 10 employees do not need to follow labour laws. Reality: Several laws apply regardless of size -- minimum wages, POSH Act, payment of wages, and the Shops and Establishment Act. EPF and ESI have thresholds, but most other obligations apply from employee one.
Myth: Contract workers are not your responsibility. Reality: Under the new Labour Codes, the principal employer is responsible for ensuring contract workers receive statutory wages and benefits. If the contractor fails, the liability falls on you.
Myth: Startups are exempt from labour law compliance. Reality: DPIIT-recognised startups get certain compliance benefits (self-certification for 9 labour laws for the first 5 years), but they are not exempt from compliance itself. EPF, ESI, POSH, and minimum wages still apply fully.
Myth: You can avoid EPF by keeping salary structures as "CTC" with allowances. Reality: EPF is calculated on "basic wages" which, under the new Codes, must be at least 50% of the total remuneration. Structuring salaries to minimise basic pay below this threshold is not compliant.
The law behind this
| Obligation | Legal Basis | Penalty for Non-Compliance |
|---|---|---|
| Minimum wages | Code on Wages, Section 17 | Fine up to Rs 50,000 |
| EPF contribution | SS Code, Section 15 | Interest 12% + damages up to 100% |
| ESI contribution | SS Code, Section 44 | Interest 12% + imprisonment up to 2 years |
| Gratuity | SS Code, Section 53 | Fine + imprisonment up to 1 year |
| POSH compliance | POSH Act, Sections 4, 19, 26 | Fine up to Rs 50,000 + licence cancellation |
| Workplace safety | OSH Code, Sections 6-24 | Fine up to Rs 3 lakh + imprisonment |
| Termination rules | IR Code, Sections 67-70 | Compensation + reinstatement orders |
Frequently asked questions
When do I need to register for EPF and ESI? EPF is mandatory once you have 20 or more employees. ESI is mandatory once you have 10 or more employees (in most states). Register within 1 month of crossing the threshold.
Do I need to comply with the POSH Act if all my employees are male? Yes. The POSH Act applies to all workplaces. Even if all current employees are male, you must have a policy in place, and you need an IC if you have 10+ employees. Visitors, clients, and contract workers who are women are also covered.
What happens if I do not pay the minimum wage? Under the Code on Wages, the penalty for paying below minimum wage is a fine up to Rs 50,000 for a first offence, and Rs 1 lakh plus imprisonment up to 3 months for repeat offences.
Can I hire employees as "consultants" to avoid compliance? If the person works like an employee (fixed hours, single employer, regular payments, employer's tools), courts may treat them as an employee regardless of the label. Misclassifying employees as consultants is a compliance risk, not a solution.
Does the gratuity law apply to my startup? Yes, if any employee completes 5 years of service (or 1 year for fixed-term contracts under the new Codes). Many startups do not think about gratuity early on, but the liability accumulates and becomes payable when employees eventually complete the qualifying period.