India Labour Law Compliance 2026: Complete Guide for SMBs & HR Teams

September 15, 2026 | By Gopareto Marketing

India labour law compliance guide for SMBs covering PF, ESI, minimum wage, leave entitlements, overtime, gratuity and professional tax across states

Running a business in India means navigating complex, constantly changing labour laws. Different rules for different states. Different rules for different company sizes. Rules that change every year.

Get compliance wrong, and you face:

Government fines of ₹10,000–5,00,000
Back payments to employees
Legal action
Reputational damage
Business licence suspension, in extreme cases

But there’s no need to fear it. India’s labour laws are simpler than they look once you break them down requirement by requirement.

Why India’s Labour Laws Matter for SMBs

India has more than 50 labour laws covering wages, working hours, leave, social security, safety and health, child labour, discrimination and harassment, and gratuity. But not all of them apply to all companies. Size matters.

Applies to all companies

Minimum wage, which sets the salary floor
Timely wage payment
Professional conduct standards
No discrimination or harassment
No child labour

Applies at 10+ employees

Shop and Establishment Act, which varies by state
Maternity Benefit Act
Building and Other Construction Workers Act, where applicable

Applies at 20+ employees

Provident Fund: employee plus employer contribution
Workplace safety obligations
Gratuity rules

Applies at 50+ employees

Employee State Insurance (ESI)
Works Committee
Standing Orders, meaning clearly documented policies

Key Compliance Areas for SMBs

1. Provident Fund (PF)

A social security scheme: the employee contributes 12% of salary, the employer contributes 12%, the money accumulates in an account, and the employee receives it on leaving or retirement.

Applies when the company has 20 or more employees
Relevant on salaries of ₹15,000 and above
Contributions go to the government fund
Employees can withdraw for specific permitted reasons

If you have 20+ employees earning ₹15,000 or more, you must register with EPFO and deduct from payroll.

2. Employee State Insurance (ESI)

Health insurance for employees earning less than ₹21,000 a month, providing medical and disability benefits, funded by employer and employee contributions and managed by ESIC.

Applies at 50 or more employees
Mandatory where salary is below ₹21,000
Covers employees and their dependants
Includes disability and maternity benefits

If you’re approaching 50 employees, start planning ESI compliance now rather than after you cross the line. Our guide to PF and ESI compliance with HRMS covers the mechanics.

3. Wages and Minimum Wage

Minimum wage is the government-set salary floor, and it varies by state and often by region within a state.

State	Indicative monthly minimum wage
Maharashtra	₹6,800–8,600, varying by region
Karnataka	₹5,500–7,000
Tamil Nadu	₹6,100–7,600
Delhi	₹7,750
Uttar Pradesh	₹5,307–5,619

Minimum wage includes basic plus allowances—it is not just the basic salary. Check your state’s current notified rate; every employee must earn at least that amount.

4. Leave Management

Mandatory leave types

Casual leave: 5–8 days a year
Sick leave: 5–7 days a year
Earned leave: at least 1 day per 20 days worked
Maternity leave: 6 months for women
Paternity leave: 15 days, depending on state
National holidays, as specified by the state

Rules that trip companies up

Leave can be restricted but not denied entirely
Unused earned leave is usually paid out on separation
Casual and sick leave cannot be carried forward
Earned leave cannot be refused without a valid reason

Maintain leave records, honour leave requests, and calculate payouts correctly at separation. A leave policy and compliance system makes this automatic.

5. Work Hours and Overtime

Maximum 48 hours per week, though this can vary
Overtime beyond 48 hours must be paid at twice the normal rate
At least one weekly off day is mandatory

Track work hours accurately. If employees work overtime, compensate them properly.

6. Gratuity

A lump sum payment when an employee leaves, applicable after five or more years of service, calculated as 15 days’ salary multiplied by years of service, and paid on resignation, retirement or termination.

7. Professional Tax

A state-level deduction. Maharashtra, Karnataka and Tamil Nadu all run roughly ₹0–200 per month based on salary, while some states charge nothing at all. Check whether your state requires it and deduct from salary if so.

8. Sexual Harassment Prevention

The company must have a written policy
An internal complaints committee is required
Every complaint must be investigated
No retaliation against complainants is permitted

Create and communicate a clear anti-harassment policy. See our guide to preventing workplace discrimination and harassment.

How Rules Differ by State

Aspect	Varies by state?	Example
Minimum wage	Yes	₹5,300–8,600 per month
PF threshold	No	20+ employees, nationally
ESI threshold	No	50+ employees, nationally
Casual leave	Yes	5–10 days per year
Professional tax	Yes	₹0–200 per month
Holiday list	Yes	Different holidays in each state

Critical point: if you have offices in multiple states, each state’s laws apply to the employees in that state. A company headquartered in Mumbai follows Maharashtra rules for Mumbai staff and Karnataka rules for Bengaluru staff.

Six Compliance Mistakes SMBs Keep Making

Watch for these

Using an old minimum wage. The government notifies a new rate, the company pays the old one for three months, and owes a fine plus back payment.
Incorrect PF calculation. Calculating on basic only when allowances should be included, resulting in underpayment.
No records. No attendance, leave or salary records means you cannot prove compliance in an audit, and you are fined by default.
Denying casual leave. A blanket denial is against the law and the employee can file a complaint.
Not paying gratuity. An employee completes five years, leaves, and the calculation is forgotten—then litigated.
Overtime underpayment. Paying 12 overtime hours at the normal rate instead of double violates the wages act.

How a Made-in-India HRMS Helps

An HRMS built for India automates the parts of compliance that people get wrong:

Automatic wage calculation against your state’s minimum wage rules
PF and ESI calculations verified by chartered accountants
Leave tracking that enforces correct allocation
Automatic updates when the law changes
Compliance dashboards showing what needs attention
Audit reports ready for government inspection
Multi-state support for offices across India

Instead of your HR manager worrying about compliance, the system handles it.

Your SMB Compliance Checklist

This month

Verify your company size by counting employees
Check your state’s current minimum wage
Determine whether you need PF or ESI registration
Create a written leave policy
Document your anti-harassment policy

Every month

Maintain attendance records
Calculate payroll according to state rules
Track and approve leave properly
Process salary correctly and on time

Every quarter

Review PF contributions
Verify ESI compliance where applicable
Audit leave balances
Check for new government notifications

Every year

Reconcile taxes
Calculate gratuity for eligible employees
Review and update all policies
Plan for next year’s minimum wage changes

Getting Compliance Right

Compliance doesn’t have to be stressful. With the right system and an understanding of the basic rules, you can avoid fines, maintain good employee relations, build a compliant workplace, and scale confidently.

Ready to make compliance automatic?

How GoPareto Helps

PF, ESI, minimum wage, IT and PT handled for every state
Leave entitlements enforced by policy, not memory
Rules updated when the government changes them
Audit-ready records and registers on demand

Request a Demo

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