HR Compliance in India: Legal Rules, Laws & 2025 Guide

Confused about how to handle HR compliance in India without getting buried in endless laws and paperwork? It's not just you. When hiring or managing employees in India, many US founders, HR directors, and international teams find it difficult to understand the legal requirements, from registering under the appropriate labor acts to keeping up with ongoing regulatory changes.

The reality is, India’s employment landscape is complex, 40+ central laws, dozens of state-level variations, and frequent updates make HR statutory compliance in India a moving target. But here’s the good news: once you understand the key rules, timelines, and responsibilities, staying compliant becomes much more manageable.

In this article, we’ll break down the essential HR compliance laws, mandatory filings, state-level differences, and upcoming labor code changes so you can confidently manage your workforce in India. Now let's get started.

What is HR compliance in India and why is it essential for business success?[toc=HR Compliance]

HR compliance in India is the practice of ensuring your company follows both national and state-level labor laws and regulations, covering everything from hiring and working conditions to wages, benefits and exit procedures.

At its core, HR compliance ensures that organizations operate within the legal framework established by various Indian labor laws. This includes following regulations like the Factories Act, Payment of Wages Act, Employees' Provident Fund Act, and numerous other laws that have been established to protect employee rights while creating a structured business environment.

As we've observed while helping 100+ global companies establish their presence in India, HR compliance isn't merely a legal obligation-it's a critical business imperative that offers several advantages:

Why HR Compliance is Essential for Business Success:

• Risk protection: Avoids penalties, inspections, and legal disputes that can stall operations.
• Employee trust: Builds transparency and fairness, improving morale and retention.
• Investor confidence: Clean compliance records boost valuation and due-diligence outcomes.
• Operational continuity: Prevents shutdowns or delays due to regulatory violations.
• Brand credibility: Demonstrates responsibility and professionalism in the Indian market.

According to PRS India, India’s states collectively administer over 423 labour Acts, 31,605 unique compliances, and 2,913 filings, which is why HR compliance in India is so important for any business operating or hiring across multiple states. Staying compliant ensures smooth operations, protects employees, and builds long-term business credibility.

What are the key HR compliance requirements across the employee lifecycle?[toc=HR Compliance Requirements]

Based on our experience helping global companies with payroll, and statutory compliance in HR in India, here are the key HR compliance requirements every employer must follow across the employee lifecycle.

Pre-employment and onboarding compliance

This stage ensures every new hire is legally onboarded with the right documentation, registrations, and background checks before they begin work.

1. Registration and Business Setup
   • Obtain company registration and relevant business licenses
   • Register with labor department and obtain establishment registration
   • Register for tax identification numbers (PAN, TAN, GST)
2. Hiring Documentation
   • Appointment letters with terms and conditions as per the Shops and Establishments Act
   • Employment contracts with clear job descriptions and compensation details
   • Collection and verification of identity documents (Aadhar, PAN, address proof)
   • Background verification procedures (as per industry requirements)
3. Labor Law Registrations
   • Register under Shops and Establishments Act (mandatory for all commercial establishments)
   • EPF and ESIC registrations (mandatory when employee thresholds are met)
   • Professional Tax registration (in applicable states)

Ongoing employment compliance

During employment, companies must follow labor laws governing wages, benefits, working hours, and workplace safety to maintain continuous compliance.

1. Working Conditions
   • Adherence to working hour regulations (typically 8-9 hours daily with overtime provisions)
   • Weekly rest day provisions
   • Mandatory leave policies (casual, sick, earned leave)
   • Implementation of workplace safety standards under Factories Act or relevant state rules
2. Compensation and Benefits
   • Timely payment of wages (electronically or by check as per Payment of Wages Act)
   • Minimum wage compliance (varies by state, skill level, and industry)
   • Overtime payment at double the ordinary rate
   • Bonus payment as per Payment of Bonus Act (applicable to employees earning up to ₹21,000/month)
3. Social Security Contributions
   • EPF contributions (12% employer + 12% employee for basic wages up to ₹15,000)
   • ESIC contributions (3.25% employer + 0.75% employee for gross wages up to ₹21,000)
   • Payment of gratuity provisions (after 5 years of continuous service)
   • Maintenance of statutory registers and filing of returns
4. Regular Compliance Activities
   • Monthly/quarterly filing of EPF and ESIC returns
   • Professional Tax remittance (where applicable)
   • Income tax deduction (TDS) and quarterly filing
   • Annual compliance filings (Form 49 for PF, annual returns under Shops Act)

Separation and post-employment compliance

At exit, employers must complete all statutory settlements, documentation, and record-keeping to ensure lawful and smooth employee separation.

1. Termination Formalities
   • Notice period or payment in lieu as per employment terms
   • Full and final settlement within statutory timeframes (typically within 30-45 days)
   • Issuance of service/experience certificates
   • Gratuity payment calculation and disbursement (if applicable)
2. Exit Documentation
   • Proper documentation of voluntary resignations or termination
   • Clearance of company assets and intellectual property
   • Compliance with retrenchment provisions for mass layoffs
   • Transfer of PF accounts or settlement as per employee's choice
3. Post-Employment Obligations
   • Maintenance of employee records for the prescribed period (typically 3-5 years)
   • Confidentiality and data protection compliance
   • Non-compete enforcement (with limitations as per Indian Contract Act)

A consistent, lifecycle-based compliance approach reduces legal risks and strengthens retention and employer brand in India’s competitive talent market.

To learn more about human resources legal compliance in India and how to navigate statutory laws, wage regulations, and employee rights confidently, explore our "Comprehensive Guide to HR Legal Compliance and Best Practices".

How are the new labor codes changing HR compliance in India?[toc=New Labor Codes]

India's labor laws are a combination of federal and state regulations, making it difficult for new businesses to navigate. Companies previously faced the complex task of complying with over 29 central laws and over 200 state-specific labor rules, which imposed a significant compliance burden.

To address this, the Indian government implemented the Labor Codes, a set of four unified laws aimed at simplifying workplace regulations. The Ministry of Corporate Affairs recently proposed amendments in 2024 to make it even easier for businesses to comply.

The four key labor codes are:

1. Code on Wages, 2019

The Code on Wages, 2019, combines four existing laws related to wages, bonuses, and equal pay, including the Equal Remuneration Act. It simplifies compliance with wage-related rules while promoting fair pay practices across various sectors.

What HR should know:

• The Code consolidates the Payment of Wages, Minimum Wages, Payment of Bonus and Equal Remuneration Acts.
• The “wage” definition is standardized; in practice basic pay + DA + retaining allowance must now constitute at least 50% of total wages when calculating benefits.
• Minimum wage cannot be lower than the “floor wage” set by the central government; states must notify accordingly.
• Deductions from wages are capped at 50% and wages must be paid in coin, currency, cheque or electronic mode within defined wage period.

2. Industrial Relations Code, 2020

The Industrial Relations Code, 2020, merges three laws on trade unions, industrial disputes, and employment conditions. It simplifies industrial relations by balancing workers' rights with employers' flexibility, especially for managing layoffs and fixed-term contracts.

What HR should know:

• The Code raises the threshold for prior government permission for layoffs, retrenchment and closure from 100 to establishments with 300+ workers.
• Standing orders requirement is for establishments with 300 or more workers, earlier the threshold was 100.
• Fixed-term employment is formally recognized and equal benefits are extended to certain fixed-term employees. Definition of “strike” and “worker” have been expanded; a 14-60-day notice for strikes is part of the proposed norms.

3. Occupational Safety, Health and Working Conditions Code, 2020

The Occupational Safety, Health, and Working Conditions (OSH) Code merges 13 existing laws related to workplace safety into one clear framework. It aims to ensure safe working conditions and standardize working hours and welfare provisions across industries.

What HR should know:

• The Code consolidates 13 major laws (Factories, Contract Labour, Migrant Workmen etc) for comprehensive safety & working conditions reform.
• Expands coverage to contract workers and inter-state migrant workers, lowers thresholds for certain compliance.
• Women now formally permitted to work night shifts (with safeguards) under the new code.
• Employers need to maintain registers for hours, shifts, health checks and digitally archive safety records as states notify rules.

4. Code on Social Security, 2020

The Code on Social Security, 2020, merges nine existing laws related to provident funds, insurance, maternity benefits, gratuity, and employee compensation into one simplified framework. It extends social security benefits to gig workers and platform workers while enhancing protections for traditional employees.

• This Code merges nine major social security laws (EPF, ESI, Maternity Benefit, Gratuity etc) to cover organized, unorganized and gig/platform workers.
• Fixed-term employees may now become eligible for gratuity without completing five years in service (in certain definitions).
• Gig and platform workers can be brought under social security schemes via the national fund; employer obligations may extend to aggregators.
• Digital filing, record-keeping and linkage with Aadhaar for social security schemes will become the norm as rules roll out.

If you want to deep dive into how companies build compliant, transparent workplaces, explore our comprehensive guide on "HR policies in India".

Which Major Labor Laws and Statutory Acts Must Organizations Follow in India?[toc=Major Laws & Statutory Acts]

Having guided global companies through statutory compliance in India, we’ve summarized the major labor laws that shape the country’s employment framework.

Employment Conditions and Industrial Relations

1. Shops and Establishments Act
   • State-specific legislation governing working conditions, hours, holidays, and leave
   • Applies to all commercial establishments not covered by the Factories Act
   • Requires registration and annual renewals with the labor department
2. Industrial Disputes Act, 1947
   • Regulates employer-employee relationships, including layoffs, retrenchment, and closure
   • Establishes dispute resolution mechanisms and labor courts
   • Applies primarily to manufacturing and certain service establishments
3. Industrial Employment (Standing Orders) Act, 1946
   • Requires employers with 100+ workers to clearly define terms of employment
   • Mandates formal documentation of working conditions, misconduct definitions, and disciplinary procedures
   • Creates transparency in employer-employee relationships
4. Contract Labour (Regulation and Abolition) Act, 1970
   • Regulates the engagement of contract workers
   • Requires principal employers and contractors to obtain licenses
   • Ensures welfare measures for contract workers

Wages and Compensation

1. Payment of Wages Act, 1936
   • Ensures timely payment of wages without unauthorized deductions
   • Prescribes wage periods and payment methods
   • Now largely administered electronically through bank transfers
2. Minimum Wages Act, 1948
   • Sets minimum wage rates by skill level, industry, and geography
   • Rates vary by state and are revised periodically
   • Provides for working hours and overtime compensation
3. Payment of Bonus Act, 1965
   • Mandates annual bonus payments for eligible employees
   • Applicable to employees earning up to ₹21,000 per month
   • Minimum bonus of 8.33% of annual wages (maximum 20%)
4. Equal Remuneration Act, 1976
   • Prohibits gender-based discrimination in recruitment and pay
   • Ensures equal pay for equal work regardless of gender
   • Provides for inspection and compliance mechanisms

Social Security and Benefits

1. Employees' Provident Funds and Miscellaneous Provisions Act, 1952
   • Mandates retirement savings contributions (12% employer + 12% employee)
   • Applicable to establishments with 20+ employees
   • Includes provisions for Employees' Pension Scheme and Employees' Deposit Linked Insurance
2. Employees' State Insurance Act, 1948
   • Provides health insurance and disability benefits
   • Applies to establishments with 10+ employees with wages up to ₹21,000/month
   • Requires employer contribution of 3.25% and employee contribution of 0.75%
3. Payment of Gratuity Act, 1972
   • Mandates gratuity payment after 5+ years of continuous service
   • Calculation: (Last drawn basic salary × 15/26 × years of service)
   • Applicable to establishments with 10+ employees
4. Maternity Benefit Act, 1961
   • Provides 26 weeks of paid maternity leave
   • Mandates crèche facilities for establishments with 50+ employees
   • Prohibits dismissal during maternity leave

Occupational Safety and Labor Welfare

1. Factories Act, 1948
   • Regulates working conditions in manufacturing facilities
   • Establishes safety standards, work hours, and leave entitlements
   • Requires factory registration and routine inspections
2. Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013
   • Mandates prevention and redressal mechanisms for sexual harassment
   • Requires formation of Internal Complaints Committee
   • Applies to all organizations regardless of size
3. Child and Adolescent Labour (Prohibition and Regulation) Act, 1986
   • Prohibits employment of children below 14 years
   • Regulates working conditions for adolescents (14-18 years)
   • Prescribes severe penalties for violations

Now that we've discussed the major laws and statutory laws that organizations must follow in India, let's look at the state-specific compliance requirements.

How do state-specific compliance requirements impact HR practices in India?[toc=State-Specific Requirements]

In our experience helping companies establish operations across multiple Indian states, we've observed that state-level compliance often creates the most challenging aspects of HR administration.

Key areas of state variation

Shops and establishments act

This legislation varies considerably across states, impacting:

Minimum wage structures

Each state determines its own minimum wage rates based on skill level, industry, and geographical zone. These are revised periodically, usually every six months. For example, Delhi’s minimum wages remain among the highest in India, while states like Bihar or Uttar Pradesh have considerably lower thresholds for similar job roles.

Professional tax

Professional tax is not applied nationwide; only certain states levy it on both employees and employers. Maharashtra charges up to ₹2,500 annually, Karnataka up to ₹2,400, while West Bengal follows a quarterly payment model. HR must ensure proper registration, deduction, and timely remittance under each state’s schedule.

Labor welfare fund

States such as Maharashtra, Karnataka, Tamil Nadu, and Kerala require contributions to a Labor Welfare Fund. Contribution rates, filing frequency, and eligible categories vary. Some states collect these funds monthly, while others follow a quarterly or half-yearly cycle.

Leave policy variations

Leave entitlements also differ significantly by state. For instance, West Bengal allows up to 21 days of annual leave, while Haryana permits 15. National and festival holidays can range from 8 to 11 days, and maternity leave provisions may extend beyond central requirements in some states.

Factory regulations

While the Factories Act is a central law, its enforcement varies by state. Registration fees, safety standards, inspection protocols, and night shift permissions for women differ widely. States like Maharashtra and Tamil Nadu have distinct safety classifications for hazardous industries.

You might be interested in learning about the Legal Working Hours and Overtime Pay Rules in India, so please read our article on "Legal Working Hours and Overtime Pay Rules in India''.

What are the mandatory employee benefits and social security compliances in India?[toc=Mandatory Employee Benefits]

India's social security framework mandates several employee benefits that organizations must provide. These statutory benefits form the backbone of employee financial security and constitute a significant portion of HR compliance requirements.

Mandatory Employee Benefits

1. Employees' Provident Fund (EPF)

The EPF is India's primary retirement benefit program administered by the Employees' Provident Fund Organization (EPFO).

Applicability:

• Establishments with 20+ employees
• Once registered, compliance continues even if employee count drops below 20
• Voluntary for establishments with fewer employees

Contribution Structure:

• Employer: 12% of basic wages + dearness allowance
• Employee: 12% of basic wages + dearness allowance
• The employer contribution is split between:
  • EPF: 3.67%
  • Employees' Pension Scheme (EPS): 8.33% (capped at ₹1,250)

Key Compliance Requirements:

• Monthly remittance by 15th of following month
• Electronic Challan cum Return (ECR) filing
• Annual return filing (Form 6A)
• Universal Account Number (UAN) generation for all employees
• KYC verification of employees (Aadhaar, PAN, bank details)

Recent Updates:

• Introduction of EPFO e-nomination facility
• Electronic inspection system
• Unified portal for all EPFO-related services

We've observed that many organizations incorrectly classify components of salary to reduce PF liability, which can lead to significant compliance issues during EPFO inspections.

2. Employees' State Insurance (ESI)

ESI provides comprehensive medical benefits and various cash benefits during sickness, maternity, and employment injury.

Applicability:

• Establishments with 10+ employees
• Employees earning gross wages up to ₹21,000 per month
• Applies to both permanent and contract employees

Contribution Structure:

• Employer: 3.25% of gross wages
• Employee: 0.75% of gross wages

Benefits Coverage:

• Medical benefits for employees and dependents
• Sickness benefit (70% of wages for up to 91 days)
• Maternity benefit (full wages for 26 weeks)
• Disablement benefit
• Dependents' benefit in case of employment-related death

Compliance Requirements:

• Monthly contribution by 15th of following month
• Half-yearly returns filing
• Employee registration and insurance number issuance
• Accident reporting within 24 hours

3. Gratuity

Gratuity is a lump-sum benefit paid to employees upon separation after a minimum service period.

Applicability:

• Organizations with 10+ employees
• Payable after 5 years of continuous service
• Exception: No minimum service requirement in case of death or disability

Calculation Formula:

• 15 days' last drawn basic salary for each completed year of service
• Formula: (Basic + DA) × 15/26 × Years of service (including fractions)
• Maximum statutory limit: ₹20 lakhs

Compliance Requirements:

• Maintenance of gratuity records for all eligible employees
• Annual gratuity liability calculation and optional fund maintenance
• Payment within 30 days of becoming due
• Form K filing within 30 days of payment

Many organizations now opt for group gratuity insurance schemes to manage this liability effectively.

4. Maternity Benefits

Key Provisions:

• 26 weeks of paid maternity leave (for first two children, 12 weeks thereafter)
• Medical bonus of up to ₹3,500
• 12 weeks of leave for adopting mothers
• Work from home options post-maternity leave
• Crèche facilities in establishments with 50+ employees

Compliance Requirements:

• Maintaining maternity benefit records
• Timely disbursement of maternity benefit wages
• Prohibition of dismissal during maternity leave
• Information display about maternity benefits at workplace

5. Statutory Bonus

Applicability:

• Establishments with 20+ employees
• Employees earning up to ₹21,000 per month
• Minimum 30 working days in an accounting year

Calculation:

• Minimum 8.33% of annual salary or wages
• Maximum 20% of annual salary or wages
• Salary for calculation capped at ₹7,000 monthly

Compliance Timeline:

• Payable within 8 months of financial year closing
• For seasonal establishments, within one month of year-end

6. Social Security Compliance Calendar

We recommend establishing a compliance calendar with automated reminders to ensure timely fulfillment of all statutory obligations.

What are the types of HR compliance?[toc=Types of HR Compliance]

The main types of HR compliance in India can be grouped into four categories:

• Statutory compliance: Covers all government-mandated employment laws such as minimum wages, working hours, and employee benefits that every organization must follow.
• Regulatory compliance: Involves adhering to industry-specific regulations issued by authorities or regulatory bodies to ensure ethical and lawful business practices.
• Contractual compliance: Requires organizations to honor the terms and conditions mentioned in contracts or agreements to prevent legal disputes.
• Union law compliance: Refers to following the rules and obligations established by labor and trade unions representing employees in the organization.

What are the most common HR compliance challenges and their solutions?[toc=HR Compliance Challenges]

Drawing from our experience helping global companies manage compliance and payroll in India, we’ve identified the most common HR challenges and how to solve them.

Complex documentation and record-keeping

Many businesses fail to maintain proper employee records, statutory registers, and updated documentation required under laws like the Shops and Establishments Act or Factories Act. Digitizing employee data using HR software with payroll and compliance management capabilities, along with regular internal audits, helps keep all records accurate and audit-ready.

Misclassification of employees and contractors

Companies often misclassify full-time employees as independent contractors, leading to violations in PF, ESI, and tax compliance. Defining roles clearly in employment contracts and conducting periodic classification audits can prevent misclassification and ensure compliance with statutory obligations.

Multi-state compliance variation

India’s state-specific labor laws create inconsistencies in minimum wages, working hours, and tax filings, making it difficult for HR teams to standardize processes. Using centralized compliance tracking tools and maintaining a state-wise statutory compliance checklist in India helps ensure accuracy across locations. Partnering with local compliance experts also supports state-specific adherence.

Payroll and statutory contribution errors

Errors in calculating PF, ESI, TDS, or gratuity can lead to penalties and employee dissatisfaction. Automating payroll using HR software with payroll and compliance in India that integrates with EPFO and ESIC portals ensures timely payments, filings, and reduced manual errors.

Frequent law updates and lack of awareness

Labor laws in India change frequently, and HR teams often miss important updates or amendments. Subscribing to government notifications or compliance alert services and training HR staff regularly on legal compliance in HR in India keeps organizations up to date and protected from unexpected violations.

If you are confused about the integration of HR and payroll, check out our article. "Human Resources vs. Payroll: Responsibilities & Differences".

What Penalties Do Organizations Face for Non-Compliance with HR Laws in India?[toc=Penalties for Non-Compliance]

Having supported global employers with payroll and HR compliance management in India, we’ve identified the main penalties organizations encounter and the best ways to stay compliant.

Here are the top 6 key penalties organizations face for non-compliance with HR and labor laws in India:

• Failure to register under the Shops & Establishments Act can result in fines ranging from ₹5,000 to ₹1,00,000, depending on the state.
• Non-payment or delayed payment of minimum wages can lead to fines up to ₹50,000 or imprisonment for up to five years.
• EPF and ESI contribution defaults attract damages between 5–25% of arrears, 12% annual interest, and possible imprisonment up to three years.
• Failure to provide maternity or gratuity benefits can result in penalties of ₹50,000 to ₹2,00,000 and potential prosecution.
• Non-maintenance of statutory registers or absence of appointment letters can incur penalties up to ₹1,00,000.
• Equal remuneration and overtime violations can lead to fines up to ₹1,00,000 or imprisonment for repeat offenses.

Let's examine strategies to guarantee HR compliance and prevent penalties now that we are aware of them.

What are the most effective ways to ensure HR compliance in India?[toc=Best Practices]

With our experience helping global companies manage HR compliance operations in India, here are the most effective ways organizations can strengthen compliance and minimize legal risks:

• Stay updated on legal changes: Labor laws at both the central and state levels change frequently, so HR teams should track updates through official government portals and circulars.
• Maintain thorough documentation: Keep a well-defined employee handbook and updated records outlining company policies, HR procedures, and statutory requirements for easy reference and audit readiness.
• Encourage transparency: Build a culture where leadership and HR openly communicate compliance expectations, minimizing misunderstandings and compliance risks.
• Conduct regular training: Organize periodic workshops and webinars to educate employees and managers on labor law updates, workplace ethics, and compliance standards.
• Perform HR audits: Schedule internal audits to evaluate compliance gaps, record-keeping practices, and policy implementation, ensuring early detection of risks before they lead to legal issues.

How to simplify HR compliance tracking with Wisemonk?[toc=Why Choose Wisemonk]

Wisemonk, the best Employer of Record (EOR) and Professional Employer Organization (PEO) in India, assists in the recruitment, compensation, and management of talent in the country.

Here's what we offer:

• Maintains statutory compliance: Oversees EPF, ESI, gratuity, and professional tax contributions in full alignment with Indian labor regulations.
• Automates tax deductions and filings: Manages TDS, income tax calculations, and on-time submissions to prevent compliance penalties.
• Streamlines payroll operations: Handles salary processing, pay slip generation, and statutory reporting with precision and accuracy.
• Supports multi-state compliance: Adjusts payroll and HR processes to meet varied labor laws and tax norms across different Indian states.
• Secures payroll data: Safely stores employee compensation and tax records for audits and legal verification.
• Offers expert compliance guidance: Provides ongoing updates and professional advice on evolving payroll and regulatory changes in India.

Want to make HR compliance effortless and error-free? Book a free consultation today and see how our team helps you stay compliant, confident, and focused on growth.