HR Policies in India 2026: Key Labor Laws & Best Practices

Are you interested in understanding HR policies in India? You're not alone. Many US companies find it challenging to keep up with India's evolving labor laws and workplace regulations. India's legal landscape is multilayered, spanning central laws, four new Labour Codes, state-level Shops and Establishments Acts, and sector-specific rules.

In this article, we break down the key HR policies, the mandatory versus essential distinction, the new Labour Codes effective from November 2025, and what's changed that every employer managing India teams must know.

What are HR Policies in India?

HR policies in India are a set of guidelines and rules that organizations follow to manage their workforce while ensuring compliance with local labor laws and regulations. These policies create a structured, fair, and legally compliant work environment covering employee rights, responsibilities, and organizational operations.

HR policies help businesses navigate complex labor laws, ensuring legal compliance and protecting the organization from potential legal risks. They also promote a positive workplace culture by clearly defining expectations, fostering transparency, and ensuring fair treatment for all employees.

Why do HR Policies Matter for Companies in India?

A well-documented HR policy acts as a reference guide for employees, reducing ambiguity in workplace decisions. Here's why they are critical:

• Legal Compliance: Staying updated with regulations such as the Factories Act, Shops and Establishments Acts, and the Maternity Benefit Act prevents legal repercussions.

• Consistency: Standardized HR practices ensure uniform treatment of employees, preventing biases and favoritism.

• Employee Trust: Transparent policies build trust and create a healthy work environment.

• Productivity: When employees understand their roles, rights, and responsibilities, workplace efficiency improves.

• Labour Code Readiness: With India's four Labour Codes effective from November 21, 2025, companies without updated HR policies face wage reclassification, PF mismatches, and penalty exposure. Policy audits are no longer optional.

What are the Mandatory HR Policies in India?

Mandatory HR policies in India are policies that employers must formally operationalize to comply with Indian labour laws and avoid regulatory, financial, or legal risk. These are driven by statutory requirements under central and state labour laws, not optional best practices.

1. Employment Contract or Appointment Letter

An employment contract documents the core terms of employment, role, compensation, notice period, and working conditions. Written employment agreements are required or expected under multiple Indian labour laws and state Shops and Establishments Acts.

• Job title, duties, and reporting structure

• Compensation, benefits, and pay cycle

• Notice period and termination terms

• Under the four new Labour Codes, every establishment must issue an appointment letter to every employee. Verbal-only agreements are no longer acceptable for formal workplaces. Most inspections and audits begin by asking for this document.

Reference: Ministry of Labour and Employment — Labour Codes

2. Wages and Salary Policy

A wages and salary policy ensures compliance with minimum wage rules, timely wage payments, and lawful deductions under Indian labour laws, including the Code on Wages and earlier wage-related statutes.

• Compliance with minimum wages by state and role

• Wage payment timelines and payslip requirements, monthly wages by the 7th of the following month

• Permissible deductions and statutory contributions

Critical 2025 change: Under the Code on Wages, basic salary must constitute at least 50% of total CTC. Previously, many employers structured basic pay at 35–40% to reduce PF contributions. This restructuring increases employer PF costs and reduces employee take-home pay, all payroll systems must be updated before the next audit.

See also: India Minimum Wage Guide 2026 | EPFO Official Site

3. Working Hours and Overtime Policy

Indian labour laws strictly regulate daily and weekly working hours, rest days, and overtime eligibility. A working hours policy translates these legal limits into clear company rules.

• Daily limit: 8 hours/day, weekly limit: 48 hours/week under the OSH Code

• Overtime: Paid at 2x the regular rate; capped at 125 hours per quarter

• Weekly off and rest period rules

• The OSH Code 2020 (effective November 2025) harmonizes working-hours rules previously scattered across 13 laws. Employers in IT and services under Shops & Establishments should review state-level notifications, Karnataka, for example, now permits up to 10-hour shifts for IT/ITES employees with employee consent.

Reference: OSH Code 2020 Full Text — MoLE

4. Statutory Leave Policy

A statutory leave policy outlines legally required leave entitlements, earned leave, sick leave, public holidays, and maternity benefits, based on applicable Indian labour laws. Leave requirements vary by state, making documentation especially important for multi-state teams.

• Earned/privilege leave: 1 day per 20 days worked (varies by state Shops & Establishments Act)

• Sick leave and public holidays per state rules

• Maternity leave: 26 weeks paid leave for the first two children; 12 weeks for subsequent children

• Paternity leave: While not yet a central statutory mandate, several PSUs and major IT firms now offer 1–2 weeks of paternity leave. Documenting a paternity leave policy reduces attrition risk and signals employer maturity to talent.

See also: Paternity Leave in India 2026 | Hire Employees in India — Leave Entitlements Guide

5. Sexual Harassment Policy (POSH Policy)

A sexual harassment policy is mandatory under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. All employers with 10 or more employees must also constitute an Internal Complaints Committee (ICC).

• Definition and scope of sexual harassment

• Complaint process and investigation timelines (resolution within 90 days)

• ICC structure, confidentiality obligations, and annual reporting to the District Officer

• POSH for remote and hybrid teams: The definition of 'workplace' under POSH extends to video calls, messaging platforms, and work-related events held off-site. ICC members must be trained to handle virtual complaints and digital evidence.

See also: Is Your Global EOR Handling POSH and S&E Act in India?

6. Grievance Redressal Mechanism

A grievance redressal mechanism is required for certain establishments under Indian labour laws, including the Industrial Relations framework — especially once workforce thresholds are crossed.

• Formal channels for raising and escalating grievances

• Resolution timelines and escalation paths

• Documentation and record keeping

• Under the Industrial Relations Code 2020, establishments with more than 20 workers must constitute a Grievance Redressal Committee (GRC) with equal employer and worker representation. The GRC must resolve disputes within 30 days of receipt.

7. Health and Safety Policy

A health and safety policy is mandatory for factories, hazardous workplaces, and certain establishments under the Occupational Safety, Health and Working Conditions (OSH) Code 2020. The scope now extends to IT firms and establishments employing 10 or more workers.

• Workplace safety standards, risk prevention, and emergency protocols

• Regular safety audits and PPE provision

• Crèche facilities for establishments with 50 or more employees

• Sanitation, drinking water, and canteen provisions for larger workplaces

• IT sector inclusion (NEW from Nov 2025): Software and services companies are now explicitly covered under the OSH Code. Companies outside traditional 'factory' categories must implement formal safety programmes, conduct safety audits, and document welfare provisions.

Reference: OSH Code 2020 — Ministry of Labour and Employment

What Are the Essential HR Policies for Organizations in India?

Essential HR policies may not be explicitly mandated by law but are necessary to manage people effectively, reduce disputes, and maintain consistent employment practices. These policies become unavoidable as teams grow.

1. Code of Conduct and Workplace Ethics Policy

A code of conduct policy defines acceptable workplace behavior, ethical standards, and professional expectations. It helps prevent misconduct and eliminates ambiguity around disciplinary standards.

• Professional behavior and integrity standards

• Conflict of interest guidelines

• Disciplinary expectations and consequences

• Anti-bribery clause: With India's Prevention of Corruption Act 1988 and increasing global ESG scrutiny, a code of conduct should include explicit anti-bribery provisions, especially for companies with foreign parent entities or listed subsidiaries.

See also: Hire Employees in India, Compliance Guide

2. Equal Employment Opportunity (EEO) Policy

An EEO policy outlines the company's commitment to fair employment practices and non-discrimination across all phases of employment, hiring, promotions, compensation, and exit.

• Non-discrimination on grounds of gender, caste, religion, sexual orientation, or disability

• Fair hiring and promotion practices

• Inclusive workplace standards

• Rights of Persons with Disabilities Act (RPWD) 2016: Organizations employing persons with disabilities must ensure reasonable workplace accommodation and accessible facilities. This is a legal obligation under the RPWD Act, not merely a best practice.

• Caste-based discrimination: Anti-discrimination provisions must explicitly cover caste-based discrimination, which faces growing scrutiny in urban corporate environments under the Protection of Civil Rights Act and SC/ST (Prevention of Atrocities) Act.

3. Attendance and Time Tracking Policy

An attendance policy clarifies working schedules, late arrival rules, absenteeism protocols, and the link to payroll calculations.

• Attendance expectations and loss-of-pay rules

• Late mark and absenteeism handling procedures

• Time tracking methods, biometric, HRMS-based, or manager-approved

4. Recruitment and Hiring Policy

A recruitment and hiring policy documents how hiring decisions are made and formalized, from job posting through onboarding. A structured process reduces misclassification risk, inconsistent offers, and disputes during probation.

• Standard hiring process and approval workflows

• Issuance of appointment letters and probation terms

• Role confirmation and onboarding steps

• Background verification and DPDP compliance: The Digital Personal Data Protection Act 2023 requires explicit written candidate consent before processing personal data during background checks. Update hiring workflows to include a consent-capture step before verification begins.

See also: Background Verification Companies in India

5. Compensation Structure and Benefits Policy

A compensation policy explains how salaries, incentives, bonuses, and benefits are designed and reviewed. It supports transparency, reduces confusion, and helps with retention.

• Fixed and variable pay components

• Bonus and incentive eligibility criteria

• Health insurance and statutory benefit overview

• EPF and ESI thresholds (2026): Employees earning up to ₹15,000/month basic wage are covered under EPF (employer contributes 12%). ESI applies to employees earning up to ₹21,000/month (employer contributes 3.25%). With the new Wage Code's 50% basic rule, many employees previously outside EPF thresholds may now qualify, audit your payroll registers.

See also: How to Pay Employees in India | EPFO — Provident Fund | ESIC — Employee State Insurance

6. Data Security, Confidentiality and Privacy Policy

A data security and confidentiality policy governs how employee data, company information, and intellectual property are handled and protected.

• Employee data handling and access controls

• Confidential information and IP protection

• Data breach response protocol

DPDP Act 2023, New mandatory obligations for HR: The Digital Personal Data Protection Act 2023 is now in force. Key HR requirements include:

• Obtain explicit, specific, informed consent before collecting or processing employee personal data

• Maintain a Data Principal notice to employees detailing what data is collected and why

• Data must be erased once the employment purpose is served (right to erasure)

• Cross-border data transfer restrictions apply, verify whether your HRMS stores data outside India

• Appoint a Data Protection Officer (DPO) if processing significant volumes of sensitive personal data

Reference: India DPDP Act 2023 — MeitY | Data Protection Policy — Wisemonk Glossary

7. Performance Management and Employee Development Policy

A performance management policy sets expectations around feedback cycles, reviews, and employee development, aligning individual growth with business goals.

• Performance review cycles and rating frameworks

• Feedback mechanisms and Performance Improvement Plans (PIPs)

• Employee development and L&D initiatives

• AI-assisted performance tools: Many Indian organizations are adopting AI-driven HR platforms for performance tracking. Ensure your policy addresses algorithmic fairness and that performance decisions based on AI outputs are reviewed by a human manager before any action is taken.

8. Remote and Hybrid Work Policy

A remote or hybrid work policy defines eligibility, expectations, data security, and availability standards for flexible work arrangements. As distributed work grows, this policy becomes essential.

• Work-from-home eligibility and daily availability expectations

• Data security and approved device usage for remote workers

• Performance monitoring and communication norms

• OSH Code and home-based work: The OSH Code 2020's applicability to home-based employees is an evolving area. Employers should document that remote workers maintain a safe and ergonomic working environment and include this requirement in the WFH policy.

• Expense reimbursement for remote setup: Define whether the company reimburses internet, hardware, or home-office setup costs. This prevents disputes and has payroll and Income Tax Act implications.

9. Termination and Exit Policy

An exit and offboarding policy outlines resignation procedures, notice periods, full and final settlement timelines, and asset recovery protocols. Well-defined exits reduce disputes and operational risk.

• Resignation and notice process

• Full and final settlement within 30–45 days of last working day (best practice)

• Asset, device, and access recovery

• Fixed-term employee gratuity: Under the Industrial Relations Code 2020, fixed-term employees who complete at least one year of service are entitled to gratuity, unlike the five-year requirement for permanent employees. Update exit policies and payroll provisioning to account for this change.

See also: Hire Employees in India — Exit and Offboarding

10. Travel and Expense Policy

A travel and expense (T&E) policy defines reimbursement rules for business travel, accommodation, meals, and client entertainment. While not a statutory requirement, it is essential to prevent payroll disputes and ensure Income Tax Act compliance on allowances.

• Define eligible expenses and approval workflows

• Set daily allowance (DA) limits aligned with Income Tax Act exemptions to avoid taxable perquisites

• Require receipts or digital proofs for all reimbursements above ₹500

• Specify advance request procedures and settlement timelines

11. IT Usage and Social Media Policy

An IT Usage and Social Media Policy protects company reputation and data in an increasingly digital workplace.

• Permissible use of company devices, networks, and software

• Restrictions on sharing confidential information on personal or professional social media

• Employee monitoring disclosures, required under the DPDP Act 2023 before any monitoring is implemented

• Disciplinary consequences for policy violations

12. Whistleblower / Vigil Mechanism Policy

A whistleblower policy establishes a safe, confidential channel for employees to report unethical behaviour, fraud, or legal violations without fear of retaliation.

• Listed companies in India are required under SEBI LODR Regulations 2015 to have a formal vigil mechanism

• For unlisted companies, it is a corporate governance best practice and reduces internal fraud risk

• Must include an anonymous reporting channel, investigation protocol, non-retaliation guarantee, and escalation to the audit committee

Reference: SEBI LODR Regulations — SEBI

What are the Four New Labour Codes in India?

India's four Labour Codes were implemented on 21 November 2025, consolidating 29 existing central labour laws into a unified framework. This is the most significant restructuring of Indian labour law in over seven decades.

Reference: Ministry of Labour and Employment — Labour Codes

Code on Wages, 2019, Key Employer Obligations

• National Floor Wage: No state minimum wage can fall below this centrally determined threshold

• Uniform Wage Definition: 'Wages' = basic pay + dearness allowance + retaining allowance (must be ≥50% of CTC)

• Equal Pay for Equal Work: No gender-based wage discrimination

• Timely payments: Monthly wages by the 7th of the following month; daily wages by end of shift

• Payroll restructuring alert: Most Indian companies currently pay basic at 35–40% of CTC. Increasing basic to ≥50% raises employer PF contributions significantly. Model this CTC impact before the next salary revision or new hire offer.

Industrial Relations Code, 2020, Key Employer Obligations

• Fixed-term contracts now carry the same statutory benefits as permanent roles, PF, ESI, gratuity

• Gratuity for fixed-term employees: Eligible after just 1 year of service (not the standard 5 years for permanent employees), a critical change affecting project-based hiring strategies

• Layoff/retrenchment threshold raised from 100 to 300 workers for government approval

• Strikes require 14-day advance notice from workers

• Grievance Redressal Committees (GRC) required for establishments with 20+ workers

Code on Social Security, 2020, Key Employer Obligations

• EPF: Applies to establishments with 20+ employees; employer contributes 12% of basic wages (wage ceiling ₹15,000/month for mandatory contributions)

• ESI: Applies to employees earning ≤₹21,000/month; employer contributes 3.25%, employee contributes 0.75%

• Maternity: 26 weeks paid leave (first two children); nursing break entitlements; crèche for 50+ employees

• Gig and platform workers: Aggregators (e.g., ride-hailing, delivery, freelance platforms) must contribute 1–2% of annual turnover to a social security fund for gig workers. Tech companies with contractor-adjacent or platform workers should review whether this provision applies to their model.

Reference: EPFO Official Site | ESIC Official Site | Employee State Insurance — Wisemonk Glossary

Occupational Safety, Health and Working Conditions (OSH) Code, 2020

• Safety audits and PPE provision mandatory for all covered establishments

• Working hours: 8/day, 48/week; overtime paid at 2x rate, capped at 125 hours/quarter

• Crèche: Required for establishments with 50+ employees

• Welfare provisions: Sanitation, drinking water, first aid, canteens for larger workplaces

• IT sector coverage: The OSH Code explicitly covers IT and IT-enabled services establishments. Software companies with 10 or more workers must now conduct formal safety audits, provide first-aid facilities, and document welfare provisions, requirements that previously applied only under state Shops Acts.

Which Key Labour Laws Remain Directly Relevant in India?

While the four Labour Codes consolidate many statutes, several standalone laws remain enforceable and must be tracked by HR teams:

Maternity Benefit Act, 1961 (being integrated into Social Security Code)

Female employees are entitled to 26 weeks of paid maternity leave for the first two children; 12 weeks for subsequent children. Organizations with 50+ employees must provide crèche facilities.

• The Maternity Benefit Act provisions are being subsumed under the Social Security Code 2020, but the Act continues to operate until state-level rules under the Code are formally notified in each state. Track your state's notification status.

Reference: Maternity Benefit Act — India Code

POSH Act, 2013

All companies with 10 or more employees must have a constituted ICC. Complaints must be addressed within 90 days. POSH compliance is actively enforced, failures carry criminal liability for the employer and reputational risk.

See also: Is Your Global EOR Handling POSH and S&E Act in India?

Shops and Establishments Acts (State-Level)

These state laws govern working hours, leave, opening/closing times, and employment conditions for commercial establishments. Every state has its own version. All commercial establishments must register under the applicable state Act.

• States with recent updates: Karnataka (2023 amendment allowing 10-hour shifts for IT/ITES with employee consent), Maharashtra, and Telangana have each revised their Shops & Establishments rules. Check your operating states for the latest notifications before finalizing working-hours policies.

Payment of Gratuity Act, 1972 (being integrated into Social Security Code)

An employee who has completed 5 years of continuous service is entitled to gratuity calculated at 15 days' salary per year of service.

• Fixed-term exception under IR Code 2020: Fixed-term employees become eligible for gratuity after just 1 year of service, a significant departure from the 5-year rule for permanent staff. This must be reflected in payroll provisioning from day one of a fixed-term contract.

What Are the Penalties for HR Policy Non-Compliance in India?

This section covers the financial and criminal consequences of non-compliance, a critical reference for risk assessment and board-level reporting.

What Is the State-Specific HR Compliance Spotlight in India?

India's compliance landscape is dual, central laws apply nationwide, but state governments can modify thresholds, forms, and timelines. Here's what multi-state employers must watch in key states:

Karnataka

• IT/ITES working hours: The Karnataka Shops and Commercial Establishments Act now allows up to 10 working hours/day for IT companies, provided the employee gives written consent and total weekly hours do not exceed 48.

• Women in night shifts: Permitted for IT/ITES establishments with employer-provided transport, security escort, and documented safety protocol.

• Minimum wage revision: Karnataka revises wages biannually. Verify the latest rates at the Karnataka Labour Department website before each salary revision cycle.

Maharashtra

• Maharashtra Shops Act: Requires weekly offs, paid holidays, and limits overtime to 3 hours/day and 10 hours/week.

• Professional Tax: Maharashtra levies professional tax up to ₹2,400/year, must be deducted from employee salaries and deposited with the state.

• Creche obligations: Maharashtra's Maternity Benefit rules for shops and establishments differ slightly from the central Act, verify which threshold (30 or 50 employees) applies to your establishment type.

Delhi (NCT)

• Registration: The Delhi Shops and Establishments Act requires registration within 30 days of commencing business, failure attracts fines.

• Leave encashment: Delhi permits encashment of up to 30 days of accumulated earned leave per year, document this entitlement explicitly in the leave policy.

For full cross-state payroll and compliance guidance, see: How to Pay Employees in India

How to Implement HR Policies in India Effectively?

Implementing HR policies goes beyond writing documents. Practical communication and enforcement are key:

• Draft Employee Handbooks: Consolidate all policies into one accessible, searchable handbook and publish on the company intranet.

• Communicate Clearly: Regular training sessions and onboarding discussions reduce confusion and policy violations.

• Train Managers: Empower all people managers to apply policies fairly and respond to employee queries confidently.

• Written Acknowledgement: Obtain signed or digital confirmation from every employee, this is the first line of defence in any labour dispute.

• Annual policy audit post-Labour Codes: With four Labour Codes effective from November 2025, every HR policy must be audited in 2026 to align with new definitions, thresholds, and obligations. Build a compliance calendar with quarterly review milestones.

• HRMS and compliance automation: Automated workflows reduce manual errors in leave tracking, payroll, EPF/ESI filings, and compliance deadline monitoring. Platforms like greytHR, Darwin Box, or Zoho People integrate Indian statutory compliance natively.

One insight from our clients: evolving workplace models and legal changes often necessitate yearly policy reviews. Proactive companies stay ahead and maintain trust.

What are the Best Practices for Developing HR Policies?

Having guided numerous companies in developing and implementing HR policies, we’ve listed the following best practices to help create effective and compliant HR systems:

• Clear Objectives: Define the goals, legal compliance, positive culture, or enhanced performance.

• Expert Consultation: Work with legal and HR professionals to keep policies current with all labour law changes.

• Inclusive Development: Involve department heads and employee representatives to ensure policies address diverse needs.

• Regular Updates: Review after any legislative change and at least annually even without changes.

• Transparent Communication: Publish policies on company intranet, review in onboarding, and send updates via email.

• Feedback Mechanism: Create channels for employees to flag policy gaps or ambiguities.

• Legal Compliance: Cross-check against all applicable central and state statutes before publication.

• Scalable Systems: As your organization grows, automate policy tracking and compliance workflows.

• Labour Code transition plan: Build an HR policy roadmap specifically for transitioning from old Acts to new Labour Code obligations, covering payroll restructuring, contract template updates, GRC setup, and welfare provision timelines.

By following these best practices, companies can ensure that their HR policies not only meet legal requirements but also foster a positive and efficient work environment.

What are the Common Challenges in Implementing HR Policies?

Having worked with various companies on HR policy implementation, we've identified the following common challenges businesses face:

• Resistance to Change: Employees may resist new policies, clear communication and visible leadership support are essential.

• Inconsistent Enforcement: Train all managers to apply policies uniformly across departments and levels.

• Cultural Barriers: Balance formal compliance requirements with regional norms and organizational culture.

• Updating for Legal Changes: India's labour landscape shifts frequently, passive approaches result in missed obligations and penalties.

• Resource Constraints: Smaller organizations may struggle to allocate sufficient HR bandwidth for policy development.

• Lack of Employee Buy-In: Involve employees in the policy development process to improve acceptance and compliance.

• Multi-state compliance complexity: Central laws can be modified by state governments. Two offices in different states may follow different wage floors, leave entitlements, or working-hours rules under the same central legislation. HR teams without automated compliance tools frequently miss state-level updates, a common cause of surprise audit findings.

Understanding and addressing these challenges is essential for ensuring successful HR policy implementation that supports both business goals and employee satisfaction.

How Wisemonk Simplifies HR Compliance in India

India's HR policy landscape has undergone its most significant transformation in decades with the four Labour Codes taking effect in November 2025. For foreign companies and growing Indian organizations alike, this is the moment to audit, restructure, and future-proof employment policies.

The mandatory seven, employment contracts, wages, working hours, leave, POSH, grievance, and safety, are non-negotiable and form the baseline of legal compliance. The essential layer, conduct, compensation, data privacy, remote work, travel, social media, and whistleblower policies, determines how resilient and scalable your organization becomes as it grows.

Wisemonk helps global companies hire and manage employees in India through EOR, payroll, and compliance services, without requiring you to set up a local entity. From policy drafting to payroll restructuring under the new Wage Code, we handle the compliance details.

We are a leading EOR provider in India, now expanding our services to support businesses in the US and UK as well, helping companies scale globally with confidence.