India Labor Laws: Complete Employer Compliance Guide [2026]

You found the perfect developer in Bangalore. Offer signed. Done deal.

Then the questions start.

• Which provident fund rules apply?
• Do you need Shop Act registration in their state?
• What happens if you need to terminate?

One hire. Dozens of compliance questions. That's India.

Four new labor codes were supposed to simplify things. Most states haven't adopted them. Old laws still apply in some places, new ones in others.

Central rules say one thing. State rules say another. This guide cuts through it. No generic overviews. Just specific, state-by-state compliance guidance for companies hiring in India without a local entity.

What is the structure of labor laws in India?[toc=Structure of Labor Laws]

India's labor laws operate under a dual system. Both the central government and state governments have the power to legislate on employment matters. This creates layers of compliance that employers must navigate carefully.

Historically, India had 29 separate labor laws. Different acts for wages. Different acts for safety. Different acts for social security.

In 2019-2020, the Indian government consolidated these 29 laws into four comprehensive Labor Codes. The goal: simplify compliance, modernize outdated provisions, and reduce the administrative burden on employers.

The new framework introduces a Single Registration, Single License, and Single Return system.

Central vs. state legislation

Labor is a "concurrent subject" under the Indian Constitution. This means both Parliament and state legislatures can pass employment laws. When they conflict, central law typically prevails, but states retain significant autonomy. Here's how it breaks down:

Central government controls:

• The four Labor Codes (framework legislation)
• Employees' Provident Fund (EPF)
• Employees' State Insurance (ESI)
• Minimum wage floor (national baseline)
• Gratuity rules
• Maternity benefits

State governments control:

• Shops and Establishment Act (registration, working hours, leave)
• State-specific minimum wages (must meet or exceed central floor)
• Professional tax rates and slabs
• Labour Welfare Fund contributions
• Implementation rules for Labor Codes
• Local factory and establishment inspections

Why this matters for employers: A company hiring in Mumbai follows Maharashtra rules. The same company hiring in Bangalore follows Karnataka rules. Minimum wages differ. Leave entitlements differ. Registration processes differ. Professional tax rates differ. You cannot assume one compliance playbook works across India. Each state requires separate analysis.

What are the four new labor codes in India?[toc=Four New Labor Codes]

On November 21, 2025, India officially implemented four Labour Codes, replacing 29 older laws. The codes were passed in 2019-2020 but only came into force now. State-level rules are still being notified. Until then, employers must comply with both old acts and new codes.

• Code on Wages, 2019: Consolidates 4 laws. Covers minimum wages, overtime pay, bonus payments, and equal remuneration for all employees.
• Industrial Relations Code, 2020: Consolidates 3 laws. Governs trade unions, employment terms, fixed-term contracts, termination procedures, and dispute resolution.
• Social Security Code, 2020: Consolidates 9 laws. Covers provident fund, health insurance (ESI), gratuity, and maternity benefits. Extends coverage to gig and platform workers for the first time.
• Occupational Safety, Health and Working Conditions Code, 2020: Consolidates 13 laws. Sets standards for workplace safety, working hours, contract labor, and migrant worker protections.

Current status (2026): Codes are in force. State rules still pending in most states. Old acts apply until states notify their rules.

That's the framework. But which states have actually implemented these codes? Let's break it down.

Which states have implemented the new labour codes in 2026?[toc=State-Wise Implementation Updates]

Leveraging our deep expertise in Indian employment law compliance, we've curated the implementation status for states where global companies hire most:

Status as of early 2026. Check state labor department websites for current notifications.

The practical reality: If you're using an EOR like Wisemonk, this complexity is handled for you.

Who is covered by employment laws in India?[toc=Employment Laws]

Based on our experience managing compliant employment for hundreds of US companies in India, worker classification is where most compliance mistakes happen. The new Labor Codes have expanded coverage dramatically. Here's who's protected and what they're entitled to:

Permanent employees: Full protection under all four codes. Entitled to minimum wages, EPF (12% employer contribution), ESI, gratuity after 5 years, paid leave, bonuses, maternity benefits, and termination protections. Must receive written appointment letter. This is the most protected category.

Fixed-term employees: Now receive full parity with permanent employees. Same wages, same leave, same social security. Gratuity kicks in after just 1 year (not 5). EPF, ESI, and medical benefits from day one. The code explicitly states: equal treatment, no exceptions.

Contract workers: Hired through third-party contractors, but the principal employer has direct obligations. If the contractor fails to pay wages, you pay. Must ensure health and safety measures. Free annual health checkup required. Social security coverage mandatory.

Gig workers & platform workers: Defined in Indian law for the first time. Aggregators must contribute 1-2% of annual turnover toward social security (capped at 5% of worker payments). Access to voluntary EPF and ESI. Aadhaar-linked benefits are portable across states.

Independent contractors: Not employees. Not covered by labour laws. They control their own methods, use their own tools, serve multiple clients, and invoice for services. But misclassify them, and you're liable for retroactive benefits, EPF/ESI contributions, and penalties.

Once you've classified your worker correctly, the next step is getting the contract right. Let's look at what Indian law requires.

What are the employment contract requirements in India?[toc=Employment Contract]

Under the new Labor Codes, written employment contract are mandatory for all workers, no exceptions.

Written vs. oral contracts: Oral contracts are technically valid, but practically useless. You can't prove anything in a dispute. The law now requires written appointment letters specifying job designation, wages, and social security entitlements. For US companies hiring in India, always use written contracts.

Must-have contract clauses: A compliant Indian employment contract needs specific clauses covering compensation, working hours, leave, termination, and social security. Read our detailed guide: "Employment Agreements in India | Comprehensive Guide 2025".

Probation periods: duration & rights: Most companies use 3-6 month probation periods, sometimes 12 months for senior roles. During probation, employees can be terminated with shorter notice (7-14 days), but statutory protections still apply, minimum wage, EPF, ESI, and safe working conditions are mandatory from day one.

Non-compete & confidentiality clauses: Confidentiality clauses are fully enforceable, use them to protect trade secrets, client data, and proprietary information. Non-compete clauses, however, are mostly unenforceable after employment ends under Section 27 of the Indian Contract Act. Instead, use non-solicitation agreements and strong confidentiality terms to protect your business.

Now that the contract is in place, let's look at what happens day-to-day, working hours, overtime, and wages.

What are the working hours and overtime rules in India?[toc=Working Hours and Overtime Rules]

From our experience running compliant payroll for India teams, here's how working hours are regulated under the Labor Codes.

Daily and weekly hour limits: Employees can work a maximum of 8 hours per day and 48 hours per week. Including overtime, the daily cap is 12 hours, no exceptions. Every employee must receive one mandatory day off per week.

Overtime pay requirements: Any work beyond 8 hours/day or 48 hours/week must be paid at 2x the normal hourly wage. Overtime requires employee consent, forced overtime is not permitted under the code.

Spread-over and rest period rules: The total spread-over (start to end of workday, including breaks) cannot exceed 10.5 hours. Employees must receive at least a 30-minute rest after every 5 continuous hours of work. If an employee works on their weekly rest day, a compensatory off is mandatory.

Night shift regulations: Women can now work night shifts in all establishments with written consent. Employer must provide safe transportation, security arrangements, and CCTV where applicable. This enables US companies to run India teams on US time zones, compliantly.

That covers when your team works. Next, let's break down what they're paid, minimum wages, salary components, and what you can (and can't) deduct.

What are the minimum wage laws in India?[toc=Minimum Wage in India]

Minimum wages in India aren't uniform, they vary by state, skill level, and industry. Here's how the system works.

Central floor wage vs. state minimum wages: The Code on Wages introduces a national floor wage, a baseline below which no state can go. States then set their own minimum wages based on local cost of living, but never below the central floor. Your compliance target is always the state rate, which is typically higher than the national floor.

Minimum wages by state and skill level: Minimum wages vary significantly across states, Delhi pays nearly 40% more than Uttar Pradesh for the same skill level.

‍See current rates: Minimum Wage in India | State-Wise Guide

Wage components breakdown: "Wages" must be at least 50% of total remuneration, this includes basic pay, dearness allowance, and retaining allowance. If allowances exceed 50%, the excess gets added back to wages for EPF, gratuity, and bonus calculations. This directly impacts your statutory costs.

Payment timelines and permitted deductions: Wages must be paid by the 7th of the following month. Authorized deductions: EPF, ESI, professional tax, TDS, and absence from work. Total deductions cannot exceed 50% of wages. Unauthorized deductions like arbitrary fines are prohibited.

Equal remuneration requirements: Equal pay for equal work is mandatory. Gender-based discrimination, including against transgender employees, in recruitment, wages, or conditions is prohibited. Violations attract penalties and criminal liability for repeat offences.

That's what goes into the paycheck. Next, let's look at what comes on top, bonuses and gratuity.

How do bonus and gratuity payments work in India?[toc=Bonus and Gratuity Payments]

Bonus and gratuity are statutory entitlements in India, not discretionary. Here's what you're legally required to pay.

Statutory bonus: eligibility and calculation: Applies to employees earning up to ₹21,000/month. Minimum bonus is 8.33% of annual wages, maximum is 20%. Employee must complete at least 30 days of work in a financial year to be eligible. Bonus must be paid within 8 months of closing the accounting year.

Gratuity: the 5-year rule and formula: Traditional rule: employees become eligible after 5 years of continuous service. New rule for fixed-term employees: eligible after just 1 year. Gratuity ceiling is ₹20 lakh (doubled from ₹10 lakh under the new codes).

Bonus and gratuity are employee entitlements. Next, let's cover what you as an employer must contribute, EPF, ESI, and other statutory deductions.

What social security contributions must employers pay in India?[toc=Social Security Contributions]

EPF and ESI are mandatory employer contributions in India. Getting these wrong triggers penalties, interest, and retroactive liability. Here's exactly what you owe.

Employees' Provident Fund (EPF): Employer contributes 12% of basic salary + DA. Employee contributes another 12%. Mandatory for establishments with 20+ employees. Applies from day one, no probation exemption. Late payment attracts interest at 12% per annum plus damages up to 100% of arrears.

Employees' State Insurance (ESI): Employer contributes 3.25% of gross wages. Employee contributes 0.75%. Applies to employees earning up to ₹21,000/month. Now mandatory pan-India for establishments with 10+ employees. For hazardous work, even one employee triggers mandatory coverage.

Recommended read: "Employee Benefits in India: Employer Guide 2026"

That's what you contribute to the government. Next, let's look at professional tax, a state-level levy that varies widely across India.

What is professional tax and which states require it?[toc=Professional Tax]

Professional tax is a state-level tax on employment income. Not all states levy it, and rates vary significantly. Here's what applies where you're hiring.

Rates vary by salary slab. Check state-specific notifications for current figures.

Registration and filing requirements

Employers must register with the state's professional tax authority within 30 days of hiring. Tax is deducted from employee wages monthly and deposited by the employer. Filing frequency varies, monthly in some states, annual in others. Late payment attracts penalties ranging from 10% to 50% of the amount due.

Learn more: "Payroll Compliance in India 2026: Everything You Must Know"

Professional tax is small but mandatory where applicable. Next, let's cover another state-specific contribution, the Labour Welfare Fund.

What are the paid leave entitlements in India?[toc=Leave Entitlements]

Leave entitlements in India are governed by both central codes and state-specific Shops & Establishment Acts. Here's what applies to your India team.

Earned/privilege leave: Employees earn 1 day of leave for every 20 days worked, roughly 15-18 days per year. Under the new codes, eligibility starts after 180 days of work (reduced from 240 days). Earned leave can be carried forward and must be encashed upon termination. Encashment while in service is now permitted at the end of each calendar year.

Casual leave: Typically 8-12 days per year depending on state. Used for short-term, unforeseen personal needs. Cannot be carried forward to the next year. Cannot be encashed, if unused, it lapses.

Sick leave and ESI benefits: Most states provide 7-12 days of paid sick leave per year. Medical certificate required for absences exceeding 2-3 consecutive days. For ESI-covered employees (wages ≤₹21,000/month), additional benefit: up to 91 days of sick leave at 70% of wages, funded by ESI, not the employer.

Learn more: Employee Leave Policy in India | Complete Guide

That covers regular leave. Next, let's look at public holidays, what's mandatory and what varies by state.

How many public holidays are mandatory in India?[toc=Public Holidays]

Only 3 national holidays are mandatory across India. The rest vary by state, religion, and establishment type. Here's how it breaks down.

Three holidays are compulsory for all establishments nationwide:

These are non-negotiable. Every employee gets paid time off.

Confused about which holidays apply to your state? Use our free tool to generate a compliant leave policy: "Holiday & Leave Policy Tool"

What are the maternity and parental leave laws in India?[toc=Maternity Leave in India]

India offers one of the most generous maternity leave policies globally. Paternity leave, however, has no federal mandate. Here's the full picture.

Recommended Read: "Maternity Leave in India 2026: Eligibility, Rules & Benefits".

How can employers legally terminate employees in India?[toc=Employee Termination]

India does not recognize at-will employment. Every termination requires proper cause, documentation, and notice.

Termination types: Resignation is voluntary exit by the employee. Termination for cause (misconduct) requires a domestic inquiry and documented evidence. Retrenchment (redundancy) requires notice, severance pay, and government approval for establishments with 300+ employees.

Notice period requirements: Probationary employees: 7-14 days. Confirmed employees: 30-90 days depending on role and contract. Workers covered under the IR Code: 30 days statutory minimum.

Payment in lieu of notice: Either party can pay salary instead of serving notice, but only if the contract explicitly allows it. If employer terminates without notice, full salary for the notice period must be paid immediately. If employee resigns without notice, employer can recover the amount from final settlement.

Severance pay: Retrenchment compensation: 15 days' average pay for every completed year of service. Gratuity: 15 days' wages per year for employees with 5+ years (or 1 year for fixed-term). Final settlement, including earned leave encashment, bonus, and pending dues, must be paid within 2 working days of exit.

What health and safety standards must employers follow in India?[toc=Health and Safety Standards]

The Occupational Safety, Health and Working Conditions Code sets baseline standards for all workplaces. Requirements scale with establishment size and risk level. Here's what applies to your India operations

Applicability by establishment size: Establishments with 10+ employees must register under the OSH Code. At 500+ employees, a safety committee becomes mandatory. For hazardous industries, there's no threshold, the code applies even with just 1 employee.

Safety committees and officers: Mandatory for 500+ workers. Must include employer and employee representatives. Full-time safety officer required. Regular meetings with documented minutes.

Fire safety, ergonomics, and sanitation: Fire extinguishers, emergency exits, and evacuation plans required for all establishments. Clean drinking water, adequate ventilation, and separate washrooms for men and women are non-negotiable.

Accident reporting requirements: Death or serious injury: report to Inspector within 24 hours. Dangerous occurrences (fire, explosion, collapse): report even without injury. Maintain an accident register, inspectors will check.

That covers workplace safety. Next, let's look at a critical compliance requirement many employers overlook, the POSH Act for sexual harassment prevention.

What are the POSH Act requirements for employers in India?[toc=POSH Act]

The Prevention of Sexual Harassment (POSH) Act, 2013 applies to every employer in India. Non-compliance isn't just a fine, it can result in license cancellation. Here's what's required.

Penalty for non-compliance: First offence: fine up to ₹50,000. Repeat offence: higher fine plus cancellation of business license.

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

What are the rules for remote work and work-from-home in India?[toc=Work-From-Home Policy]

Remote work is now explicitly recognized under the Industrial Relations Code. For US companies hiring India-based talent, this is good news, but compliance still applies regardless of where your employee sits.

Current legal position: The IR Code permits work-from-home in service sectors by mutual consent. There's no separate "remote work law", employees working from home are covered under the same labor codes as office-based staff. All statutory obligations (EPF, ESI, minimum wage, leave) apply equally to remote workers.

State-specific guidelines (Karnataka IT/ITES): Karnataka offers specific exemptions for IT/ITES companies, flexible working hours, extended shift timings, and relaxed overtime rules. Other states have similar provisions but vary in scope. Remote employees are governed by the labor laws of the state where they physically work, not where your company is registered.

Cross-state remote work compliance: If your employee lives in Maharashtra but your entity is in Karnataka, Maharashtra labor laws apply. This affects minimum wages, professional tax, Shops Act registration, and leave entitlements. Hiring across multiple states means multiple compliance frameworks, each state requires separate registration.

Equipment and expense reimbursement: No federal law mandates reimbursement for home office equipment or internet costs. However, employers must ensure safe working conditions, even at home. Best practice: provide equipment or a monthly allowance and document it in the employment contract.

Learn how to do it right: Managing Remote Teams in India | Complete Guide

What are the penalties for violating labor laws in India?[toc=Penalties]

Having helped US companies navigate compliance audits and labor inspections across India, we've consolidated penalty information from official sources into one clear reference.

How can Wisemonk EOR help you hire compliantly in India?[toc=How Wisemonk EOR Helps]

Wisemonk is a leading India-specialist Employer of Record (EOR) platform that helps global companies hire, pay, and manage employees in India without setting up a local entity. We provide end-to-end EOR services built on deep local expertise, strong compliance capability, and a track record of managing large, distributed teams across India.

Here's how Wisemonk helps global businesses hire and manage employees in India:

• Fast hiring and onboarding: Supporting 300+ global companies with seamless hiring processes and quick employee onboarding backed by our India-first workflows.
• Dedicated HR support: Managing 2K+ employees with responsive, on-ground HR specialists who handle day-to-day needs, employee queries, and engagement.
• Comprehensive compliance management: Overseeing $20M+ in payroll with accurate PF, ESI, TDS, statutory filings, compliant contracts, and state-specific labor law coverage.
• Transparent and predictable pricing: Starting at $99 per employee per month with no hidden fees, no FX markups, and clean cost visibility that global teams can trust.
• Risk mitigation and full legal protection: Keeping global teams protected from misclassification, non-compliance penalties, labor disputes, and accidental Permanent Establishment (PE) exposure in India.

Wisemonk Client review/feedback:

“I've been working with Wisemonk as an EOR employee for past two years. The onboarding call was really good and they even helped my team onboarding as well. They helped me with the macbook, iphone devices procurement. Their interface is good and I can manage my team in a single interface”

- Felix S.
Senior Software Development Engineer
Read the full review on G2 →

“Wisemonk was instrumental in identifying and assisting in the recruitment of three successful senior executives. The team took a hands-on approach to solving the client's needs, and Wisemonk iterated multiple approaches to problem-solving based on the client's needs and directional shifts.”

- Hariher B
Co-Founder, BuyEazzy
Read the full review on Clutch →

Beyond EOR in India, Wisemonk also supports global teams with background verification, equipment procurement, payroll processing, tax optimization, contractor management, company registration and building offshore teams or Global Capability Centers (GCCs) in India for businesses planning long-term India operations.

Why wait? Book a Call Now and let our experts take the stress out of navigating Indian EOR services, so you can focus on what truly matters: growing your business!