Employment Laws in India: What Employers Must Know in 2025

Struggling to keep up with India’s changing employment rules? Relax; we’ve got you. Many global founders and HR teams struggle to understand what really matters under India labor laws, from wages and working hours to compliance obligations.

In this article, we’ll simplify the essentials, highlight recent updates, and show you exactly what every employer should know to stay compliant in India. Let’s dive in.

Introduction[toc=Introduction]

India's labor laws govern one of the world's largest workforces. The country produces 1.5 million engineering graduates annually and stands as a global talent powerhouse. Our role as India's employer of record has shown us how these regulations transformed from decades-old rules into four modern labor codes:

• The Code on Wages
• The Occupational Safety, Health, and Working Conditions Code
• The Industrial Relations Code
• The Code on Social Security

Managing employment laws in India creates distinct challenges for businesses. The regulations change based on state boundaries, industry types, and company sizes.

Businesses planning to hire in India must grasp these intricate requirements. Our years of helping multinational companies have led us to create this piece that explains India's labor law framework for 2025.

The content explains the essential aspects of managing your Indian workforce. You'll find details about employee classifications and termination procedures that will help your business stay compliant while tapping into India's talented workforce.

The Evolution of India's Labor Laws: 2025[toc-hide]

India's labor laws mix federal and state rules, making it complex for new businesses. Businesses struggled to deal with over 29 central and 200 state labor laws. This created a compliance nightmare for employers.

India has introduced the India labor codes, four unified laws that change workplace rules. The 2024 amendments by the Ministry of Corporate Affairs make it easier for businesses to follow the rules.

The four labor codes :

The Indian government started a mission to unite 29 central labor laws into four detailed codes:

1. The Code on Wages, 2019: Unites laws related to wages, bonuses, and equal remuneration
2. The Industrial Relations Code, 2020: Deals with trade unions, industrial disputes, and employment conditions
3. The Code on Social Security, 2020: Covers provident funds, insurance, and maternity benefits
4. The Occupational Safety, Health and Working Conditions Code, 2020: Deals with workplace safety and employee wellbeing

These changes try to find a balance between giving employers freedom and protecting workers. Employers need to check their policies to make sure they follow these new rules. The Ministry of Labor and Employment keeps updating the rules to help everyone stay in line.

Our experience helping businesses through these changes shows how this consolidation reduces compliance burdens and creates employment opportunities by balancing worker protections with business needs.

How does the Code on Wages impact salaries and equal pay in India?[toc=The Code on Wages]

The Code on Wages, 2019 consolidates four previous laws related to wages, bonuses, and equal pay including the Equal Remuneration Act into a single framework. It aims to simplify wage-related compliance while ensuring fair pay practices across industries.

Key Provisions

• National Floor Wage: Sets a minimum wage threshold that no state can go below.
• Uniform Wage Definition: "Wages" include basic pay, dearness allowance (DA), and retaining allowance. At least 50% of total compensation must consist of these components.
• Equal Pay for Equal Work: Mandates gender-neutral pay policies for employees performing similar work.
• Timely Wage Payments: Requires wages to be paid within specific timelines (daily wages by the end of each shift, monthly wages by the 7th day of the following month).

Scope & Applicability

• Applies to all employees across organized and unorganized sectors, including those in supervisory or managerial roles.
• Covers all establishments, including factories, shops, and service providers.

How does the Industrial Relations Code simplify employment relations?[toc=The Industrial Relations Code]

The Industrial Relations Code, 2020 consolidates three previous laws related to trade unions, industrial disputes, and employment conditions. It aims to streamline industrial relations by balancing worker rights with employer flexibility in managing layoffs and fixed-term contracts.

Key Provisions

• Fixed-Term Employment: Fixed-term employees are entitled to the same benefits as permanent employees (e.g., provident fund, gratuity) without requiring long-term commitments from employers.
• Layoff Flexibility: Employers with fewer than 300 workers no longer need government approval for layoffs (previous threshold was 100 workers).
• Grievance Redressal Committees: Mandatory for establishments with more than 20 employees to address workplace disputes.
• Strikes & Lockouts: Workers must provide a 14-day notice before initiating strikes or lockouts.

Scope & Applicability

• Applies to all industries and establishments employing workers under formal contracts or agreements.
• Covers both workers employed under fixed-term or permanent contracts and employers managing establishments with more than 20 employees.

How does the Code on Social Security benefit gig workers and employees?[toc=The Code on Social Security]

The Code on Social Security, 2020 merges nine previous laws related to provident funds, insurance schemes, maternity benefits, gratuity payments, and employee compensation into one unified framework. It expands social security coverage to gig workers and platform workers while strengthening existing benefits for traditional employees.

Key Provisions

• Universal Social Security Coverage: Extends benefits like provident fund (PF), insurance schemes, maternity leave, and gratuity payments to all workers—including gig/platform workers and inter-state migrants.
• Maternity Benefits: Provides up to 26 weeks of paid leave for women employees (for the first two children) and medical bonuses in case of miscarriage or complications. The Code also provides specific provisions for additional leave following a miscarriage or medical termination, emphasizing the support offered to women during these sensitive circumstances.
• Gig Worker Contributions: Aggregators like Uber or Zomato must contribute 1–2% of their annual revenue toward social security funds for gig/platform workers.

Scope & Applicability

• Applies to all workers in organized sectors as well as gig/platform workers in unorganized sectors.
• Covers traditional employees registered under applicable schemes as well as companies employing formal staff or engaging gig/platform workers.

How does the OSH Code improve workplace safety standards?[toc=The OSH Code]

The Occupational Safety, Health, and Working Conditions (OSH) Code consolidates thirteen previous laws related to workplace safety into one comprehensive framework. It focuses on ensuring safe working environments across industries while standardizing working hours and welfare measures.

Key Provisions

• Workplace Safety Standards: Employers must ensure hazard-free workplaces by conducting regular safety audits and providing necessary safety equipment (e.g., PPE).
• Working Hours & Overtime Rules: Maximum working hours are capped at eight hours/day; overtime is paid at twice the regular rate but limited to 125 hours per quarter.
• Crèche Facilities & Welfare Measures: Establishments with more than 50 employees must provide crèche facilities for children of working parents. Welfare provisions also include sanitation facilities, drinking water, canteens (in larger workplaces), etc.

Scope & Applicability

• Applies across industries such as factories, mines, construction sites, IT firms, and other establishments employing ten or more workers.
• Covers both workers employed in hazardous industries or establishments with formal contracts as well as businesses employing ten or more workers across sectors.

How are employees classified under Indian Labor laws?[toc=Employee Classification]

Understanding how employees are classified in India is crucial for businesses to stay compliant with labor laws.

In our experience of helping global companies hire, pay, and manage employees in India, we have seen many businesses struggle with the legal distinctions between different types of workers.

Whether you are an employer expanding into India or an employee seeking clarity on your rights, knowing these classifications is essential.

Workmen vs. Non-Workmen: What's the difference?

Indian labor laws classify employees as Workmen or Non-Workmen under the Industrial Disputes Act, 1947.
This distinction matters because workmen get stronger labor protections, while non-workmen are treated as managerial or administrative employees.

Workmen include those engaged in:

• Manual or technical work
• Operational or clerical duties

They are entitled to:

• Overtime pay
• Retrenchment benefits
• Grievance redressal mechanisms

Non-Workmen include employees in:

• Managerial or administrative roles
• Supervisory positions earning above a certain salary threshold

They don’t receive the same protections as workmen but remain covered under:

• Employment contracts
• Company policies

Contract Workers and Fixed-Term Employees: What’s the Difference?

Many businesses use flexible employment models today. But contract workers and fixed-term employees (FTEs) are not the same.

Contract Workers:

• Hired through a third-party contractor
• Not direct employees of the company
• Contractor handles wages, benefits, and compliance
• Company (principal employer) is still responsible for working conditions

Fixed-Term Employees (FTEs):

• Hired directly by the company for a set duration
• Receive the same benefits as permanent employees during the contract
• Eligible for provident fund, medical benefits, and gratuity (if tenure exceeds 5 years)

Gig Workers and Platform Workers: What's the difference?

The gig economy has reshaped employment in India. The Code on Social Security, 2020 now recognizes both categories.

Gig Workers:

• Freelancers or on-demand workers
• Work for multiple employers
• Include consultants, drivers, and delivery partners

Platform Workers:

• Work via digital platforms like Uber, Zomato, Swiggy, Ola
• Paid per task, not fixed salaries

Under the new labor codes, gig and platform workers must be covered under:

• Social security schemes
• Health insurance
• Provident fund
• Maternity benefits

Overall Comparison of Employee Classifications in India

What should foreign employers know about minimum wages in India?[toc=Minimum Wages]

With our experience helping global companies stay compliant with India’s wage and payroll laws, we’ve seen how the right pay structures protect both employer and employee, and prevent costly compliance slip-ups.

The Code on Wages of 2019 established a national "floor wage" that serves as a baseline minimum wage for all states and sectors. States can set their own minimum wages but must stay above this central floor wage. This creates a varied compliance landscape where rates differ substantially between regions.

Multinational companies we guide through India's employment landscape should know that minimum wages have two key components:

• Basic minimum wage: A fixed amount
• Variable Dearness Allowance (VDA): Adjusted periodically based on the Consumer Price Index

Minimum wages in India follow multiple categories:

• By geographical area (Zone A, B, or C)
• By industry sector
• By skill level (unskilled, semi-skilled, skilled, and highly skilled)
• By occupation type

The revision cycle makes things more complex. The central government reviews minimum wages every five years, while many states revise more often - some twice a year. Companies must watch these changes carefully. Non-compliance can lead to penalties up to ₹50,000, and repeat offenders may face imprisonment.

Proper worker classification and minimum wage regulation compliance are the foundations of labor laws in India. Our team can help you navigate India's minimum wage requirements - Reach out today!

What should global employers know about employment contracts in India?[toc=Employment Contracts]

Employment contracts are a cornerstone of legal compliance and employee management in India. While written contracts are not legally mandated by Indian federal labor law, our experience as an Employer of Record in India has shown that having a well-drafted employment contract is essential for protecting both employer and employee interests.

A well-laid-out employment contract should include:

• Job title and detailed description of duties and responsibilities
• Compensation structure including salary, bonuses, and benefits
• Employment duration (indefinite or fixed-term)
• Termination clauses with notice periods and severance calculations
• Confidentiality provisions and intellectual property ownership
• Probationary period terms (typically 3-6 months)
• Dispute resolution procedures

Our experience guiding multinational companies shows that employment contracts are crucial to the onboarding process. They protect both employer and employee interests while clarifying duties and rights.

What are India's mandatory Social Security Contributions?[toc=Social Security Contributions]

Through our hands-on work managing PF, ESI, and gratuity under India’s EOR and payroll frameworks, we’ve learned how structured social contributions create stability for both workers and employers.

India's social security system revolves around three main programs that every employer must join:

• Employees' Provident Fund (EPF): Companies with 20+ employees must participate. Both employer and employee put in 12% of the employee's basic salary and dearness allowance. The employer's share splits into 8.33% for the Employees' Pension Scheme and 3.67% for the EPF account. This rule applies to employees earning up to ₹15,000 monthly, while others can join voluntarily.
• Employees' State Insurance (ESI): This covers workplaces with 10+ employees earning up to ₹21,000 monthly (₹25,000 for differently abled employees). Employers give 3.25% while employees contribute 0.75%, adding up to 4% of monthly wages. Benefits cover complete medical care, sickness benefits (70% of wages for up to 91 days), maternity benefits, and disability coverage.
• Gratuity: Companies with 10+ employees must provide this retirement benefit after five years of continuous service. It equals 15 days' wages for each completed year, with tax exemptions up to ₹20 lakh.

What are the registration and documentation requirements for hiring employees in India?[toc=Registration Requirements]

With our deep experience onboarding employees across Indian states, we’ve helped global employers simplify complex documentation, turning multi-step compliance into a seamless start-to-work process.

Companies must get several key registrations before hiring employees in India. These requirements are essential:

• Tax registrations: Foreign nationals working in India must get a Permanent Account Number (PAN) for tax registration. Employers need a Tax Deduction Account Number (TAN) to withhold taxes from employee salaries.
• Social security registrations: Companies with 20+ employees must register with the Employees' Provident Fund Organization (EPFO). Those with 10+ employees earning up to ₹21,000 monthly need to register with the Employees' State Insurance Corporation (ESIC).
• Shop and Establishment registration: Commercial establishments must register under their state's Shops and Establishments Act within 30 days of starting operations.

What are the working hours and overtime regulations in India?[toc=Working hours & Overtime]

Having managed workforce compliance for distributed teams, we’ve seen how defining clear working hour policies and overtime rules protects companies from penalties and keeps teams productive.

• Indian law limits standard working hours to 48 weekly, usually spread over six days. Daily limits vary by state. Delhi and Mumbai allow 9 hours daily, Chennai permits 8 hours, and Kolkata sets an 8½-hour limit.
• Work beyond these limits counts as overtime. The Factories Act and state rules require double pay for overtime hours. Managers, supervisors, and government employees don't get overtime benefits.
• Though laws set maximum work hours, enforcement differs between organized and unorganized sectors. Our experience with multinationals shows that clear overtime policies help maintain compliance and keep workers happy.

Do you need help setting up compliant compensation and benefits in India? Our team knows how to guide global businesses through these requirements while keeping their workforce satisfied. Contact us!

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

Leave entitlements are a vital compliance area for businesses hiring in India. Our experience as an Employer of Record in India has helped numerous global companies navigate these mandatory provisions that affect employee satisfaction and legal compliance.

• Annual Leave (Earned Leave): Employees earn one day of leave for every 20 days worked, typically 15–30 days per year, depending on the state.
• Casual and Sick Leave: Most employees are entitled to 8–10 casual leave days and 7–14 sick leave days annually. These vary by state and company policy.
• Maternity Benefits: The Maternity Benefit Act provides 26 weeks of paid leave for the first two children and 12 weeks thereafter. Companies with over 50 employees must also provide crèche facilities.
• Paternity Leave: While not mandated by central law, many employers offer 1–2 weeks of paid paternity leave as part of competitive HR policies.
• Public Holidays: India observes three national holidays: Republic Day, Independence Day, and Gandhi Jayanti, plus 5–10 regional holidays depending on the state.

What are the workplace safety requirements for employers in India?[toc=Workplace Safety]

Through our work helping companies set up compliant HR operations and equipment provisioning in India, we’ve seen how proactive safety measures go hand in hand with higher productivity and morale.

• Applicability of the Code: The Occupational Safety, Health and Working Conditions Code applies to establishments employing 10 or more workers.
• Employer Responsibility: Employers must ensure workplaces are free from hazards that can cause injury or illness.
• Health Examinations: The Code mandates free annual health check-ups for specific categories of employees.
• Workplace Environment Standards: Employers must maintain proper ventilation and temperature control, Sanitation, and lighting, and Facilities for clean drinking water and waste disposal
• First-Aid Requirements: First-aid boxes must be available and accessible during all working hours.
• Safety Oversight: The Code establishes national and state-level safety boards to advise on standards and compliance.
• Workplace Safety Committees: Certain establishments must form safety committees with representatives from both employers and workers.
• Safety Audits and Accident Prevention: Employers should conduct regular safety audits and take preventive measures to minimize workplace accidents.

What are the sexual harassment prevention requirements under India’s POSH Act?[toc=India's POSH Act]

With our background supporting global employers in setting up compliant HR frameworks, we’ve helped teams implement POSH policies that protect employees and strengthen workplace culture.

• Applicability: Applies to all employers with 10 or more employees.
• Internal Complaints Committee: Each branch must have an ICC to handle harassment complaints.
• Policy Requirement: Employers must create and circulate a clear anti-harassment policy.
• Awareness Programs: Regular training should inform employees about their rights and duties.
• Annual Filing: Employers must submit yearly reports on complaints and actions taken.

Companies can face penalties up to ₹50,000 for violations. Compliance is vital for legal and reputational reasons.

What are the legal requirements for termination and separation in India?[toc=Terminations & Separation]

Companies must carefully follow legal procedures that depend on employee classification and separation reasons when ending employment in India. Our experience with multinational companies has shown how mistakes in these procedures can get pricey and might lead to reinstatement orders.

Notice Period & Severance Pay

Employers must provide notice or compensation before terminating an employee. In most cases, the standard notice period is 30 days or salary in lieu. However, for industrial establishments with 100+ employees, retrenchment requires three months’ notice and government approval.

Severance pay obligations depend on the type of termination. In cases of retrenchment, employees are entitled to 15 days’ wages per completed year of service. Additionally, employees with five or more years of service qualify for gratuity act, which equals 15 days’ wages per year and is tax-free up to ₹20 lakh.

Termination Process & Documentation

A legally compliant termination requires employers to follow due process. This includes issuing a notice, conducting an inquiry in cases of misconduct, and providing a termination letter outlining the reasons. Employees must also receive their full and final settlement, including unpaid salary, leave encashment, gratuity, and bonuses. Experience and relieving letters should be provided to ensure a smooth transition.

Types of Terminations in India

Different types of termination require different legal considerations:

How Wisemonk helps you navigate Employment Laws in India?[toc=How Wisemonk helps]

Wisemonk is an Employer of Record (EOR) in India that simplifies compliance with India’s complex labor and employment laws.

We help global businesses manage everything from minimum wage compliance, leave entitlements, and termination procedures to POSH Act implementation and social security registrations like EPFO and ESIC. Our expertise ensures your business remains fully compliant with India’s evolving labor codes while creating a seamless experience for your employees.

In addition to India’s labor law compliance, we also help global companies with:

• Payroll management and compliance
• Tax optimization and filings
• Employee benefits administration
• Background verification and onboarding support
• GCC (Global Capability Center) setup
• Company registration and legal entity support in India
• Offshore team building and HR operations

Do you need help managing your Indian workforce the right way? Our team is ready to help you navigate India's labor regulations. Contact us!‍