“Labour Law Compliance Checklist For Companies”

Abstract

Navigating the complex web of labour legislation in India is a critical and non-negotiable responsibility for every employer. Non-compliance can lead to severe financial penalties, criminal prosecution, reputational damage, and operational disruptions. This article serves as a exhaustive guide and checklist for companies operating in India, designed to ensure adherence to the country's vast labour law framework. It moves beyond a simple list to provide a detailed explanation of key statutes, their applicability, and specific compliance requirements. The article is structured into thematic sections covering the employee lifecycle: from pre-employment (registrations, appointments) to employment (wages, benefits, workplace safety) and post-employment (termination, settlements). It also addresses the evolving landscape of labour codes, the importance of documentation, and best practices for building a culture of compliance. This resource aims to empower HR professionals, business owners, and legal advisors to proactively manage legal risks and foster a fair, secure, and productive work environment.

Introduction

Labour laws in India represent the foundational covenant between capital and labour, established to protect the rights of workers, ensure social security, and promote industrial harmony. For companies, these laws are not merely legal obligations but a blueprint for ethical and sustainable business practices. The regulatory landscape is vast, derived from over four dozen central laws and a multitude of state-specific amendments and rules, making compliance a daunting yet essential task.

The consequences of non-compliance are multifaceted. They extend beyond monetary fines to include:

• Financial Impact: Heavy penalties, often calculated per employee and per day of default, and demands for back-pay can cripple finances.

• Legal Repercussions: Criminal prosecution leading to imprisonment of directors and senior management is a real possibility under many acts.

• Reputational Damage: Being branded a non-compliant employer erodes trust among customers, investors, and potential talent.

• Operational Disruption: Strikes, lockouts, and government inspections can halt business operations.

• Low Employee Morale: A perception of unfair treatment leads to disengagement and high attrition.

The recent consolidation of 29 central labour laws into four new Labour Codes—Code on Wages, 2019; Industrial Relations Code, 2020; Occupational Safety, Health & Working Conditions Code, 2020 (OSH Code); and Code on Social Security, 2020—signals a significant shift. While these codes are not yet fully notified (as of the date of this writing), they aim to simplify and modernize the framework. However, until the corresponding rules are published by the central and state governments, the existing laws remain in force.

This article provides a meticulous, actionable checklist to help companies navigate this complex environment. It is organized chronologically around the employee journey to ensure no compliance requirement is overlooked.

Section 1: Pre-Employment & Onboarding Compliances

Before the first employee is hired, a company must establish its legal foundation for compliance.

1.1. Business Registration and Licenses:

• Shop and Establishment Act (State-Specific): This is the first and most fundamental registration for any entity employing individuals. It applies to shops, commercial establishments, restaurants, theatres, and other defined premises. The registration must be obtained from the respective state’s labour department immediately upon commencing operations. It mandates the maintenance of specific registers and displays certain notices at the premises.

• Professional Tax (PTRC & PTEC): Enforced by state governments, professional tax is a levy on all professions, trades, and employment. The employer must obtain a Professional Tax Registration Certificate (PTRC) and deduct the tax from employees' salaries (where applicable) and remit it to the state government.

• Labour Identification Number (LIN): Under the Shram Suvidha Portal, the government introduced a unique LIN for every establishment, which serves as a universal number for all labour-related registrations and filings.

1.2. Statutory Registrations (Triggered by Employee Count):

The applicability of most labour laws depends on the number of employees, the nature of work, and the industry. Key thresholds are 10 and 20 employees.

• Employees' Provident Fund (EPF): The Employees' Provident Funds and Miscellaneous Provisions Act, 1952 applies to every establishment employing 20 or more persons. Registration is mandatory within one month of crossing this threshold. Both the employer and employee contribute 12% of the employee's eligible salary (basic wages, dearness allowance, and retaining allowance) each month.

• Employees' State Insurance (ESI): The Employees' State Insurance Act, 1948 applies to all non-seasonal factories and specific establishments employing 10 or more persons (in many states). It provides medical and cash benefits to employees. The employer contributes 3.25% and the employee contributes 0.75% of their wages, up to a specified wage ceiling.

• Gratuity: The Payment of Gratuity Act, 1972 applies to every factory, mine, oilfield, plantation, port, railway company, and every shop or establishment employing 10 or more persons. While the obligation to pay gratuity arises after 5 years of continuous service, the act's registration requirements apply upon eligibility.

Checklist: Pre-Employment

• Obtain Shop & Establishment Registration.

• Obtain Professional Tax Registration (PTRC & PTEC).

• Register for a Labour Identification Number (LIN) on the Shram Suvidha Portal.

• Monitor employee count to determine applicability of EPF (20+ employees).

• Monitor employee count to determine applicability of ESI (10+ employees in most cases).

• Understand the applicability of the Gratuity Act.

Section 2: Employment – The Core Compliance Ecosystem

This is the most extensive area, covering the ongoing obligations throughout an employee's tenure.

2.1. Appointment Documentation:

• Offer Letter: Must clearly state terms of employment, designation, place of posting, and salary structure.

• Employment Contract: A detailed contract outlining the terms and conditions of service, including job role,

confidentiality, intellectual property, and notice period, is crucial.

• Appointment Letter: A statutory document mandated by many state rules under the Shops & Establishments Act. It must be issued to every employee within a specified period (e.g., 3 months) of joining.

• Detailed Salary Structure: The salary slip must clearly break down components like Basic, Dearness Allowance, HRA, Conveyance, and Special Allowance. This is critical for accurate PF calculations (which are based on Basic + DA) and tax deductions.

2.2. Wages and Compensation:

• Payment of Wages Act, 1936: Regulates the payment of wages to certain categories of employees. It mandates timely payment of wages (before the 7th of the following month for establishments with less than 1000 employees) and specifies permissible deductions.

• Minimum Wages Act, 1948: Requires employers to pay wages at least equal to the minimum rate of wages fixed by the appropriate government for the scheduled employment. The rates are revised periodically.

• Payment of Bonus Act, 1965: Applies to every factory and every other establishment employing 20 or more persons on any day during an accounting year. It mandates the payment of an annual bonus (8.33% minimum, 20% maximum) to eligible employees.

• Equal Remuneration Act, 1976: Prohibits discrimination in remuneration on the grounds of gender for men and women performing the same work or work of a similar nature.

2.3. Working Hours, Leaves, and Holidays:

• Working Hours: State-specific Shops & Establishments Acts define the maximum working hours (typically 8-9 hours per day and 48 hours per week), rules for overtime (paid at double the rate), and guidelines for spread-over and rest intervals.

• Leave Policy: The law mandates certain types of leave:

✓ Earned Leave/Privilege Leave (EL/PL): Usually 1 day for every 20 days worked (approximately 18 days per year).

✓ Sick Leave/Casual Leave (SL/CL): Typically 12 days of SL and 12 days of CL per year, though this varies by state.

✓ National and Festival Holidays: As declared by the state government.

• Maternity Benefit Act, 1961: Applies to all establishments employing 10 or more employees. It grants eligible women employees 26 weeks of paid maternity leave. Recent amendments also provide for adoption and commissioning mother benefits.

2.4. Workplace Safety and Health:

• Factories Act, 1948 / OSH Code: Lays down exhaustive provisions for the health, safety, and welfare of workers in factories. This includes cleanliness, ventilation, lighting, dust control, handling of hazardous substances, machinery safety, and provisions for canteens, crèches, and first aid.

• Sexual Harassment at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (POSH): A critical compliance area. Every employer must:

✓ Constitute an Internal Complaints Committee (ICC) at each office or branch with 10 or more employees.

✓ Display the penal consequences of sexual harassment.

✓ Organize regular workshops and awareness programs.

✓ File an annual report with the district officer.

2.5. Statutory Registers and Records:

Maintaining prescribed registers is not optional; it is legal evidence of compliance.

• Register of Wages

• Register of Overtime

• Register of Leaves

• Register of Deductions

• Muster Roll

• Inspection Book (for officials to record remarks)

• Minutes Book for ICC Meetings (under POSH Act)

2.6. Statutory Displays:

Certain notices must be prominently displayed in English and the local language.

• Abstract of the Shops & Establishments Act

• Minimum Wages Notice

• POSH Act Notice (penal consequences and ICC details)

• "No Smoking" Signage

• First Aid Instructions

• Workweek and Holiday notices

Checklist: During Employment

• Issue detailed Appointment Letter and Contract.

• Ensure salary structure is compliant for PF and tax purposes.

• Pay wages before the stipulated due date.

• Pay at least the minimum wage for the scheduled employment.

• Calculate and disburse annual bonus if applicable.

• Ensure equal pay for equal work regardless of gender.

• Adhere to stipulated working hours and pay double for overtime.

• Grant statutory leaves (EL, SL/CL, holidays).

• Grant 26 weeks of paid maternity leave.

• Constitute an Internal Complaints Committee (ICC) under POSH.

• Conduct POSH awareness training.

• Maintain all statutory registers (wages, overtime, leaves, etc.).

• Display all required statutory notices.

Section 3: Post-Employment & Separation Compliances

The compliance obligation does not end when an employee leaves.

3.1. Termination and Resignation:

• Industrial Disputes Act, 1947: Governs the process of retrenchment, lay-off, and closure in establishments employing 100 or more workmen (threshold may change under new codes). It requires prior government permission and mandates payment of compensation (15 days' average pay for every completed year of service).

• Notice Period and Full and Final Settlement: The contract and standing orders govern the notice period. The "full and final settlement" must be paid on or before the employee's last working day, as per the Code on Wages Rules. This includes all earned wages, accrued leave encashment, and gratuity (if applicable).

• Exit Documentation: Provide a relieving letter and experience certificate. File Form 12A for PF withdrawal and issue the PF transfer document.

3.2. Post-Separation Benefits:

• Gratuity Payment: As per the Payment of Gratuity Act, an employee is entitled to gratuity after completing five years of continuous service (exempt in cases of death or disablement). The formula is: (Last drawn salary × 15/26 × Number of years of service). This must be paid upon separation.

• Settlement of Dues: Ensure all provident fund contributions are deposited up to the last date of employment and the account is updated.

Checklist: Post-Employment

• Follow due process for termination/retrenchment as per standing orders and ID Act.

• Process Full and Final Settlement on or before the last working day.

• Calculate and pay Gratuity for eligible employees.

• Settle all Provident Fund dues and file necessary forms.

• Issue Relieving Letter and Experience Certificate.

• File annual returns for PF and ESI.

Section 4: Periodic Filings and Returns

Compliance is an ongoing process with annual and half-yearly filing requirements.

• EPF: Monthly ECR filing and contribution payment. Annual return of members.

• ESI: Half-yearly filing of contribution and annual return.

• Professional Tax: Monthly deduction and payment, with annual returns.

• Shops & Establishment Act: Annual return.

• Bonus Act: Annual return detailing bonus paid.

• POSH Act: Annual report to the district officer.

Checklist: Periodic

• File monthly EPF ECR and pay contributions.

• File half-yearly ESI returns and pay contributions.

• Deduct and remit Professional Tax monthly.

• File annual returns under Shops Act, Bonus Act, etc.

• File the annual report for the POSH Act.

Section 5: The New Labour Codes – A Glimpse into the Future

While not yet enforced, the four labour codes will fundamentally change the compliance landscape.

• Code on Wages, 2019: Universalizes provisions for minimum wages and timely payment of wages to all employees, regardless of sector or wage ceiling.

• Industrial Relations Code, 2020: Raises the threshold for seeking government permission for lay-off, retrenchment, and closure to 300 workers. Introduces new conditions for legal strikes.

• OSH Code, 2020: Amalgamates 13 laws into one. It applies to all establishments employing 10 or more workers and introduces concepts like a single all-India registration.

• Code on Social Security, 2020: Subsumes 9 laws related to social security. It aims to extend social security benefits to gig workers, platform workers, and unorganized sector workers.

• Companies must start preparing for this transition by auditing their current policies (especially on wages, leaves, and termination) to align with the new codes.

Conclusion

Labour law compliance should not be viewed as a burdensome, tick-box exercise. It is a strategic function that safeguards the organization, enhances its brand value, and builds a foundation of trust with the workforce. The most successful companies go beyond mere adherence to the letter of the law; they embrace its spirit.

To achieve this, companies should:

1. Invest in Technology: Use HR and payroll software that has built-in compliance features for calculations, due date alerts, and return filing.

2. Conduct Regular Audits: Perform internal or external compliance audits annually to identify and rectify gaps proactively.

3. Train Continuously: Regularly train HR, payroll, and line managers on the latest legal developments and their practical implications.

4. Seek Expert Advice: Engage with legal counsel or labour law consultants to navigate complex issues and interpret ambiguous legal provisions.

In the final analysis, a robust compliance framework is not a cost center but an investment in the company's most valuable asset—its people. It ensures operational continuity, mitigates risk, and ultimately contributes to a more equitable and productive economic ecosystem. This checklist provides the roadmap; the journey towards impeccable compliance requires consistent effort, vigilance, and a commitment to ethical employment practices.

Here are some questions and answers on the topic:

1. What are the most critical initial labour law registrations a new company in India must secure, and why are they non-negotiable?

The most critical initial registrations for any new company in India are under the state-specific Shops and Establishment Act and for Professional Tax. The Shops and Establishment Act registration is the fundamental business license that legalizes the operation of any commercial entity, be it an office, shop, or restaurant. It mandates crucial rules on working hours, leave policies, overtime wages, and record-keeping, forming the baseline of the employer-employee relationship. Simultaneously, Professional Tax registration is mandatory for any entity employing individuals; it is a state-level tax deducted at source from employees' salaries. These are non-negotiable because failure to obtain them from the outset can result in immediate penalties, legal prosecution, and a failure to pass even the most basic compliance checks, jeopardizing the company's very right to operate and hire legally.

2. Beyond timely salary payments, what are the key statutory financial obligations an employer has towards its employees?

Beyond disbursing salaries, an employer's key financial obligations are governed by social security and benefit laws. Once the employee threshold is crossed, the company must register under the Employees' Provident Fund (EPF) and the Employees' State Insurance (ESI) schemes. For the EPF, both the employer and employee contribute 12% of the employee's eligible salary each month, creating a retirement corpus. For ESI, the employer contributes 3.25% and the employee 0.75% of their wages to fund health insurance and medical benefits. Furthermore, the Payment of Bonus Act requires companies to pay an annual bonus to eligible employees. Perhaps the most significant long-term obligation is gratuity, a lump-sum retirement benefit paid by the employer equivalent to 15 days' wages for each completed year of service after five years of employment. These are not discretionary benefits but mandated financial duties that ensure employee welfare and security.

3. The Sexual Harassment Act (PoSH) requires specific organizational actions. What are they, and why is mere policy formulation insufficient?

The Sexual Harassment at Workplace (Prevention, Prohibition and Redressal) Act, 2013, or PoSH, mandates concrete structural and procedural actions that go far beyond just having a policy. The law requires every organization with ten or more employees to constitutionally establish an Internal Complaints Committee (ICC) at each office or branch. This committee must be composed of a presiding officer, internal members, and an external third-party member, all trained to handle complaints impartially. Mere policy is insufficient because the law requires active prevention through mandatory awareness programs to educate employees about their rights and the redressal mechanism. Furthermore, the employer is legally obligated to display the penal consequences of sexual harassment and file an annual report with the district magistrate. Failure to constitute a valid ICC or follow the prescribed procedure can lead to heavy fines and cancellation of business licenses, making procedural compliance absolutely critical.

4. With the advent of the four new Labour Codes, how is the compliance landscape for Indian companies expected to change?

The four new Labour Codes are designed to consolidate and simplify the existing complex web of over 29 central laws into a more unified and modern framework. The landscape is expected to change significantly by expanding the coverage of key protections and streamlining processes. For instance, the Code on Wages universalizes the concept of minimum wages and timely payment to all employees, irrespective of their wage ceiling or the industry they work in. The Industrial Relations Code raises the threshold for government permission for lay-offs and closures from 100 to 300 workers, providing greater flexibility to larger employers but also introducing new conditions for legal strikes. The Occupational Safety, Health and Working Conditions (OSH) Code aims to bring a wider range of establishments under its purview by applying to all entities with ten or more workers. Overall, while the codes promise ease of doing business through simpler registration and digital filing, they also impose stricter penalties and extend social security benefits to previously uncovered sectors like the gig economy, demanding a comprehensive review and overhaul of existing company policies.

Disclaimer: The content shared in this blog is intended solely for general informational and educational purposes. It provides only a basic understanding of the subject and should not be considered as professional legal advice. For specific guidance or in-depth legal assistance, readers are strongly advised to consult a qualified legal professional.