India Labour Laws

April 2nd 2024

Home to the second largest workforce in the world, India has become a magnet for global investors and businesses. With a population exceeding 1.4 billion people, the country offers a vast pool of talent and consumer base, making it an attractive destination for companies seeking growth and expansion opportunities.

But if you’re looking to set up shop in India’s vibrant and dynamic market, you need to know the labour landscape first and the laws that shape it. These laws cover everything from minimum wage and working hours to employee benefits and workplace safety standards. And tricky part is, they can vary state by state.

This guide aims to guide you through the key labour laws that govern employment in India, providing you with essential insights into the regulatory framework that can impact your businesses. By proactively navigating these laws, businesses can establish a strong foundation for sustainable growth and success in this dynamic market.

This article covers:

What are India’s Time Management Laws?

In India, employment laws are governed by both Central (national) and State regulations. Central laws cover areas like minimum wages, employee benefits such as provident fund and gratuity, and rules for hiring contract labour. Meanwhile, each State has its own laws, like the Shops and Establishments Act, which sets rules for things like work hours, payment, leave, and holidays.

According to India Labor Law, employee weekly working hours cannot exceed 48 hours under normal circumstances. Daily work hour limits for working adults, on the other hand, can vary across cities and states. Regions like New Delhi and Mumbai limit daily working hours to only 9 hours. Whereas states like Karnataka allow employees to work up to 12 hours, including rest breaks.

Given the work hour limitations in India, it’s essential to keep accurate track of work hours. India’s labour and employment laws mandate that employers keep records of employees’ attendance and wages. These records are to be kept for a minimum period of around 3 years or as specified by state labour laws.

India Minimum Wage  Around INR (Indian Rupee) 178 per day but varies based on numerous factors such as the state, the specific zone within the state, categorised industries, job types, and the skill levels demanded.
India Overtime 2x the regular wage for any hours worked beyond 9 hours/day or 48 hours/week
India Work Breaks 30 to 60-minute break every four to five hours of work

What are the Hiring, Working & Dismissal Laws in India?

In India, hiring, working, and dismissal are governed by laws that promote equal opportunities and fair treatment in employment. India’s Equal Employment Opportunity policy is protected by Article 16 of the Constitution, which bans discrimination based on religion, race, caste, sex, or place of birth in any state employment or appointment matters.

To be lawfully employed in India, individuals must be either citizens of India or permanent residents. Foreigners seeking employment in the country must obtain an Employment Visa (E) or a work permit which are granted by the Bureau of Immigration under India’s Ministry of Home Affairs.

International companies can also employ workers from India as independent contractors. But it’s important to classify them correctly.

According to the Contract Labour Act 1970, an independent contractor is someone hired for a specific project, not an employee of the company. To determine if workers are employees or contractors, Indian regulators use two tests:

  • Control Test: This examines who directs the work and how it’s done, evaluating the relationship between the company and the contractor.
  • Integration Test: This checks if the person works independently or as part of regular operations.

Courts also consider:

  • Autonomy to set work schedule and location
  • Level of control and supervision
  • Ownership of tools and materials
  • Ability to work for multiple companies
  • Setting their own rates of pay

Are Contracts Required for New Hires in India?

New hires in India, as standard practice, sign an employment contract. Although Indian federal labour law does not require a contract to be in writing, states such as Karnataka and Delhi legally require written contracts for employees. 

Some of the key information that should be included in an employment contract are:

  • Employer and employee identification
  • Commencement date of employment
  • Position or job title
  • Overview of duties and responsibilities
  • Compensation details (salary or wage rate)
  • Work hours schedule
  • Included benefits or entitlements
  • Duration of the probationary period
  • The notice period for employment termination

What are the Dismissal Laws in India?

In India, employment is not considered “at-will,” meaning employers cannot dismiss employees without a valid reason. Except in cases of serious misconduct, employers must provide notice or compensation to employees when terminating their employment.

Valid reasons for dismissal include willful insubordination, theft, fraud, prolonged unexcused absences, and disorderly conduct on company premises. Employees usually have the opportunity to explain their actions before termination.

What Are the Key Labour Laws in India?

The Indian government recently enacted to simplify its federal labour laws, consolidating 29 different labour laws into four main codes: the Code on Wages, the Industrial Relations Code, the Occupational Safety, Health and Working Conditions Code, and the Code on Social Security. These law reforms were made in a bid to contribute to a better working environment, which will accelerate the pace of economic growth, according to Prime Minister Narendra Modi. They codes are still waiting to take effect.

  • Code on Wages Act: The Code on Wages Act, 2019 combines four existing labour laws into one comprehensive regulation. These laws include the Minimum Wages Act, Payment of Wages Act, Payment of Bonus Act, and Equal Remuneration Act. This new act ensures that workers receive at least the minimum wage set by the government, with provisions for regular review to keep up with changing living costs. It applies to workers across all industries and is enforced by both the central and state governments. This means that labour regulations are overseen by authorities at both levels, ensuring comprehensive coverage and adherence to standards across different regions
  • Industrial Relations Code: The Industrial Relations Code, 2020, simplifies and updates laws related to trade unions, employment conditions, and dispute resolution in India. The code covers various aspects, including registration and management of trade unions, formation of work committees, and resolution of grievances. It also addresses issues like industrial tribunal formation, illegal strikes, retrenchment procedures, and compensation for workers during transfers or closures of industrial establishments.
  • Occupational Safety, Health and Working Conditions Code: The Occupational Safety, Health, and Working Conditions Code, 2020 prioritises the well-being of workers across different sectors like industry, trade, construction, transportation, and services. This code applies to workers in factories, mines, plantations, transportation, bidi and cigar industries, as well as contract and migrant workers. It covers various aspects of occupational safety, health, and working conditions to safeguard workers’ interests and rights.
  • Code on Social Security: The Code on Social Security, 2020 aims to modernise and enhance social security laws for workers in both organised and unorganised sectors. It consolidates existing labour laws while introducing new provisions to adapt to contemporary work practices. One significant change is the expanded definition of “employee,” which now includes gig workers, contractual workers, and self-employed individuals. This update ensures that workers in the gig economy and informal sectors are covered by social security benefits for the first time. The code also emphasises gender equality by extending maternity benefits to a wider range of women, including adoptive mothers.

India Payment Laws

What is the Minimum Wage in India?

In India, minimum wages change regularly to match living costs and market conditions. The main law regulating minimum wage in India is the Minimum Wages Act of 1948. Since its introduction, it has gone through various reforms. The latest one is its consolidation under the Code on Wages 2019. There are also government plans to substitute the minimum wage with a living wage by 2025 which is something that businesses should look out for.

Currently, the national-level minimum wage on average is about INR 178 (US$2.16) per day or INR 5340 (US$65) per month. However, this is just the minimum, and actual wages can vary based on location and other factors. There can be huge gaps in minimum wages between states. For instance, in Punjab, unskilled workers earn around INR 412.95 per day, while in Karnataka, it’s INR 630.37 (for Zone 1) daily.

Other factors that can affect minimum wage include:

  • Skill-level/Class of employment
  • Varying living costs
  • Economic development
  • Worker influence in different places

India has four main classes of skill levels: Unskilled, Semi-Skilled/Unskilled Supervisory, Skilled/Clerical, and Highly Skilled.

Unskilled workers typically include cashiers at fast-food chains, grocery clerks, shop attendants, and cleaning staff. These workers tend to earn less than highly skilled workers like doctors, surgeons, nurses, electricians, and carpenters.

To stay compliant, it’s best for companies to consult local experts and official government sources for the latest minimum wage regulations in each state.

What is the Pay Frequency in India?

Every employer must pay their employees on time and in full, as required by law. They must establish how often wages will be paid, with no period longer than a month.

Wages can be calculated hourly, daily, weekly, or monthly. For businesses with less than 1000 workers, wages must be paid in cash within 7 days after the end of the pay period. For larger businesses, payment should be made within 10 days. If a worker’s employment is terminated, any owed wages must be paid within two days.

Are Payslips Required in India?

It’s important for employers to provide employees with their payslips and tax certificates. Issuing payslips is mandatory in India and helps employees when applying for loans or filing taxes. Payslips can be issued as a hard copy or electronically and they typically contain the following information:

  • Employee Name
  • Employee ID
  • Company Name
  • Salary Period
  • Earnings and Applicable Allowances
  • Deductions
  • Net Salary

Allowed Payment Methods for Employers in India

Employers in India are allowed to pay wages using various methods. These include paying in coins, currency notes, or cheques. Wages can also be credited directly to the employee’s bank account or transferred electronically via online money transfer services. This is usually the method of choice for international employers who need to pay their independent contractors in India.

These wide range of options provide flexibility for both employers and employees in managing payments securely and efficiently.

What Pay Deductions Can be Made in India?

In India, several statutory deductions are made from an employee’s gross pay as per the law. These deductions include:

  • Income Tax: Determined based on factors like the employee’s age and the applicable tax regime. It covers various sources of income and allows for deductions and exemptions.
  • Provident Fund (PF): A long-term savings scheme for retirement, involving contributions from both the employee and the employer. It includes the Employees’ Provident Fund and the Employees’ Pension Fund.
  • Professional Tax: A tax levied by state governments on employment, with deductions varying by state. It’s calculated based on factors like the employee’s income and age.
  • Employee State Insurance (ESI): A social security scheme where both employees and employers contribute monthly. It’s based on a percentage of the employee’s wages and has a wage limit.
  • Labour Welfare Fund (LWF): Managed by state authorities, applicable in certain states. Deductions are based on factors like the employee’s state, position, and salary, with varying payment frequencies.

These deductions ensure compliance with legal requirements and contribute to various social security and welfare schemes for employees. It’s important to note that for the financial year 2023-24, the standard deduction limit is INR 50,000 for both the old and new tax regimes.

India Overtime Laws

In India, overtime laws are primarily governed by the Factories Act, of 1948, recently replaced by the Occupational Safety, Health and Working Conditions Code, 2020, which lays down regulations for working hours, rest intervals, and overtime compensation in industrial establishments. According to this law, if an employee works beyond the stipulated regular hours, it constitutes overtime.

Any work that exceeds 48 hours per week or 9 hours per day (12 hours per day in certain regions) is entitled to overtime pay.

How Much is Overtime Pay in India?

In India, overtime pay is typically calculated at twice the regular rate of normal wages.

For instance, if a worker earns INR 100 per hour during regular hours, they would earn INR 200 per hour for each hour of overtime worked. This provision ensures fair compensation for employees who work additional hours beyond the standard workweek.

Who is Exempted from Overtime Pay in India?

Not every worker is entitled to overtime pay. Eligibility depends on factors like job nature and labour laws. Under the law, workers exceeding regular hours qualify for overtime pay. However, certain categories are exempt, such as:

  • Managers or supervisors
  • Administrative, executive, or managerial staff
  • Employees handling confidential or security duties
  • Government staffers

Is there an Overtime Limit in India?

In India, there is an overtime limit established by labour laws to ensure the well-being of workers. Generally, the maximum duration of overtime allowed per day is two hours.

India Time Off/Break Laws

In India, both the Occupational Safety, Health and Working Conditions Code, 2020 and Shops and Establishment Act (SEA) require employers to give workers a rest period in between the work day.

Workers can work up to 48 hours a week. This means they can work up to 9 hours a day, with a lunch break included. Workers are entitled to get a 30 to 60-minute break every four to five hours. But in an eight-hour shift, many companies typically give a one-hour lunch break.

What are India Leave, Vacation, and Holiday Laws?

Leave and holiday laws in India are complicated because they can vary from state to state. The number of leave days and holidays given by a company must follow the rules set by the state laws.

India Leave Laws

Employees with formal jobs get different types of leave, including privilege leave, sick leave, and casual leave. The company might also offer other types like marriage leave, paternity leave, or exam leave.

The following are some of the mandatory types of leaves that businesses in India need to provide:

Privilege Leave

Privilege leaves are basically paid days off given to employees each year as a reward for their service to the company. The Occupational Safety, Health and Working Conditions Code 2020, requires organisations to give earned leaves to employees who’ve worked for at least 240 days in the past year. Adults earn one leave for every 20 days worked, and juveniles earn one for every 15 days. Public holidays don’t affect earned leave entitlement.

Employees who are not managers or supervisors can’t save more than 30 days of paid leave in a year. If they have more than 30 days saved up, the company has to pay for the extra days. Some regions may have varied requirements for earned or privileged leave so it’s best to check with regional laws that apply to you.

Sick Leave

Under the Indian Shops and Establishment Act, sick leave follows these rules:

  • Employees get paid sick leave, from half a day up to seven days. Some regions allow up to 12 days of sick leave.
  • If sick leave lasts more than three days, they might need a medical certificate.
  • They can use sick leave together with earned leave.
  • Unused sick days don’t roll over or get paid out; they expire at the end of the year.

Also, if sick leave goes beyond 2 or 3 days, employees should provide a medical certificate to prevent misuse. Sick leave can’t be carried over to the next year or paid out when leaving the job. It’s separate from earned leave.

Maternity Leave

As per the Maternity Benefit Act of 1961 (updated in 2017), it is mandatory for employers to provide maternity leave to eligible female employees before or after childbirth. Pregnant employees are entitled to 26 weeks of maternity leave for their first and second child, with the option to take up to 8 weeks before delivery.

Adopting mothers also get 12 weeks of maternity leave, starting from when they receive custody of a child below 3 months of age. It’s important to note that to qualify for maternity leave in a company, a woman must have worked for at least 160 days in the 12 months before her due date.

India Holiday Laws

The public holiday schedule in India is divided into three types: gazetted, restricted, and those specific to each state and union territory.

Gazetted holidays are required days off for central government workers and offices. Many schools and state or local offices also close on these days.

On the other hand, restricted holidays are optional. Employees can choose whether or not to take leave on these days.

Most companies in India typically offer 10 to 14 public holidays based on past practices, industry norms, and state regulations. Businesses dealing with state and government authorities must follow their holiday calendars.

There are three national holidays in India that every organisation must observe: Republic Day on January 26th, Independence Day on August 15th, and Gandhi Jayanti on October 2nd. All establishments, regardless of their type, must remain closed on these days unless they receive prior approval.

Here are some of the gazetted holidays in India for the year 2024:

  • Republic Day on January 26th
  • Holi on March 25th
  • Good Friday on March 29th
  • Id-ul-Fitr on April 11th
  • Ram Navami on April 17th
  • Mahavir Jayanti on April 21st
  • Buddha Purnima on May 23rd
  • Id-ul-Zuha (Bakrid) on June 17th
  • Muharram on July 17th
  • Independence Day on August 15th
  • Janmashtami on August 26th
  • Milad-un-Nabi on September 16th
  • Mahatma Gandhi’s Birthday on October 2nd
  • Dussehra on October 12th
  • Diwali on October 31st
  • Guru Nanak’s Birthday on November 15th
  • Christmas Day on December 25th

Non-gazetted or restricted holidays in India, on the other hand, include special holidays like New Year’s Day, Hazrat Ali’s Birthday, Vaisakhi, and so on.

The list for State and Union territory holidays is quite long, to check on the holidays applicable to your state, it’s best to check India’s State and UT Holiday Calendar.

What are India’s Child Labour Laws?

The Child Labour (Prohibition & Regulation) Act of 1986 aims to stop children from working in certain jobs and regulate their working conditions in others.

According to this law, children under 14 years old cannot work in any job or industry that could be harmful to them. This includes factories, mines, and other types of jobs that involve handling inflammable substances or explosives.

Children, however, can help their families with work that isn’t dangerous after school or during holidays. They can also work as artists in entertainment industries like movies or TV, but only if it doesn’t affect their education.

The laws also prohibit adolescents, those aged 14 to 18 years old, from working in hazardous jobs or industries listed in the law. Adolescents should not work more than a certain number of hours each day, and they must have breaks during work hours. They shouldn’t work between 7 p.m. and 8 a.m. or be asked to work overtime. Additionally, adolescents shouldn’t work in two different places on the same day.

Companies that employ minors can be subject to routine inspections. And if they are found to be operating against child labour laws, they can face jail time for at least six months, up to two years. They might also have to pay a fine of at least twenty thousand rupees, up to fifty thousand rupees. 

Important Cautionary Note

When making this guide, we have tried to make it accurate, but we do not give any guarantee that the information provided is correct or up-to-date. We therefore strongly advise you to seek advice from qualified professionals before acting on any information provided in this guide. We do not accept any liability for any damages or risks incurred for the use of this guide.