The founder's labour compliance playbook
What applies to your company, what you need to do and what records to keep, across eight areas of Indian labour law, current as of October 2026.
Summary
- Most founders are not non-compliant on purpose. They are compliant for the company they used to be, because what applies moves with headcount, pay, location and the law.
- Eight areas cover most of it for a growing company: PF, ESIC, professional tax, labour welfare fund, POSH, maternity benefit, wages and bonus, and gratuity.
- Two lines have moved since November 2025, the definition of wages and the PF wage ceiling, so review applicability every quarter, not every audit.
"I thought this compliance wasn't applicable to us." That belief holds until a statutory notice arrives. Or until an employee raises a grievance with the Labour Department, or a due diligence team asks for your labour compliance records.
In most founder-led companies, labour compliance starts as something to manage as the team grows. Then the rules move, requirements change, and keeping track of what applies becomes one more job beside everything else a founder runs.
This playbook helps you answer three basic questions, without turning you into a compliance expert:
- What applies to my company today?
- What do I need to do about it?
- What records should I have in place?
When the rules keep changing, being unaware is easy and being prepared is a choice. What follows is general information as at October 2026, not legal advice, so confirm your own position with an adviser.
Are you compliant, or have you just not been asked yet?
Most founders are not non-compliant on purpose. They are compliant for the company they used to be.
Applicability keeps moving after incorporation. It shifts with six things, each with a threshold or a rule behind it.
Six things that move what applies to your company, with an example of each
| What changes | How it moves your obligations |
|---|---|
| Employee count | ESIC, gratuity, maternity benefit and a POSH Internal Committee start at 10; PF and statutory bonus at 20; a creche at 50 |
| Wage structure | Since 21 November 2025, excluded pay items above half of total pay count as wages, which can raise PF, gratuity and bonus |
| Nature of employment | Fixed-term staff now qualify for gratuity after one year; gig and platform workers are defined in the Social Security Code |
| Location or state | Professional tax, labour welfare fund and most minimum wage rates are set state by state |
| Business activity | Hazardous work brings ESIC in with a single employee; your sector decides whether the Centre or your state sets the rules |
| Changes in law | The labour codes took effect on 21 November 2025, and the PF wage ceiling moved on 17 September 2026 |
So the question to ask every quarter is a simple one. What applies to us today, and are our records updated accordingly?
They are compliant for the company they used to be.
What the labour codes changed on 21 November 2025
The four labour codes came into force on 21 November 2025 and replaced 29 central labour laws. The Code on Social Security took in the old PF, ESI, maternity benefit and gratuity Acts, among others. The Code on Wages took in the minimum wages, payment of wages, bonus and equal remuneration Acts.
Where rules under the codes are still being framed, the matching provisions of the old Acts and rules stay in force. Your state's own rules may also still be in draft, so check them.
The change that reaches every payroll is the definition of wages. Wages now mean basic pay, dearness allowance and retaining allowance. If HRA, conveyance, overtime, commission and most other excluded items come to more than half of total pay, the excess is added back to wages.
A salary built on a low basic and generous allowances can therefore carry higher PF, gratuity and bonus than before. Rerun eligibility and contributions on the new definition, and confirm the result with your payroll provider.
Provident fund and ESIC, the monthly obligations
Provident fund and ESIC at a glance, as of October 2026
| Provident fund | ESIC | |
|---|---|---|
| Applies from | 20 or more employees | 10 or more persons; a single person in notified hazardous work |
| Contribution | 12% of wages from the employer and 12% from the employee; 10% for some establishments | 3.25% of wages from the employer and 0.75% from the employee |
| Wage ceiling | ₹25,000 a month from 17 September 2026, up from ₹15,000 | ₹21,000 a month; ₹25,000 for a person with a disability |
| Above the ceiling | Not compulsorily covered, but can join with the employer's consent | Outside the scheme |
Check the PF ceiling first. It rose from ₹15,000 to ₹25,000 a month on 17 September 2026, the first change since 2014. Anyone whose wages, as the codes now define them, fall within it must now be enrolled.
Our news item on the ₹25,000 EPF wage ceiling works through who is newly covered and what it costs per head. Because the change landed mid-month, EPFO moved the due date for September 2026's return and contributions from 15 October to 31 October 2026. Its circular of 13 October 2026 limits that relief to September, as our note on the extended deadline explains.
Keep the PF file complete. That means each employee's UAN, joining and exit records, the monthly electronic challan-cum-return (ECR) and payment challans, Form 5A with your ownership details, and nominations.
A PF registration does not lapse when headcount falls. A registration taken at incorporation does not disappear because you now have fewer than 20 people. The Code keeps a chapter in force once it applies, even if numbers later drop. So check whether your establishment is registered and filing, or registered and dormant.
ESIC starts at 10 persons, in areas where the scheme is notified. Its contribution rates have not changed since July 2019, and its ₹21,000 ceiling has stood since January 2017. Test both ceilings against the new wages definition, not last year's salary template.
Professional tax and labour welfare fund follow your state
Here there is no national rule, only your state's rule. Neither levy has an India-wide rate or threshold.
Professional tax and labour welfare fund: what each state decides for itself
| Professional tax | Labour welfare fund | |
|---|---|---|
| What your state decides | Whether it applies, the slabs, the exemptions and how you register | Whether it applies, and to which establishments or employee categories |
| Who pays | Deducted from the employee's salary and paid over by the employer | Employee and employer, each at the prescribed rate |
| How often | Monthly or periodic payments, plus annual obligations where the state has them | Annual or periodic filing, as the state prescribes |
The commonly missed step is the annual one. Founders track the monthly professional tax deduction and forget the annual PT return or payment, where the state requires one.
Keep a separate tracker for every state where you have employees. Include the ones who work fully remotely. Recurring PF, ESI and professional tax due dates are on our compliance calendar.
POSH applies even if you have no women on the team
"We don't have female employees, so POSH doesn't apply to us." Founders say this, and the Act says otherwise. It protects an aggrieved woman of any age, whether employed or not.
So a client, customer, visitor, consultant, contractor or intern may fall within its protection. With 10 or more workers, you need an Internal Committee at each office or administrative unit. Below 10, complaints go to the Local Committee the District Officer sets up.
Who sits on an Internal Committee under the POSH Act
| Member | Who it must be |
|---|---|
| Presiding Officer | A woman employed at a senior level; if there is none, one from another office or unit of the same employer |
| Employee members | At least two, preferably committed to the cause of women, or with social work experience or legal knowledge |
| External member | One, from an NGO or association committed to the cause of women, or a person familiar with sexual harassment issues |
| Balance | At least half of the members nominated must be women |
Run awareness workshops at regular intervals, and keep the attendance records. The Act requires the programmes, and the committee's annual report counts them.
The annual report is the committee's, but it goes through you. Each calendar year the committee reports to you and to the District Officer. Neither the Act nor the central Rules fix a date, so confirm your district's deadline.
The written POSH policy, which every employer needs from the first hire, is covered in what to fix in the 90 days after a raise.
Maternity benefit and minimum wages belong in the payroll review
Maternity benefit under the Code on Social Security
| Rule | What the Code on Social Security says |
|---|---|
| Applies to | Shops and establishments with 10 or more employees on any day in the past 12 months, plus factories, mines and plantations |
| Qualifying service | At least 80 days worked in the 12 months before the expected delivery |
| Leave | Up to 26 weeks, of which no more than 8 before delivery |
| With two or more surviving children | Up to 12 weeks, of which no more than 6 before delivery |
| Creche | Required where there are 50 or more employees, or such number as the Centre prescribes |
The Code also defines gig and platform workers for the first time. It lets the Centre frame schemes for them covering, among other things, maternity benefits and old-age protection.
Minimum wages have no India-wide number. The Code has the Centre fix a floor wage that no state rate may go below. For most startups, though, the rate that binds payroll comes from the state's notification.
Five things set the floor for each employee:
- the state they work in
- their employment category
- their skill level, from unskilled to highly skilled
- the zone, or geographical area, within the state
- the notification currently in force
Miss one and payroll is wrong for that person only, which is how it goes unnoticed. Where a state's rate includes a cost of living allowance, the state revises it at intervals it sets. So re-check on every government notification, not once a year.
Statutory bonus and gratuity are what you owe later
Statutory bonus and gratuity, the two obligations that build up quietly
| Statutory bonus | Gratuity | |
|---|---|---|
| Applies to | Establishments with 20 or more persons on any day of the accounting year | Shops and establishments with 10 or more employees on any day in the past 12 months |
| Who qualifies | Where the Centre sets the figure, employees on wages up to ₹21,000 a month who worked at least 30 days in the year | Employees with five years' continuous service; fixed-term employees after one year, pro rata |
| How much | 8.33% to 20% of wages; where the Centre sets the figure, worked out on ₹7,000 a month or the Central minimum wage, whichever is higher | 15 days' wages for each completed year, up to a ceiling the Centre notifies |
| When | Within eight months of the close of the accounting year | Within 30 days of becoming payable |
The bonus figures carry one caution. The ₹21,000 and ₹7,000 lines come from two notifications the Centre issued on 25 August 2026, back-dated to 21 November 2025.
They bind establishments for which the Centre is the appropriate government, such as banks and insurers. For most startups that is the state, so check whether your state has notified its own figures.
The Code also eases the early years. For the first five years after the year you first sell goods or services, bonus is payable only for a year in which you make a profit.
Don't wait for an exit to think about gratuity. Track the liability from each person's date of joining, provide for it in your accounts and keep the service record clean. It is calculated on the wages last drawn, so the new definition of wages feeds straight into it.
Fixed-term contracts and long-running consultants both deserve a second look here. The contract's label does not decide who is an employee, as how Indian law tells consultants, employees and interns apart explains.
Review applicability every quarter, not every audit
If the whole playbook had to fit in one habit, it would be this. Once a quarter, put four questions to whoever runs payroll and HR:
- Has headcount crossed a threshold, at 10, 20 or 50?
- Have we added a new state, or a new employee in a state we already cover?
- Has the salary structure changed?
- Are our records reconciled to payroll?
An auditor, an inspector or a diligence team will ask the same questions later, on their timetable rather than yours. Asking them each quarter means the answers are already in the file.
Who should own the review is a question in its own right, and when a startup should hire HR covers it. Our HR Business Partnering practice can run the first review with you.
So how confident are you about your labour compliance today: fully, somewhat, or "we'll check when someone asks"? Whatever the answer, start this quarter by asking what applies to you today, and whether your records say so. Then ask again next quarter.
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