10 Things You Need to Know About Indian Employment and Labor Laws

India, the second-largest labor force in the world, has a complex employment law profile. Rules that are almost 80 years old were recently revamped, and regulations vary among industries, state governments, and business sizes. Between the changes in federal labor laws, keeping up with the worker safety code, and safeguarding personal employee information, there’s a lot to keep track of.

If you’re a global company hiring in India, you should be considering all of the above—and more. Consider this your starter guide, giving you a bird’s eye view of the most important regulations to keep top-of-mind.

1. The Indian government recently consolidated its federal labor laws

India took its 29 federal labor laws and codified them into four codes: the Code on Wages, the Industrial Relations Code, the Occupational Safety, Health and Working Conditions Code, and the Code on Social Security. Indian authorities made the move to expand the scope of certain laws, make them easier to follow, and change any legislation that was outdated. While this makes for less regulations, noncompliance penalties are as much as 20 times steeper.

2. Different working conditions apply to different types of employees

Some Indian employment laws distinguish “workmen”, or non-managerial employees, from “non-workmen”, or managerial employees. The Industrial Disputes Act, for instance, sets termination requirements and other employee protections for non-managerial employees. Managers and supervisors, on the other hand, will often have their work conditions set by employment contracts and statewide Shops and Establishments Acts, which vary by jurisdiction.

3. India doesn’t recognize at-will employment

Barring cases of severe misconduct, you generally can’t dismiss an employee in India without notice or paying the employee out. Employers need reasonable cause to involuntarily dismiss employees, which includes willful insubordination, theft, fraud, extensive unexcused absences, and disorderly conduct on company property. Employees generally receive the chance to explain themselves before they’re let go.

4. Misclassifying employees can be a costly mistake

Employees work exclusively under the direct supervision of an employer for an indefinite time period and are entitled to benefits. Contractors are self-employed, work autonomously, and aren’t entitled to benefits. Conflating these worker categories can result in misclassification penalties. This comes with fines, backpay, and retroactive benefits administration (with interest) that can cost a company millions. Other penalties can include loss of intellectual property rights, loss of a business license, and jail time.

India recently updated its Industrial Relations Code to recognize fixed-term workers and make many of them eligible for benefits.

5. The Indian constitution provides protection against discrimination

The constitution outlaws discrimination based on religion and sex. There are also additional protected classes from workplace discrimination, including people with disabilities, transgender people, and HIV positive workers. The Equal Remuneration Act prohibits gender-based discrimination in the workplace, and the Maternity Benefit Act entitles female employees to paid leave and protects them from dismissal related to a pregnancy. Employees who prove discrimination during their course of employment can be reinstated or seek damages.

6. Indian workers have the right to form trade unions

The Trade Unions Act allows workers to register a trade union and use it for collective bargaining in employment relationships. Employers are outlawed from refusing to bargain with a registered trade union in good faith. Trade unions have the right to negotiate conditions of employment and hold demonstrations. They’re also protected from criminal conspiracy charges in case of a trade dispute.

Under the current Industrial Relations Code, companies with 20 or more employees must create a grievance redressal committee to deal with workplace disputes. Once an aggrieved worker files a dispute, the committee has 30 days to address it. The worker can apply for conciliation if unsatisfied with a committee’s decision.

7. Non-disclosure agreements (NDAs) are legally binding in India—with restrictions

For the most part, Indian authorities hold up NDAs as enforceable, governed by the Indian Contract Act and decided by courts to be different from certain kinds of outlawed restrictive agreements, so long as they don't restrain an employee from carrying out a separate job in the future. While not required, NDAs gain credibility if they're certified under India's Registration Act. They also must meet requirements for being reasonable and within the public interest.

These agreements can be included as a confidentiality clause in Indian employment contracts.

8. Employers are responsible for workplace health and safety standards

India has an Occupational Safety, Health and Working Conditions Code which outlines employer duties for ensuring a safe work environment across different industries and types of workers, including electronically registering working hours and rest days. The code also establishes safety boards for both central governments and state governments to inspect businesses for any hazards. Penalties can reach up to INR 300,000.

9. Most Indian workplaces need to institute sexual harassment protections

The Sexual Harassment of Women in the Workplace Act (also known as the PoSH Act) mandates any office with 10 or more employees to create an Internal Complaints Committee to address sexual misconduct. Under the act, employers also need to create an anti-sexual harassment policy and distribute it to employees. They must also organize trainings for how workers can identify sexual harassment. The law also defines what constitutes workplace sexual harassment, while laying the internal committee’s procedural responsibilities for responding to any complaints.

10. You need to safeguard employees’ personal information

According to data privacy rules, employers need employee consent before collecting, processing, and storing any sensitive personal information. This includes (but isn’t limited to) passwords, bank account details and other financial information, and healthcare data). Employers also need to take reasonable measures to safely store any sensitive data. If there’s a breach, the employer may face civil or criminal liability.

Employees have a right to get copies of any of their personal information collected by an employer. While it’s common for employers to run background checks before hiring in India, you need the candidate’s consent before collecting any potentially compromising information.

Frequently asked questions about Indian labor laws

What are the minimum wages in India?

There is no national minimum wage for private sector employees in India. Under the Code on Wages Act, state governments set minimum wages based on the job a worker has (there are almost 2,000 job types and 400 employment categories), housing costs, and inflation trends. There are more than 1,200 state-set minimum wages. Delhi, for instance, has different minimum wages for skilled, semi-skilled, and unskilled workers, as well as for clerical staff (they currently range between INR 16,792 and INR 22,146 a month).

The penalty for employers not complying with wage requirements from the appropriate government entity can be three months’ imprisonment or fines of up to INR 100,000.

What are the overtime laws in India?

Overtime rates in India vary across state governments and job types. Factory workers under the Factories Act, for instance, have a maximum work week of 48 hours, after which they get paid twice their ordinary wage. Many employees under state-specific Shops and Establishment Acts get the same overtime rate. There are also laws with special provisions for journalists working night shifts, construction workers, contract laborers, and mine workers.

Most state governments set overtime rates using a formula that takes their basic pay, total number of days in a month worked, and maximum working hours in a day into account.

If this sounds tricky to monitor, Rippling EOR will automatically track hours and give your Indian employees the applicable overtime rate—no matter where they live.

What are the required benefits in India?

All Indian employees are entitled to statutory benefits.

• The Employees’ Provident Fund and Miscellaneous Provisions Act: Establishes a social security scheme that disburses lump sum payments to Indian workers upon retirement.
• The Employees State Insurance Act: Provides health care, sick leave, maternity leave, disability leave, and funeral expense subsidies for Indian employees.
• The Payment of Gratuity Act: Allows employees in at least their fifth year of continuous service to qualify for gratuity payments if they retire, resign, or can’t work due to an accident or illness.

The exact vacation entitlements vary among India’s 28 states, but employees are typically entitled to around 15 days of “earned leave” a year (1.25 vacation days per month). Leave can be carried over if unused, but there’s generally a 30-60 day cap on how much vacation time you can accrue.

India’s Maternity Benefit Act provides benefits to working mothers outside of paid leave, including requiring companies with 50 or more employees to pay for nurseries.

India also has three public holidays, with official other days off varying by region. Indian employers generally allocate 10 days of paid holiday leave per year (in addition to earned leave) to use however they’d like.

For more information on mandatory benefits in India, read our complete guide.

How do I terminate employees in India?

While terminating employees might be far from your mind, it’s important to be aware of India’s termination laws before building out your team.

At-will employment isn’t recognized in India, and there are three ways an employee can be involuntarily terminated:

• Termination of employment during the probationary period. Probationary periods need to be defined in the contract of employment, and typically last between three and six months. They allow employers to evaluate a new hire’s suitability for a job. Employers can terminate the employee during their probationary period without providing any notice or pay in lieu of notice.
• Termination of employment for reasonable cause. According to Indian laws, reasonable causes for termination include willful insubordination, theft, fraud, extensive unexcused absences, and disorderly conduct on company property. Employers can waive notice periods in cases of severe misconduct. But employees receive the opportunity to explain themselves before they’re fired for violating any company policies.
• Collective dismissals. In some circumstances, Indian employers can terminate a group of employees for reasons beyond the employees’ control, such as redundancy, corporate restructuring, or flagging profits. For workmen covered under the Industrial Disputes Act, this is known as retrenchment. This can also take the form of layoffs (or downsizing), which are allowed if a business becomes insolvent and can’t afford to pay its employees. These dismissed employees are typically entitled to retrenchment compensation, calculated as the average of 15 days’ pay per year of continuous service.

For the brass tacks on Indian termination requirements—including notice periods and wrongful dismissal claims—consult our guide.

Hire and onboard Indian employees with Rippling

If you're hiring employees, independent contractors, or remote workers in India, you need Rippling.

Rippling allows you to manage HR, IT, and Finance in one unified system. We make it easy to onboard, manage, and pay employees and contractors around the world—in a single system that helps keep you compliant with local employment laws and regulations.

Rippling and its affiliates do not provide tax, accounting or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any related activities or transactions.