Labour Laws in India: A Guide for Employers and Employees

India has the largest population in the world, with over 1.4 billion people and a talented workforce with immense untapped potential. Many businesses from around the world are drawn to India because of its skilled, hardworking and affordable talent pool. However, to work or hire people, it’s important to understand the employment laws in India.

Labour laws in India are rules that protect workers' rights and make sure workplaces are fair and safe. These laws cover everything from wages and working hours to workplace safety and dispute resolution. For employers, these laws provide guidelines to manage employees and avoid legal problems. For employees, they ensure fair treatment and protection at work.

This guide explains the key labour laws in India in simple terms so both employers and employees can understand their rights and responsibilities.

Evolution of labour laws in India

Labour laws in India have a long history, beginning during British rule. The first regulations, like the Factories Act of 1881, were created to tackle poor working conditions and long hours in factories. As India moved towards independence, these laws were expanded to offer better protection for workers. After gaining independence, employment laws in India became an important part of the country’s social and economic growth, focusing on fairness, equality, and security for workers.

The changes in labour laws show how India’s economy and society have evolved over time. Some key moments include:

• Before Independence: Laws like the Trade Disputes Act of 1929 dealt with issues in industries.
• After Independence: Major laws such as the Industrial Disputes Act of 1947 were introduced to manage industrial relations.
• Recent Reforms: New labour codes aim to make existing laws simpler and easier to follow, ensuring better compliance and transparency.

Recent changes in labour laws

India has recently updated its labour laws to make them more modern and business-friendly. The government has combined 29 central labour laws into four main labour codes. This change aims to simplify compliance, remove overlapping rules, and make it easier to do business in the country. Here’s a breakdown of the key changes:

The Code on Wages, 2019

This code combines laws about wages, such as the Minimum Wages Act and the Payment of Bonus Act. It creates a single, clear definition of wages and ensures workers are paid fairly, receive equal pay for equal work, and get a minimum wage no matter their job or skill level.

The Industrial Relations Code, 2020

This code focuses on improving workplace relations. It simplifies rules about strikes, lockouts, and settling disputes. It also introduces a re-skilling fund for workers who lose their jobs and makes it easier for businesses to open or shut down.

The Social Security Code, 2020

This code widens social security coverage to include gig workers and platform workers. It combines laws like the Employees’ Provident Funds Act and the Employees’ State Insurance Act, offering better health, retirement, and other benefits to more workers.

The Occupational Safety, Health, and Working Conditions Code, 2020

This code focuses on making workplaces safer and healthier. It requires facilities such as clean drinking water, canteens, and restrooms for workers. It also reduces the paperwork required for compliance by merging several laws into one.

Understanding the different labour laws in India

Labour laws in India are designed to protect employees' rights, ensure workplace fairness, and foster productive employer-employee relationships. These laws cover critical aspects of work life, including wages, working hours, social security, workplace safety, and protection from discrimination. Below are some of the employment laws in India in various categories:

Laws governing industrial relations

Industrial relations laws aim to promote harmony between employers, employees, and trade unions by providing mechanisms to resolve disputes.

Key Acts:

• Industrial Disputes Act, 1947: Provides guidelines for resolving disputes regarding wages, working conditions, layoffs, and retrenchments. It also covers conciliation, arbitration, and adjudication processes.
• Trade Unions Act, 1926: Legalises the formation of trade unions and protects workers' rights to organise collectively for better working conditions.

Key features:

• Procedures for dispute resolution (conciliation, voluntary arbitration, and adjudication).
• Rules for strikes and lockouts require prior notice and compliance with legal procedures.
• Protections for workers against unfair labour practices by employers or unions.

Laws related to wages

Wage laws are crucial to ensure workers get at least a minimum salary in India as per labour law. These laws ensure ​fairness and equality while preventing exploitation and reducing wage-related disputes.

Key Acts:

• Minimum Wages Act, 1948: Mandates that all workers, despite any differences, should get a minimum salary in India as per labour law and the amount can be revised periodically by state governments.
• Payment of Wages Act, 1936: Mandates timely wage payment and prohibits unauthorised deductions.
• Payment of Bonus Act, 1965: This Act mandates the payment of bonuses to eligible employees based on the company's profits or productivity. It specifies the calculation of bonus amounts, eligibility criteria, and payment timelines.
• Equal Remuneration Act, 1976: Prohibits wage discrimination based on gender for similar work

Key features:

• Implementing policies to guarantee a minimum wage for workers in sectors without formal labour contracts.
• Rules for wage payment schedules and deductions.
• Protection against gender-based wage disparities.

Laws on working hours, conditions, and employment

These laws safeguard employees by regulating work hours, ensuring safe conditions, and defining employment terms.

Key Acts:

• Factories Act, 1948: Sets standards for working hours, occupational safety, health, and welfare in factories.
• Mines Act, 1952: This Act specifically regulates working conditions, safety, health, and welfare of workers in mines. It covers aspects like working hours, ventilation, safety equipment, and the employment of women and young persons in mines.
• Shops and Establishments Acts: There isn't a single nationwide "Shops and Establishment Act" in India. Instead, each state in India has its version of this legislation. These acts regulate the working conditions of employees in shops, commercial establishments, restaurants, hotels, and other similar establishments within that specific state.

Key features:

• Limits on daily and weekly work hours (48 hours per week and 9 hours per day, with overtime compensation).
• Provision of facilities such as clean drinking water, first aid, and ventilation.
• Prohibition of child labour in hazardous industries and restrictions on employing adolescents.

Laws relating to social security

Social security laws provide financial and medical assistance to workers during various stages of their lives, such as retirement, illness, or unemployment.

Key Acts:

• Workmen's Compensation Act, 1923: This Act provides for compensation to workmen (and their dependents) in case of injury or death caused by accidents arising out of and in the course of their employment.
• Employees’ State Insurance Act, 1948: Provides medical care, sickness benefits, maternity benefits, and injury compensation.
• Employees’ Provident Funds and Miscellaneous Provisions Act, 1952: Ensures savings for retirement through employer and employee contributions.
• Maternity Benefit Act, 1961: Grants maternity leave of up to 26 weeks, including pre and post-natal leave, and ensures job security for new mothers.
• Payment of Gratuity Act, 1972: Grants a lump sum to employees as a reward for 5 years of continuous service.

Key features:

• Coverage for health care and insurance in case of workplace injuries.
• Mandatory provident fund contributions by employers and employees.
• Support for workers and their families during unemployment or disability.
• Paid leave for maternity, along with benefits like crèche facilities for working mothers and comprehensive protection of rights during pregnancy and postnatal periods.

Laws on termination and job security

Termination laws protect employees from unjust dismissal and ensure compensation or notice periods are provided.

Key Acts:

• Industrial Employment (Standing Orders) Act, 1946: Defines terms of employment, including notice periods and disciplinary actions.
• Industrial Disputes Act, 1947: Regulates layoffs, retrenchments, and closures, ensuring fair treatment of workers.

Key features:

• Mandatory notice periods or compensation in lieu of notice.
• Guidelines for disciplinary action and termination.
• Special provisions for retrenchment compensation based on tenure.

Laws promoting equality and addressing harassment

These laws promote equality in the workplace and aim to eliminate discrimination and harassment.

Key Acts:

• Equal Remuneration Act, 1976: Mandates equal pay for equal work, regardless of gender.
• Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013: Mandates organisations to provide a safe and harassment-free work environment.

Key features:

• Formation of Internal Complaints Committees (ICCs) in organisations to address harassment complaints and, in certain cases, Local Complaints Committees (LCCs) if the employer has less than 10 employees or the complaint is against the employer themselves.
• Prohibition of discrimination in hiring, pay, promotions, or other employment terms based on gender.
• Employer accountability for maintaining a respectful workplace culture.

Challenges employers face with labour laws in India

Complying with labour laws in India can be a challenging task for employers, especially given the complexity and dynamic nature of these regulations. Below are some key challenges:

Complexity of laws

India has a dual governance system, with both central and state governments creating labour laws. This often leads to confusion as employers struggle to identify which laws apply to their business. The overlapping regulations and regional variations make it even harder to achieve full compliance.

Frequent updates

Labour laws in India are periodically updated, with amendments introduced to keep up with changing economic and social conditions. Employers need to monitor these changes closely to ensure they remain compliant. Missing an update could lead to penalties or legal complications.

Administrative burden

Labour law compliance involves a significant amount of administrative work. Employers must maintain detailed records, such as wage registers, attendance sheets, and employee benefit documentation. The volume of paperwork and the need for accuracy can be overwhelming, especially for businesses with limited resources.

Diverse workforce needs

Workforces in India are diverse, including permanent staff, contract workers, and part-time employees. Employers must address the specific rights and benefits of each category, which can be complex. For instance, ensuring fair treatment and compliance with laws for contract workers often requires extra attention and careful management.

Why should you hire in India?

India has become a global talent hub, offering businesses access to a highly skilled, diverse, and resourceful workforce. Here’s a closer look at why hiring in India can be a smart move for your business:

Extensive talent pool

India is home to one of the largest and most versatile talent pools in the world. From IT and engineering to healthcare, finance, and creative industries, professionals in India bring a wealth of expertise, innovation, and dedication to their work. 

Cost-effective solutions

Hiring talent in India can significantly reduce your operational costs without compromising on quality. The competitive labour costs, combined with the high calibre of professionals, make India a preferred destination for businesses aiming to maximise their budget while achieving exceptional results.

Economic growth

India is one of the fastest-growing economies globally, offering a dynamic business environment filled with opportunities for innovation and expansion. With a young and ambitious workforce, businesses in India can tap into fresh ideas and sustainable growth prospects.

Government initiatives

The Indian government actively supports foreign investments and partnerships through programmes like Make in India and Digital India. These initiatives encourage global businesses to set up operations, collaborate with local talent, and thrive in the Indian market by providing infrastructural and policy support.

How can Native Teams help you hire in India?

Native Teams is a platform for global work payments and Employer of Record (EOR) services, with local entities in over 70 countries, including India. We help businesses hire and manage talent easily without the need to set up a local office. From handling compliance and payroll to providing employee benefits, we take care of the complex tasks so you can focus on growing your business.

In India, we simplify hiring by ensuring full compliance with local labour laws and regulations. Whether it’s creating employment contracts, managing payroll, or handling social security contributions, our services are designed to make the process smooth and hassle-free. With our local expertise, you can avoid administrative challenges while accessing India’s highly skilled talent pool.

Partnering with Native Teams allows you to expand into India confidently and cost-effectively. Whether you’re hiring one employee or building an entire team, we can provide the support you need to establish yourself in India.

Conclusion

Having clear labour laws is very important in every country because they help set work standards and shape employer-employee relationships. In India, understanding these laws is key to creating a fair, safe, and productive workplace. They protect employees’ rights and help employers comply with regulations, avoiding legal complications.

By following these laws, businesses can tap into India’s skilled workforce while building respectful and positive relationships with employees. Whether you’re hiring or working in India, knowing your rights and responsibilities can help you gain great experience in India’s growing economy.