Importance & Applicability Of Labour Laws for Startups
Written By
Koustubh Athavale, Garima Mitra, Pooja Savla
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AI Summary
- India currently has 29 central labour laws applicable to entities, which the Ministry of Labour is consolidating into four new Labour Codes: the Code on Wages, the Occupational Safety, Health and Working Conditions Code, the Social Security Code, and the Industrial Relations Code.
- These four Labour Codes have not yet been notified, so the existing 29 central laws and applicable state-specific laws continue to govern compliance for startups.
- The Employees' State Insurance Act, 1948 applies to establishments with 10 or more employees using power or 20 or more without power, requires registration within 15 days under Section 2-A read with Regulation 10-B, and non-compliance attracts imprisonment up to 2 years and a fine up to ₹5,000.
- The Prevention of Sexual Harassment of Women at Workplace Act, 2013 applies to all organizations, but forming an Internal Committee via board resolution is mandatory only once an organization has 10 or more employees, with non-compliance fined at ₹50,000.
- The Maternity Benefit Act, 1961 applies to organizations with 10 or more employees and entitles first and second-time mothers to 26 weeks of fully paid leave, with violations punishable by up to 3 months imprisonment or a fine up to ₹500, or both.
- The Payment of Gratuity Act, 1972 applies to organizations with 10 or more employees, requires filing Form A within 30 days of registration, and non-compliance can attract imprisonment up to 6 months or a fine up to ₹10,000, or both.
- The Rights of Persons with Disabilities Act, 2016 applies once an organization has 20 or more employees, requiring registration via Form E under Rule 27(3) and appointment of a grievance officer, with penalties of up to 6 months imprisonment and/or a ₹10,000 fine for non-compliance.
- The Payment of Bonus Act, 1965 and the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 both apply once an organization has 20 or more employees, and EPF late-payment penalties range from 5% to 25% per annum depending on delay, capped at 100%.
- Startups must also comply with state-specific shops and establishment acts, labour welfare acts, and professional tax acts, with Maharashtra's Shops and Establishment Act, 1948 cited as an example applicable to all organizations in that state.
Blog Content Overview
Currently in India there are 29 labour laws which needs to be followed by all the entities. To make it more streamlined and hassle free the Ministry of Labour is under the process of consolidating all the labour laws under 4 new labour law codes (“Labour Codes”)
•Code on Wages
•Occupational Safety, Health and Working Conditions Code
•Social Security Code
•Industrial Relations Code
These Labour Codes are yet to be notified.
In India, the labour laws can be divided into compliance under central laws and the specific state laws.
We have compiled a list of central laws and examples of specific state laws herein.
| Sr. No | Labour Laws | Applicability | Registration/ Implementation | Penalty for non-compliance with the applicable laws |
| 1 | Employee’s State Insurance Act, (ESI Act 1948) | a) Working with the aid of power- 10 or more employees b) Without the aid of power- 20 or more employees | Section 2-A of the Act read with Regulation 10-B, registration within 15 days from the date of its applicability to them | Imprisonment for a period extending up to 2 years and a fine of up to INR 5,000. |
| 2 | Prevention of Sexual Harassment of Women at Workplace (Prevention Prohibition and Redressal Act, 2013) (“POSH Act”) | Applicable to all organizations, however the formation of an internal committee is applicable when there are 10 or more employees | The company has to elect an internal committee and pass a board resolution for adopting the internal committee as per the provisions of POSH Act | A fine of INR 50,000 |
| 3 | Maternity Benefit Act, 1961 | Any organization with 10 or more employees | No registration required. However, an organization needs to maintain a muster roll. An organization is required to provide for first and second-time mothers, a leave of 6 months, or 26 weeks, off, which is a paid leave wherein her employer needs to pay her in full. | Imprisonment which may extend to 3 months, or with fine which may extend to INR 500, or with both. |
| 4 | Payment of Gratuity Act, 1972 | Any organization with 10 or more employees | Form A to be filed within 30 days of registration | punishable with imprisonment for a term which may extend to six months, or with fine which may extend to ten thousand rupees or with both |
| 5 | Rights of Persons with Disabilities Act, 2016 | Any organization with 20 or more employees | a) Form E for registration under Rule 27(3). b) Organization needs to appoint a grievance officer as a compliance | Imprisonment up to 6 months and/ or a fine of INR 10,000, or both |
| 6 | Equal Remuneration Act, 1976 | No minimum applicability | Form D- Register to be maintained by the employer | Penalty levied may be up to INR 10,000 |
| 7 | Payment of Bonus Act, 1965 | Any organization with 20 or more employees | In case of new establishments, for the first 5 years, bonus is payable only if the business is profitable. | Imprisonment for six months or may impose a fine of INR. 1000 or both |
| 8 | The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 | Any organization with 20 or more employees | Form 5 to be filled by employers for enrolling new employees for this scheme | For delay in payment of PF- a)For 0 — 2 months delay – @ 5 % p.a. b)For 2 — 4 months delay – @10 % p.a. c)For 4 — 6 months delay – @ 15 % p.a. d)For delay above 6 months – @ 25 % p.a. (subject to a maximum of 100%) |
List of Central Labour Laws applicable to Start-ups
State Specific Labour Laws applicable to Start-ups
Types Of Applicable Legislations For Specific States:
•State-specific shops and establishment acts
•State-specific labour welfare acts
•State-specific professional tax acts
STATE OF MAHARASHTRA AND KARNATAKA COVERED HEREIN
State Specific Labour Laws applicable to Start-ups
A. For Maharashtra
| Sr. No | Labour Laws | Applicability | Registration/ Implementation | Penalty for non-compliance with the applicable laws |
| 1 | Maharashtra Shops and Establishment Act, 1948 | Applicable to all organizations. Any organization with 10 or more employees needs to register. | Form A to be filed for registration | Fine which shall be not less than INR 1,000 but which may extend to INR 3,000 along with the prescribed registration or renewal Fee |
| 2 | Maharashtra Labour Welfare Fund Act, 1953 | Any organization with 05 or more employees | Form A to be filed for registration | A fine of INR 500 and/or imprisonment up to 3 months |
| 3 | The Maharashtra State Tax on Profession, Trades, Callings and Employments Act, 1975 | Applicable to all organizations/ establishments | Form I-I and I-II to be filled for enrollment | Employer will be liable to pay a simple interest @ 1.25% of the tax payable for each month for which the tax remains unpaid. |
Maharashtra Labour Laws applicable to Start-ups
B. For Karnataka
| Sr. No | Labour Laws | Applicability | Registration/ Implementation | Penalty for non-compliance with the applicable laws |
| 1 | Karnataka Shops and Commercial Establishments Act, 1961 | Applicable to all. Organizations with 10 or more employees have to register | Registration of establishment in Form B | punishable with fine up to INR 1,000 and in case of a continuing contravention, a further fine of up to INR 2,000 for every day during which such contravention continues |
| 2 | The Karnataka Tax on Professions, Trades, Callings And Employment Act, 1976 | Applicable to all person working in Karnataka | Registration of establishment under Sec 5 | Penalty not exceeding fifty per cent of the amount of tax due. This penalty shall be in addition to the interest payable under sub-section (2) or (3) of section 11. |
Karnataka Labour Laws applicable to Start-ups
About the Author
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Koustubh Athavale
Senior Associate | Legal | koustubh.a@treelife.in
Provides expertise in commercial contracts, dispute resolution, and data privacy. Leverages extensive experience in the startup ecosystem to deliver tailored legal solutions for diverse business needs.
Garima Mitra
Co-founder | garima@treelife.in
Spearheads Transactions, Contracts, and Compliance verticals. Combines expertise in business law and a passion for social impact to shape the legal and financial ecosystem for startups.
Pooja Savla
Principal Associate | Transactions | pooja.s@treelife.in
Specializes in transaction advisory, including mergers and acquisitions, investment structuring, and corporate legal matters. Combines a strong background in law and finance to drive seamless transactions and business growth.
We Are Problem Solvers. And Take Accountability.
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