Labour Law Compliances For Startups In India

Introduction

The 114 unicorns amounting to a total valuation of $350 billion (as of March 2024), reflects a flourishing startup ecosystem in India[1]. In particular, they provide drive to technology and employment generation. Navigating labour law compliance is not easy, making it important for startups to follow suit to maintain a healthy operational culture, build trust among employees, and lure top talent. Following the labour laws is key to enabling startups to stay away from penalties, protect workers’ rights, and uphold a reputation in wholesome dealings.

Within numerous regulations, being conversant with labour laws and adhering to them is much more than a mere legal obligation; it is the strategic step toward long-term sustainability. In being compliant, startups are privy to government benefits and subsidies while minimizing the risk of lawsuits, disputes, and blackening their image and securing a working environment free of bias and full of transparency.

Few Important Labour Law Compliances Required To Be Followed Are:

Owners must start businesses by complying with labour laws: that is, registration under respective acts. The Shops and Commercial Establishments Act (S&E) concerns commercial establishments like offices and shops, regulating working hours, holidays, and working conditions. The Factories Act envisages registration, under certain conditions regarding manufacture or minimum staff strength, with a view to assuring workers’ health, safety, and needs. Registration is compulsory for businesses employing contract labourers, as they fall under the provisions of the Contract Labour Act to safeguard the welfare and rights of contract labourers. Proper registration will ensure lawful compliance and the rights of both employees and business are protected.

Laws applicable[2]:

1. Wage Laws

Wage legislation is a crucial benchmark striking a balance between reasonable remuneration to workers. A few of the significant legislations passed are:

Minimum Wages Act, 1948: This law requires firms to pay a minimum wage as determined by the government. Minimum wage varies depending on state and industry requirements, and enforcement is left in the hands of employers to apply the minimum wage of their jurisdiction.
Payment of Wages Act, 1936: Through this Act, employees must receive wages in the form of money, cheque, or bank remittance, totally according to the wishes of workers, and payments must be made in time and without illegal deduction.
Payment of Bonus Act, 1965: Any company employing 20 employees or more is required to pay an annual bonus to such employees who are eligible. But those employees who have worked for less than 30 days in a year are exempt from the bonus.

Equal Remuneration Act, 1976: It enunciates that equal pay for equal work should be en-coded in employment irrespective of gender. The Act ensures equal pay between men and women for similar work.

2. Working Hours, Overtime, and Holidays

Labor Laws, Governing Hours of Work, Ensure Fair Payment of Workers Who Work Overtime-Rest Days have been contracted in a sound, caring way-

Weekly Holiday Act, 1942: A weekly rest extending for at least one full day must be allowed for all commercial establishment’s merchants, theatres, and restaurants every week.

Overtime: Employees who work for extra hours beyond the standard work hours entitled to will be paid overtime at a higher prescribed rate according to the law.

3. Leave Policies

The employer must formulate a leave policy that is not only in accordance with the law but also for the welfare of its employees:

The Maternity Benefit Act, 1961- Says that a female employee gets 26 weeks of paid maternity leave, provided she has completed 80 days’ work in the preceding 12 months. Further, it offers other benefits like nursing breaks along with protection against work termination during maternity leave.

Sick Leave and Annual Leave: Employees are entitled to have annual leave and sick leave, and the responsibility to safeguard their entitlement falls on the fact that the law is written and governs the employers.

4. Social Welfare and Financial Security

The government takes different approaches to the goal of protecting employees financially. All the concerned employees will get inputs equal from the startups:

Employees’ Provident Fund (EPF) Act, 1952: All organizations that have one or more employees are required to contribute to the Employees’ Provident Fund (EPF)-a retirement fund, a proportion of an employee’s monthly salary contributed to the fund by the employer and the employee.

Employees’ State Insurance (ESI) Act, 1948: Provides coverage for organizations employing 10 or more workers with incomes below a set salary limit. Provides insurance against health and social security benefits such as sickness, maternity, and disability.

5. Workplace Welfare and Safety

Startups must ensure safe working conditions and meet workplace welfare legislation:

Factories Act, 1948- A startup would have to meet the provisions of health, safety, and welfare of this Act, for example, safety of employees, regulation of working hours, sanitation, and welfare facilities, if such startup is a factory as far as the number of employees or industry is concerned.

Employees Compensation Act, 1923- Requires the employers to insure against compensation in the event of any worker injured or killed by reason of his employment. The start-ups must insure or guarantee against liquidation of such claims.

6. Sexual Harassment Policies

Start-ups must, as per the given laws, formulate policies to discourage and address sexual harassment in the workplace and ensure a respectful and safe working environment:

Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013: Under this act, it is mandatory for all business owners, even start-ups, to set up an Internal Complaint Committee to file any sexual harassment case. It asks the company to maintain a zero-tolerance approach to harassment so that a safe working environment can be offered to each employee, particularly women.

7. Gratuity and Bonus

Start-ups need to adhere to two major provisions of employee benefit regulations.

Payment of Gratuity Act, 1972: Companies with 10 or more employees are bound to make payments of gratuity to those employees who retire after five years of service in a single company. Gratuity is an amount of money paid lumpsum to the employee as a token of goodwill by the employer while parting ways.

The Payment of Bonus Act, 1965: A company that has 20 or more employees is required to give a bonus every year to all the eligible employees, typically ranging from 8.33 percent to 20 percent of the employees’ monthly salary based on the company’s profits.

8. Dispute Resolution and Trade Unions

The startups should also note laws that govern the industrial dispute resolution and the workers unions.

The Industrial Disputes Act of 1947: This Act regulates the redressal of any disputes between any employer and any employee concerning the layoff, retrenchment, or closure of any establishment. Startups must pursue all such processes of dispute resolution to avoid legal hindrance.

The Trade Unions Act of 1926: This Act provides for the establishment and registration of a trade union by the employees. Startups, especially those with sufficient numbers of their employees, may have to conduct negotiations through trade unions.

Conclusion:

Labour law compliance in India is the cornerstone for startups ensuring sustained growth and a congenial work environment. Legal compliance in wages, working hours, leave policies, and social security avoids incurring any legal penalties and protects worker rights. Certain critical labour laws to be observed include the Minimum Wages Act, Employees’ Provident Fund Act, and Maternity Benefit Act-all of which impose equitable compensation upon the employer-protecting the finances and basic rights of the employee.

Also, those employees are nurtured and instilled with loyalty or trust. Compliance under the Factories Act and the Sexual Harassment Act assists in providing a safer and more respectful working environment. Compliance with gratuity, laws of the bonus, and dispute resolution will further strengthen relations with employees and decrease risks of any hot-water legal issues. Instances show that such compliance not only minimizes the legal risks posed to such startups but also augments their stature, which in turn attracts quality talents providing a surety to the startup of enjoying a long and fruitful existence with sustained manpower. Proper labor law adherence is imperative for a flourishing and responsible business.

[1] Invest India (2025) Role of government initiatives in boosting startups. Available at: https://www.investindia.gov.in/blogs/role-government-initiatives-boosting-startups (Accessed: 13 February 2025).

[2] HG.org (2025) Startups and labour law compliances in India. Available at: https://www.hg.org/legal-articles/startups-and-labour-law-compliances-in-india-66786 (Accessed: 13 February 2025).

King Stubb & Kasiva,
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