Karnataka Labour Welfare Fund (Amendment) Act, 2025: What Has Changed and How Employers Should Comply

With effect from 7 January 2026, the Karnataka Labour Welfare Fund (Amendment) Act, 2025 (“Act”) has come into force pursuant to Gazette Extraordinary Notification No. DPAL 82 SHASANA 2025, and from an employer’s standpoint, this amendment is more than a routine statutory update it significantly reshapes the compliance landscape. The most immediate change is the expansion of coverage. Establishments employing ten or more persons are now brought within the ambit of the Act, replacing the earlier threshold of more than fifty employees. For many small and mid-sized businesses, this marks a shift from being outside the regulatory framework to becoming active contributors to the labour welfare fund, necessitating prompt registration and ongoing compliance.

From an operational perspective, the introduction of online payment channels is a practical and employer-friendly reform. Contributions, which were earlier limited to cheques or crossed demand drafts, can now be remitted through net banking, NEFT, RTGS and UPI, while retaining the option of demand drafts. This change reduces administrative delays, eases reconciliation, and provides a transparent digital trail, particularly beneficial for employers managing multiple payroll cycles or decentralised operations.

This amendment must also be read alongside the revised contribution rates introduced in 2024, which increased the employee and employer contributions to ₹50 and ₹100 respectively. While these rates remain unchanged, their applicability now extends to a larger segment of establishments newly covered under the ten-employee threshold, increasing both payroll and statutory planning considerations for employers.

Overall, the amendment reflects a clear policy intent to widen employee welfare coverage while simultaneously modernising compliance mechanisms. For employers, particularly smaller establishments, this will require an initial investment in setting up internal processes such as accurate employee tracking, payroll integration, digital payment systems and record management. In the longer run, however, these measures are likely to streamline compliance, reduce manual intervention and align labour welfare obligations with broader digital governance and ease-of-doing-business objectives.

Key Compliance Steps for Employers

• Assess applicability based on current employee strength (10 or more employees).
• Register under the Act with the Karnataka Labour Welfare Fund Authority, if not already registered.
• Update payroll systems to reflect applicable employee and employer contributions.
• Enable digital payment modes (net banking / NEFT / RTGS / UPI) and align internal SOPs.
• Maintain contribution and employee records for audit and inspection readiness.
• Communicate deductions transparently to employees through payslips or internal policy updates.

Contributed By – Devesh