Karnataka Expands Labour Welfare Fund Coverage, Bringing Smaller Establishments Into The Compliance Net

The Government of Karnataka has taken a decisive step towards widening worker welfare coverage by operationalising the Labour Welfare Fund (Amendment) Act, 2025 with effect from 7 January 2026, as notified on 7 January 2026. The amendment significantly reshapes the State’s labour welfare compliance framework and has immediate implications for employers, particularly small and medium establishments that were previously outside its ambit.

The most consequential change introduced by the amendment is the lowering of the applicability threshold. Until now, the Karnataka Labour Welfare Fund regime applied only to establishments employing more than 50 employees. This threshold has now been reduced to 10 or more employees, dramatically expanding the universe of covered employers. As a result, a substantial number of establishments that were earlier exempt will now be required to register under the Labour Welfare Fund and comply with contribution obligations.

From a compliance and operational standpoint, the amendment also reflects a clear push towards digital-first governance. Employers are now permitted to make Labour Welfare Fund contributions through multiple online modes, including net banking, NEFT, RTGS and UPI, in addition to traditional demand drafts. This shift is intended to streamline the payment process, reduce administrative friction and improve transparency in fund collections, aligning labour law compliance with broader ease-of-doing-business reforms.

While the amendment expands coverage, it does not alter the contribution rates, which were already enhanced under the earlier 2024 amendment. The 2025 Act retains these revised rates and extends their applicability to newly covered establishments. Karnataka authorities have further clarified, through a subsequent circular, that employers falling within the expanded threshold are required to register and commence contributions without delay, from the effective date of the amendment.

For employers, particularly those operating with lean workforces, this development warrants immediate attention. Establishments must reassess their employee strength, evaluate registration status and align payroll and compliance systems accordingly. The amendment signals the State’s broader intent to deepen social welfare protection for workers while simplifying compliance mechanisms through digitization. Failure to act promptly may expose employers to statutory non-compliance and attendant penalties under the Labour Welfare Fund framework.