Employment laws in India: What employers must know in 2026

Employment laws in India govern workplace rights, wages, social security, and industrial relations. They are primarily governed by four consolidated Labor Codes covering wages, industrial relations, social security, and occupational safety. Employers must provide statutory benefits, including provident fund (EPF), gratuity, paid leave, and minimum wages to employees. The rules vary by state, industry, and workforce size, making compliance complex for employers hiring in India. 

Navigating the employment laws in India is complex. Employers and employees must know about wages and compensation, social security and benefits, working hours and leave, workplace equality, and more. Non-compliance can result in costly legal and compliance penalties.

This is where hiring through an Employer of Record (EOR), such as Payoneer Workforce Management, offers support to engage local talent with compliance support as per employment laws in India. 

Payoneer Workforce Management helps employers navigate employment laws in India seamlessly to remain compliant. To know more about the EOR service, schedule a demo now!

What are the key employment laws in India?

The key employment labor laws in India, precisely India’s employment framework, are governed by four consolidated Labor Codes, namely the Code on Wages (2019), Industrial Relations Code (2020), Code on Social Security (2020), and Occupational Safety, Health and Working Conditions Code (2020). These labor codes replace 29 central labor laws in India. The key provisions in these laws include a statutory minimum wage, 12% employer PF contribution, gratuity after five years, capped working hours of 48 per week, and mandatory maternity leave of 26 weeks. 

Here are the details of the key labor laws and regulations employers should be aware of when hiring in India:

• The Code on Wages (2019): This code includes laws to set minimum wages, timely payment of wages, bonus payments, and equal remuneration based on gender.
• The Industrial Relations Code (2020): This code consolidates and streamlines three foundational Indian labor laws, namely the Trade Unions Act, 1926, the Industrial Employment (Standing Orders) Act, 1946, and the Industrial Disputes Act, 1947. This code primarily covers trade union recognition, dispute resolution, and conditions for layoffs, retrenchments, and closures.
• Code on Social Security (2020): This code covers laws and regulations related to provident fund (EPF), employee state insurance (ESI), maternity benefits, gratuity, and other social welfare schemes. 
• Occupational Safety, Health and Working Conditions Code (2020): This code consolidates 13 central labor laws into a single framework. The code simplifies compliance for businesses, while standardizing and ensuring workplace safety standards, welfare provisions, and employee health standards.

What are the employment contracts in India?

Employment contracts in India are legally binding agreements that take place between the employer and the employee. The contracts are governed primarily by the Indian Contract Act, 1872, and applicable state-specific Shops and Establishments Acts. While there is no single central law that mandates written contracts, best practice and several state laws require documented terms covering designation, compensation, working hours, leave entitlements, confidentiality, and termination conditions. 

Mentioned below are the most common types of employment contracts in India. 

Types of contract 

Governed by the Indian Contract Act, 1872, and applicable state-specific Shops and Establishments Acts, there are primarily three types of employment contracts in India. They are as follows:

• Permanent or open-ended contract: This is the most common type of employment contract with no fixed end date. Employment is offered with full statutory benefits, including PF, gratuity, and notice-period protections under the Industrial Relations Code, 2020. 
• Fixed-term contract: This kind of employment contract is formally recognised under the Industrial Relations Code, 2020. These contracts have a fixed start and end date. Such contracts are used in seasonal and project-based industries. 
• Consultancy/Freelance agreement: This is an independent contractor agreement, governed by the Indian Contract Act, 1872. This is more of a business-to-business relationship than a conventional employer-employee relationship.

What are the essential contract terms?

Essential employment contract terms in India must cover designation, compensation structure (including allowances and deductions), working hours, leave entitlements, probation period, confidentiality and non-disclosure obligations, termination conditions, governing jurisdiction, and more. 

While no single central law mandates a written contract, the Industrial Relations Code, 2020, and state-specific Shops and Establishments Acts require documented terms, making comprehensive written agreements critical for legal compliance and dispute resolution. For full-time employees, it helps to set expectations and protect all parties.

Here are the key elements that should be included in an employment contract in India:

• Job title and description, defining the role, responsibilities, and location of work 
• Compensation and benefits, including performance bonuses or incentive pay, along with any applicable allowances, such as housing, travel, etc.
• Retirement and social contributions such as the Employees’ Provident Fund (EPF).
• Working hours, including information on policies for overtime, paid holidays, and leave entitlements.
• Duration and terms of employment
• Probation period and notice period requirements
• Termination and its related clauses
• Confidentiality and non-disclosure agreements

What are the risks if you manage employment laws compliance in India without an EOR?

There are many risks of managing employment laws compliance in India without an EOR. Without an EOR, companies must independently navigate four Labor Codes, state-specific Shops and Establishments Acts, statutory registrations, and payroll obligations. There is a chance of missing out on compliance protocols, leading to legal and financial setbacks for the company. 

Here is a detailed comparison of the risks with and without an EOR:

What is the minimum wage in India?

India does not have a single national minimum wage. The minimum wage rates in the country are determined individually by each state and union territory based on geographical location, skill level, and industry. Still, as per the Code on Wages 2019, the central government mandates a floor wage. No state minimum wage can fall below this rate. 

Typically, the minimum wage in India is INR 14,637 per month.

Employers must comply with the relevant state’s minimum wage notification where the employee is based.

What are the working hours in India?

Working hours in India are not more than 8 hours a day. No worker may work in an establishment for more than 6 days per week. Hence, working hours in India are capped at 48 hours per week.  Employees are entitled to at least 1 or 2 days of rest per week, typically Saturday and Sunday.

There are overtime provisions as well. When workers work more than the statutory working hours, they become eligible for overtime pay. The additional number of hours can be calculated on a daily or weekly basis. Overtime wages are paid at twice the regular wage rate. 

What mandatory benefits are employees entitled to in India?

The statutory benefits to which employees in India are entitled to include Provident Fund contributions (12% employer, 12% employee) under the EPF Act, 1952; gratuity after five years of continuous service under the Payment of Gratuity Act, 1972; ESI health coverage for employees earning up to ₹21,000 per month; maternity leave of 26 weeks; and bonus payments under the Payment of Bonus Act, 1965, where applicable. 

Here are the details of the mandatory benefits that employers have to provide while  employing full-time workers in India

Here is an example for hiring a software engineer in India in compliance with the employment laws. 

A UK-based company wants to hire a senior software engineer in Bengaluru, without incorporating an Indian entity. Using an EOR in India, the candidate is onboarded within days under a locally compliant fixed-term contract governed by the Karnataka Shops and Establishments Act.

The EOR manages all statutory obligations: 12% PF contributions remitted to EPFO, ESI coverage activated as the employee’s salary falls within the ₹21,000 threshold, and gratuity accrual tracked from day one. 

When the fixed-term contract concludes after two years, severance is calculated at 15 days’ wages per year of service. It is fully administered by the EOR, with compliance support for the UK employer.

How does employment termination take place under Indian law?

Employment termination in India can take place in various scenarios, either by the employee or the employer. While the employer can terminate the employee for misconduct, poor performance, theft, or other valid reasons, the employee can also resign voluntarily for several valid reasons. 

Employment termination in India is governed by the Industrial Relations Code, 2020, and applicable state Shops and Establishments Acts. There must be a notice period from the employer (in the majority of cases) and a full and final settlement of the employee’s account before the termination. 

Types of termination scenarios

There are different types of termination scenarios in India. Some of the most common ones include:

• Employees may be dismissed for misconduct, poor performance, or breach of contract.
• Employee resignation.
• Mutual agreement between the employer and the employee.
• Termination due to role redundancy is allowed but must be justified and documented.

Notice period in India

Employers must provide a notice period to employees before termination. Standard notice is typically 7 to 30 days, depending on the employment contract and company policy. 

Severance payable

In India, employees are entitled to severance pay on termination of services. The severance payable is often 15 days’ wages for each completed year of service. The employee must have a minimum of one year of continuous service with the employer. In case the employee does not serve the notice period, the employer pays instead of the notice period. The amount of severance pay also depends on the last drawn salary of the employee.

How to navigate employment laws in India with trusted support?

India offers access to a large, skilled workforce, but the labor laws in the country are complex and highly regulated. It is challenging to navigate all employment aspects, from employment contracts to minimum wages, from termination rules to contribution compliance, and more. 

Working with an Employer of Record (EOR) partner like Payoneer Workforce Management helps navigate the employment laws in India. The EOR also offers assistance with onboarding, payroll, taxation, benefits, HR administration, and compliance support, without setting up a local entity.

Book a demo today!

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