Employment LawEmployment & Labour Law Compliance for Startups in India: A Comprehensive Guide

INTRODUCTION

The rapid development of the startup ecosystem in India has rendered it a nucleus of innovation and new business ventures. Startups, which are heralding the new revolution, are bound to grow as their brand fervour is unparalleled. But while setting up a new business, great care is taken towards growing it, during which labour law compliances can often be overwhelming. Apart from the law-bound business regulations, ensuring full compliance with employment or labour laws represents a deep commitment towards organisational citizenship.

This develops the possibility of being able to reposition policies on reserves while leveraging long-term success in retention. All businesses in the country need to strictly follow an elaborate listing of compliances outlined across various statutes. This blog discusses vital aspects of compliance within the scope of labour laws that are crucial for startups.

UNDERSTANDING THE LEGAL LANDSCAPE

Keeping in mind that Indian labour laws are a blend of both central law and state law, a startup must navigate such a terrain to ensure compliance on both fronts.

Key Legislations include:

1. The Shops and Establishments Act: Governs the stipulations of work, leaves, as well as holidays. Every state has its own amendment, so it is crucial for start-ups to see what is regionally applicable.
2. The Factories Act, 1948: For the manufacturing units, it concerns the health and safety as well as the other welfare components of the staff.
3. The Payment of Wages Act, 1936: Discusses the payment of wages, timelines and deductions.
4. The Minimum Wages Act, 1948: Elaborates the minimum standards and wage boundaries for different industries located in specific regions.
5. The Payment of Bonus Act, 1965: Stipulates the manner of payment of bonuses for eligible employees.
6. The Payment of Gratuity Act, 1972: Mandates the payment of gratuity to employees as a token of appreciation for their long-term service.
7. The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952: provides for the institution of a contributory provident fund, pension fund, and insurance scheme for employees in factories and other establishments.
8. The Employees’ State Insurance Act, 1948: establishes a scheme for health insurance and social security for workers. It provides medical, sickness, maternity, and disability benefits, as well as coverage for dependents in case of the employee’s death due to employment injury.
9. The Industrial Disputes Act, 1947: Deals with the resolution of industrial disputes between employers and employees. It outlines procedures for conciliation, arbitration, and adjudication, and governs matters such as layoffs, retrenchments, strikes, lockouts, and closure of establishments.
10. The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013: Aims to prevent and address sexual harassment of women at workplaces.

STARTUP-SPECIFIC CONSIDERATIONS

Limited resources for a startup amplify the burden of compliance. However, there are several provisions and exemptions that simplify the processes for businesses.

1. Startup India Initiative: Registered startups are provided benefits such as self-certification under six labour laws for five years from the date of incorporation. These include provident fund, gratuity, and contract labour laws.
2. Simplified Compliance Regime: Startups are allowed to submit a self-declaration for compliance, filing under these provisions, which lessens the scrutiny placed on startups.

THE COMPLETE COMPLIANCE CHECKLIST FOR NEW STARTUPS

1. Employment Contract: Provide offer letters stating position, salary, working hours, vacation, and termination (or exit) details.

2. Applicable Act Registrations and Compliance:

• Register under the relevant Shops and Establishments Act within 30 days from starting the operations.
• Register for PF account if there are 20 or more employees. Register for ESI with a minimum of 10 employees drawing wages below the threshold limit.
• Gratuity and Bonus: Start making payments based on the acts, ensure compliance with the assorted gratuity and bonus laws.
• POSH Compliance: Set up an Internal Complaints Committee (ICC) for women employees if the headcount is over 10. POSH policy should be implemented along with training sessions throughout the year.

3. Maintenance of Registers and Records: Keep registers related to the attending, wages, overtime, and deductions.

4. Timely Payment of Wages: Wages should be paid on time, and compliance with laws on wage payments should be met.

5. Notices Displayed: Copies of company policies, working hours, days off, grievance redressal etc. should be posted so everyone can see.

AMLEGALS REMARKS

Startups in India need to embrace laws that govern employment issues, not because they want to avoid legal risks, but as a bound philosophy to optimise reputation and establish a sustainable business.

Ensuring employment and labour law compliance is not just about avoiding penalties, it is about laying a strong foundation for ethical, sustainable, and employee-friendly business growth. For startups, aligning HR practices with legal requirements from the outset builds trust, reduces legal risks, and enhances the company’s reputation among investors, partners, and future hires. By proactively implementing these best practices and staying informed about regulatory updates, startups can focus on innovation and scalability with confidence and integrity.

– Team AMLEGALS assisted by Mr. Vansh Dhingra (Intern)