पाठशाला Pathshala · नियम Niyam, Law and compliance · Lesson 13 · Build

Labour law: PF, ESI, gratuity and the thresholds that trigger them

Labour law arrives in steps: at the first hire, at ten, at twenty, at fifty and at three hundred. Each step needs a registration that should exist before the hire that crosses it.

Pathshala, The Founder Library · 11 October 2026 · 7 min read

A long aisle between spinning machines in an Indian textile mill, with a single worker walking away down it. — Photograph: Rajesh Kumar Verma · Pexels

A company does not grow into labour law gradually. It crosses lines. The tenth employee brings state insurance, gratuity and an internal committee on sexual harassment in the same month; the twentieth brings the provident fund; the fiftieth a crèche. Each registration should be in place when the line is crossed, not when an inspector notices that it was.

Since 21 November 2025 those lines sit in four labour codes rather than twenty-nine Acts. This lesson maps them by headcount, checked against the Ministry of Labour and Employment, the Press Information Bureau and the EPFO on 10 October 2026, with a figure that shows which obligations a given team size switches on. It ends with a quarterly review that keeps the company one step ahead of its own hiring plan.

Four codes, one headcount

The Ministry of Labour and Employment confirmed that the four labour codes came into force on 21 November 2025. They consolidate twenty-nine laws: four into the Code on Wages, three into the Industrial Relations Code, nine into the Code on Social Security and thirteen into the Occupational Safety, Health and Working Conditions Code. The provident fund, state insurance and gratuity laws a founder has heard of are now chapters of the Social Security Code. The EPFO and ESIC still run the schemes. What changed is the rulebook above them and, in places, the lines themselves.

Three things matter before the thresholds. First, every line counts employees, so the question of who is an employee comes before the question of how many; a contractor who works like an employee counts like one, which is the subject of [a separate lesson](/library/contractors-interns-employees-who-should-be-what). Second, the codes changed the definition of wages: where allowances and other excluded payments exceed half of total remuneration the excess is added back to wages, which raises the base on which provident fund and gratuity are computed. A salary with basic pay at 35 per cent of gross now carries a larger wage base than it did in October 2025. Third, the codes are written to be enforced by a facilitator first and a prosecutor second, which changes what an inspection is for. The last section covers that.

From the first employee

Some obligations have no threshold at all. The codes mandate an appointment letter for every worker, setting out the job, the wages and the social security that applies. The wage payment rules now apply to every employee whatever they earn, where they used to stop at ₹24,000 a month. Overtime is paid at twice the normal rate and only with the worker’s consent.

The sexual harassment law applies from the first employee too. Under the POSH Act 2013 a workplace with fewer than ten workers does not constitute its own committee; complaints go to the Local Committee the district officer sets up. The company still needs a written policy that tells people this, because the employer’s duties under the Act do not wait for a headcount.

Two activities pull the social security net in early. Where the work is hazardous or life-threatening, ESI is mandatory for even a single worker. And a company that runs a gig or platform marketplace is an aggregator under the Social Security Code, which contributes 1 to 2 per cent of annual turnover, capped at 5 per cent of what it pays those workers, to a fund for them. That obligation follows the business model, not the payroll: a ten-person company with ten thousand delivery partners is an aggregator from its first rupee of turnover.

At ten: ESI, gratuity, the Internal Committee and registration

Ten is the busiest line. ESI applies to establishments employing ten or more, and since the codes it applies across the country rather than only in notified areas. Below ten the employer and employees may join voluntarily if both agree. ESI covers employees up to a wage ceiling that ESIC notifies, so in a startup it often covers support, operations and warehouse staff and not engineers. Check the current ceiling on the ESIC portal when you register; it has moved before.

Gratuity becomes payable by every establishment with ten or more employees to anyone who leaves after five years of continuous service, or earlier on death or disablement. The codes cut the wait for fixed-term employees to one year, with gratuity in proportion. A company that hires on one-year contracts to stay flexible now accrues gratuity on every one of them. Gratuity is a liability that builds silently: provide for it in the books from the tenth hire, not from the first resignation.

Under the POSH Act an employer with ten or more workers must constitute an Internal Committee by a written order, and the committee files an annual report. Failing to constitute it is punishable with a fine of up to ₹50,000, and the harm to a company that has no committee on the day a complaint arrives is larger than the fine. And the OSH Code sets a uniform ten-employee threshold for a single electronic registration of the establishment, replacing six separate ones.

At twenty: the provident fund

The Employees’ Provident Fund applies to every establishment with twenty or more employees regardless of the industry. The test is the establishment’s headcount; once it applies, it applies to every eligible employee, not only the twenty-first. Membership is mandatory for employees drawing basic wages and dearness allowance up to ₹15,000 a month, and the employee contributes 12 per cent of basic, dearness allowance and retaining allowance, matched by the employer. Of the employer’s 12 per cent, 8.33 per cent goes to the pension scheme, subject to the ₹15,000 ceiling.

Put rupees on it. A twenty-two-person team with an average wage base of ₹40,000 a month pays ₹4,800 an employee a month in employer contribution if it contributes on the full wage, about ₹1.06 lakh a month for the team. The number that surprises founders is not the contribution but its base: after the codes, a salary with ₹35,000 of basic in a ₹1 lakh package has ₹15,000 of allowances added back, because exclusions above half of remuneration count as wages. Model the structure on the [wages test](/library/employment-contracts-offer-letters-that-hold-up) before the offer letters go out, not after the first EPFO return.

Registration is on the EPFO’s employer portal, and returns and contributions are filed online every month. The useful habit is to register when the eighteenth person signs, because the twentieth will arrive faster than the paperwork.

At fifty and at three hundred

At fifty employees the Social Security Code requires a crèche, with four visits a day allowed; where none is provided, a crèche allowance of at least ₹500 a month a child for up to two children. The maternity provisions apply alongside: twenty-six weeks of leave for a woman who has worked eighty days in the twelve months before the expected delivery, up to eight of them before it, and two nursing breaks a day until the child is fifteen months old. Most startups meet the crèche rule through an allowance or a shared facility; the decision should be on paper before the fiftieth hire.

The interior of a busy factory in Ahmedabad, with rows of machinery under a high roof. — At three hundred the Industrial Relations Code turns a lay-off into a government process. Plan headcount around that line deliberately. Photograph: Kalpesh Damor · Pexels

At three hundred, the Industrial Relations Code’s two heavy obligations begin. The threshold for standing orders, the written conditions of service that must be certified, and for government permission before a lay-off, retrenchment or closure rose from one hundred to three hundred, and states may raise it further. The code also provides a reskilling fund for retrenched workers. For a startup this is the line that turns a restructuring from a board decision into a government process; plan headcount around it deliberately.

Registering before the inspector arrives

The codes recast the inspector as an inspector-cum-facilitator, with randomised web-based inspections, and they give an employer a thirty-day notice of improvement to correct a violation before prosecution. That is a real change from the old regime. It rewards a company that can produce its registrations, registers and returns from one folder on the day it is asked, and it punishes one that has to start registering after the notice arrives.

The money side is softer than it was, but not soft. Imprisonment has been replaced with fines for thirteen offences under the Social Security Code, and a first offence punishable only by fine can be compounded for half the maximum fine; offences carrying fine or imprisonment, for three-quarters. Provident fund inquiries must start within five years and finish within two, and an appeal now needs a deposit of 25 per cent of the amount assessed. Five years is a long look-back. A company that skipped provident fund at twenty-three employees in 2026 can face an assessment for every month since, and the contributions it never deducted from salaries become its own problem to fund.

Labour law is a set of lines, not a slope. Register in the quarter before the hire that crosses each one.

The headcount review, every quarter

In the first week of each quarter, take the hiring plan for the next two quarters and write down the date the company will cross ten, twenty and fifty, counting contractors who work like employees. For any line due within six months, prepare the registration now: ESIC papers at eight, the EPFO at eighteen, the Internal Committee and its order at eight, the OSH Code registration at nine, the crèche decision at forty-five. Check the ESI wage ceiling and the provident fund ceiling against the portals, and note the date checked. Confirm that every person on the rolls has an appointment letter on the current template. File the evidence in one folder. Then ask the accountant one question: what changed in the codes’ rules this quarter? The codes are young, and the company that rereads them four times a year is the one that is never surprised.

Nothing here is legal or tax advice; confirm the current rule with a chartered accountant or lawyer before acting.