The compliance staircase: what switches on at 1, 10, 20 and 50 employees

Indian labour law is a staircase. Obligations do not scale smoothly with your business; they switch on at specific headcounts, and they switch on the day you cross, not the day you notice. Most owners discover a step retrospectively — usually from an inspector, a resigning employee, or a customer's vendor-compliance questionnaire.

The steps below are the ones that catch small businesses. Treat them as a map of where to look, not as a substitute for checking your own state's rules, because a fair amount of this is state law and the numbers genuinely differ across states.

Employee one

Hiring anybody at all puts you inside the state's Shops and Establishments Act, in almost every state, and registration is generally due within 30 days of starting. This is the registration that everything else — your trade licence, sometimes your current account, frequently your customers' onboarding checks — refers back to.

From the first employee you also owe the housekeeping: a written appointment letter, a wage register and attendance record, payment through a bank account, TDS on salary where applicable, and Professional Tax registration in the states that levy it.

Two things that surprise people at this step: paying someone as a "consultant" against an invoice does not exit you from labour law if the working relationship is that of an employee, and family members who draw a wage are employees for most of these counts.

Ten employees

Ten is the step that changes the most in one go.

• ESI applies to establishments at 10 or more employees in most states (20 in some), for employees below the wage ceiling, with the employer contributing the larger share.
• Gratuity — the Payment of Gratuity Act applies at 10 or more employees, and once it has applied it continues to apply even if your headcount later falls. It becomes payable to an employee who completes five years of continuous service, which means the liability accrues quietly for years before the first payment.
• Maternity benefit obligations apply at 10 or more employees: 26 weeks of paid leave for the first two children, and it is the employer who pays.
• POSH — an Internal Committee for sexual harassment complaints is mandatory at 10 or more employees, with a specific composition including an external member, and an annual report. This is the single most commonly missed obligation at this size, and it is not a policy document. It is a standing committee.

If you use power and employ 10 or more workers in manufacturing (or 20 or more without power), the Factories Act and its licensing regime is the other thing to check at this step.

Twenty employees

• EPF applies at 20 or more employees, for employees below the wage ceiling, with employer and employee contributions and monthly ECR filing. Voluntary coverage below 20 is possible, and once you are in, you stay in.
• Engaging 20 or more contract workers through a contractor brings the contract labour regime in — the principal employer has registration and record obligations of its own, and is liable if the contractor defaults on wages.

At this size you also stop being able to run payroll compliance as a monthly scramble. The filings are dated, the penalties are automatic, and interest on delayed EPF deposits is not negotiable.

Fifty employees and beyond

• Crèche facility obligations arrive at 50 employees under maternity benefit law.
• Somewhere between 50 and 100, depending on your state, standing orders — formally certified conditions of employment — become mandatory.
• Higher thresholds bring works committees, safety committees and canteen obligations, most of which are state-specified.

The part that is genuinely in flux

India consolidated 29 labour laws into four codes — wages, industrial relations, social security, and occupational safety — and the codes were brought into force in November 2025. State-level rules under them are still landing, and several thresholds and definitions (notably "wages", which changes contribution arithmetic) are affected.

What this means for you practically: the structure above is stable, because the codes largely carried the thresholds forward, but the exact numbers and the filing mechanics in your state are the thing to verify right now rather than assume.

What to do with this

1. Write down your current headcount, counting every person who draws a wage — including family, part-time and probationers.
2. For each step at or below that number, note whether you are registered and filing, or not.
3. For the next step up, note the date you expect to cross it, and register before you do.
4. Keep a single folder of registration certificates. Every vendor-compliance questionnaire from here on will ask for the same six documents.

The expensive version of labour compliance is not the contributions. It is the arrears, the interest, and the certificate you cannot produce when a customer asks.

Thresholds vary by state and by establishment type, and the labour codes are actively changing the detail. Use this as a map of what to check — then check it against your own state, or ask Vyavsay AI to run your headcount, state and sector and tell you what is switched on.