What Is the Minimum Number of Employees Required for PF, ESI, Gratuity, and Bonus in India?
Every Indian business owner hits the same wall at some point: “We just hired our 10th person. Do we need to register for ESI now? What about PF? When does gratuity kick in?”
These are not abstract questions. Getting the threshold wrong can cost you lakhs in penalties, interest charges, and even imprisonment under certain labour laws. And the rules are not the same across all laws. PF kicks in at 20 employees. ESI can apply at 10 in factories. Gratuity starts at 10 employees but has completely different eligibility rules.
The problem is that no single government website consolidates all these thresholds in one place. Business owners have to read through the EPF Act, ESI Act, Payment of Gratuity Act, and Payment of Bonus Act separately, and then figure out how state level laws like Professional Tax and Labour Welfare Fund layer on top.
This guide puts every applicability threshold, wage limit, contribution rate, and registration deadline in one place so you know exactly when each law applies to your business.
Quick Reference: Master Applicability Threshold Table
Before diving into the details, here is the complete picture at a glance.
| Labour Law | Minimum Employees | Wage/Salary Limit | Employer Contribution | Employee Contribution |
|---|---|---|---|---|
| EPF (Provident Fund) | 20 | Basic + DA up to ₹15,000/month | 12% of basic + DA | 12% of basic + DA |
| ESI (Employee State Insurance) | 10 (factory) / 20 (others) | Gross up to ₹21,000/month | 3.25% | 0.75% |
| Gratuity | 10 | No wage limit | 4.81% of basic (approx.) | Nil |
| Bonus | 20 | Salary up to ₹21,000/month | 8.33% to 20% | Nil |
| Professional Tax | 1 (varies by state) | Varies by state | Nil | Up to ₹2,500/year |
| Maternity Benefit | 10 | No wage limit | As per Act | Nil (covered by employer/ESI) |
| Minimum Wages | 1 | Scheduled employment | As per notification | N/A |
| Shops & Establishments | 1 | No limit | N/A | N/A |
| Labour Welfare Fund | Varies by state | Varies | ₹20 to ₹75/year | ₹6 to ₹52/year |
Now let us break down each law in detail.
1. Provident Fund (EPF): 20 or More Employees
The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 is the most common compliance trigger for growing businesses.
When Does PF Apply?
PF becomes mandatory when your establishment employs 20 or more persons on any day. This includes all types of workers: permanent, temporary, contractual, and casual employees.
| PF Applicability Factor | Details |
|---|---|
| Minimum employees | 20 on any single day |
| Types of employees counted | All categories: permanent, temporary, contract, casual |
| Wage ceiling for contribution | ₹15,000/month (basic + DA) |
| Employee contribution | 12% of basic + DA |
| Employer contribution | 12% of basic + DA (3.67% to EPF + 8.33% to EPS) |
| Registration deadline | Within one month of crossing the threshold |
| Voluntary registration | Available for establishments with fewer than 20 employees |
The “Once Covered, Always Covered” Rule
This is one of the most critical rules that business owners miss. Once your establishment becomes covered under the EPF Act (because you had 20 or more employees), the Act continues to apply even if your employee count drops below 20 later. You cannot deregister simply because you reduced staff.
For example, if your Pune based IT services company had 22 employees in March 2026 and you registered for PF, but then 5 employees resigned in April bringing the count to 17, you still need to continue PF compliance for all remaining employees.
Voluntary PF Registration
If you have fewer than 20 employees, you can still register voluntarily. This requires consent from the employer and a majority of employees. Many startups choose voluntary registration because it helps attract talent. Employees see PF as a basic benefit, and companies offering it from day one appear more professional.
To understand how EPF contributions are calculated and the recent EPF reforms that affect contribution rates, check our detailed guides.
PF Contribution Breakdown
| Component | Employee Share | Employer Share |
|---|---|---|
| EPF (Provident Fund) | 12% | 3.67% |
| EPS (Pension Scheme) | Nil | 8.33% |
| EDLI (Insurance) | Nil | 0.50% |
| Admin charges | Nil | 0.50% |
| Total | 12% | 13% |
Note: The contribution is calculated on basic salary plus dearness allowance. If an employee’s basic + DA is ₹20,000 per month, the contribution is still calculated on ₹15,000 (the wage ceiling) unless the employer opts to contribute on the actual salary.
What Counts as an “Establishment” for PF?
The EPF Act applies to every establishment that is a factory engaged in any industry listed in Schedule 1 of the Act, and to any other establishment employing 20 or more persons. This covers factories, shops, offices, and virtually every type of business.
2. ESI (Employee State Insurance): 10 or 20 Employees
The Employees’ State Insurance Act, 1948 provides medical, sickness, maternity, and disablement benefits to employees.
When Does ESI Apply?
The threshold depends on the type of establishment:
| Establishment Type | Minimum Employees for ESI |
|---|---|
| Factories (using power) | 10 or more |
| Factories (without power) | 20 or more |
| Shops, hotels, restaurants, cinemas, road transport, newspaper establishments | 20 or more (10 in some states) |
| Medical and educational institutions | 20 or more (where notified) |
| Private IT/ITES establishments | As notified by state government |
ESI Wage Limit
ESI applies only to employees earning a gross salary of ₹21,000 per month or less (₹25,000 for persons with disability). If an employee’s gross salary exceeds ₹21,000, that individual employee is exempt from ESI, but the establishment must still be registered if it meets the employee count threshold.
| ESI Factor | Details |
|---|---|
| Employee wage ceiling | ₹21,000/month gross (₹25,000 for PwD) |
| Employer contribution | 3.25% of gross wages |
| Employee contribution | 0.75% of gross wages |
| Total contribution | 4% of gross wages |
| Contribution period 1 | April to September |
| Contribution period 2 | October to March |
| Payment due date | 15th of the following month |
Important: State Notifications Matter
Several state governments have notified ESI applicability for establishments with 10 or more employees, even for non-factory establishments. Before assuming the 20 employee threshold applies to your business, check the notification issued by your state government.
For instance, the ESI Corporation has been progressively expanding coverage to new areas and types of establishments. If your business operates in a recently notified area, you may need to register even if you were previously exempt.
For a complete understanding of how ESI fits into your payroll compliance checklist, including deadlines and filing requirements, refer to our detailed compliance guide.
How ESI and PF Interact
Many business owners ask whether they need both ESI and PF. The answer is: it depends on your employee count and their salaries.
| Scenario | PF Applicable? | ESI Applicable? |
|---|---|---|
| 8 employees, all earning ₹18,000/month | No (below 20) | No (below 10/20 threshold) |
| 12 employees in a factory, earning ₹15,000/month | No (below 20 for PF) | Yes (10+ in factory for ESI) |
| 22 employees, all earning ₹35,000/month | Yes (20+ for PF) | Registered, but no ESI deduction (salary above ₹21,000) |
| 25 employees, 15 earning ₹18,000 and 10 earning ₹30,000 | Yes (20+) | Yes for 15 employees earning below ₹21,000 |
3. Gratuity: 10 or More Employees
The Payment of Gratuity Act, 1972 applies to establishments employing 10 or more persons on any day in the preceding 12 months.
When Does Gratuity Apply?
| Gratuity Applicability Factor | Details |
|---|---|
| Minimum employees | 10 on any day in the preceding 12 months |
| Employee eligibility | 5 years of continuous service |
| Calculation formula | Last drawn salary × 15/26 × years of service |
| Maximum gratuity payable | ₹20,00,000 |
| “Once covered, always covered” | Yes, continues even if employees drop below 10 |
| Applicable to | Factories, mines, oilfields, plantations, ports, railway companies, shops, and establishments |
Understanding the “Any Day in Preceding 12 Months” Rule
This is where many employers get confused. You do not need to maintain 10 employees throughout the year. If on even a single day in the past 12 months you had 10 or more employees (including temporary and contract workers), the Gratuity Act applies to your establishment.
For example, suppose your retail business in Hyderabad normally has 7 full time employees. During Diwali season (October to November), you hire 4 temporary workers, bringing the total to 11. The Gratuity Act now applies to your establishment, and it continues to apply even after the temporary workers leave.
Gratuity Calculation with Example
For an employee who has worked for 8 years and 7 months (rounds up to 9 years since the service period exceeds 6 months in the last year) with a last drawn monthly salary (basic + DA) of ₹25,000:
Gratuity = ₹25,000 × 15/26 × 9 = ₹1,29,808
| Component | Value |
|---|---|
| Last drawn salary (basic + DA) | ₹25,000/month |
| Service period | 8 years 7 months (rounded to 9 years) |
| Calculation | ₹25,000 × 15 ÷ 26 × 9 |
| Gratuity amount | ₹1,29,808 |
For a detailed breakdown of how gratuity works as an employee benefit, including tax implications and special cases, read our comprehensive guide.
Key Point: No Wage Ceiling for Gratuity
Unlike PF and ESI, there is no wage ceiling for gratuity applicability. Every employee who has completed 5 years of continuous service is eligible, regardless of their salary level. The only cap is on the maximum gratuity payable, which is ₹20 lakh.
4. Bonus: 20 or More Employees
The Payment of Bonus Act, 1965 mandates that employers pay a bonus to eligible employees.
When Does the Bonus Act Apply?
| Bonus Applicability Factor | Details |
|---|---|
| Minimum employees | 20 or more on any day during the accounting year |
| Employee salary eligibility | Up to ₹21,000/month |
| Calculation ceiling | ₹7,000/month or minimum wage (whichever is higher) |
| Minimum bonus | 8.33% of salary |
| Maximum bonus | 20% of salary |
| Payment deadline | Within 8 months of closing the accounting year |
| “Once covered, always covered” | Yes |
| New establishments | Exempt for first 5 years (with conditions) |
Who Gets Bonus and How Much?
Not every employee in a covered establishment is eligible for bonus. The Act specifies these conditions:
| Condition | Requirement |
|---|---|
| Minimum working days | 30 days in the accounting year |
| Salary threshold | Drawing up to ₹21,000/month |
| Disqualification | Dismissed for fraud, violent behaviour, or theft |
The minimum bonus of 8.33% is payable regardless of whether the company made a profit. This is often referred to as “statutory bonus.” If the company has allocable surplus, it may need to pay up to 20%.
Bonus Calculation Example
For an employee earning ₹18,000 per month:
Since the salary (₹18,000) exceeds the calculation ceiling (₹7,000 or minimum wage, whichever is higher), the bonus is calculated on the ceiling amount.
Assuming the applicable minimum wage is ₹8,500 per month (higher than ₹7,000):
Minimum bonus = ₹8,500 × 12 × 8.33% = ₹8,497 per year
Maximum bonus = ₹8,500 × 12 × 20% = ₹20,400 per year
New Establishment Exemption
If your business is newly established, you get a conditional exemption for the first 5 years. During this period, bonus is payable only in the years where you have made a profit. However, starting from the 6th year, the minimum bonus of 8.33% is mandatory regardless of profitability.
5. Other Labour Laws and Their Thresholds
Beyond the four major laws, several other regulations kick in at specific employee counts. Understanding these is equally important for full compliance.
Maternity Benefit Act, 1961
| Factor | Details |
|---|---|
| Applicability | 10 or more employees |
| Benefit duration | 26 weeks paid leave (first 2 children), 12 weeks (third child onwards) |
| Eligibility | 80 days of work in 12 months preceding delivery |
| Work from home | Employer may allow after 26 weeks, if nature of work permits |
| Crèche facility | Mandatory for establishments with 50+ employees |
| Interaction with ESI | If ESI covers the employee, maternity benefit is provided through ESI |
Shops and Establishments Act
This is a state level law, and every state has its own version. The key point is that it applies to virtually every business, even with just 1 employee.
| State | Registration Threshold | Registration Deadline |
|---|---|---|
| Maharashtra | All shops and commercial establishments | Within 30 days of commencing business |
| Karnataka | All shops and establishments | Within 30 days |
| Delhi | All commercial establishments | Within 30 days |
| Tamil Nadu | All shops and establishments | Within 30 days |
| Gujarat | All shops and establishments | Within 30 days of commencing work |
This means even a solo founder who hires their first employee needs to register under the Shops and Establishments Act of their state.
Professional Tax
Professional Tax is a state level tax that applies to salaried individuals and professionals. Not all states levy it, and rates vary significantly.
| State | Maximum Annual PT | Monthly Deduction Range |
|---|---|---|
| Maharashtra | ₹2,500 | ₹175 to ₹300/month |
| Karnataka | ₹2,400 | ₹200/month |
| West Bengal | ₹2,500 | ₹110 to ₹208/month |
| Andhra Pradesh | ₹2,500 | ₹150 to ₹200/month |
| Telangana | ₹2,500 | ₹150 to ₹200/month |
| Tamil Nadu | ₹2,500 | ₹135 to ₹208/month |
| Gujarat | ₹2,500 | ₹200/month |
| Madhya Pradesh | ₹2,500 | ₹150 to ₹208/month |
States that do not levy Professional Tax include Rajasthan, Haryana, Uttarakhand, Delhi, Himachal Pradesh, Jammu & Kashmir, and several northeastern states.
Labour Welfare Fund (LWF)
LWF is a state level fund, and both the contribution amount and frequency vary by state.
| State | Employee Contribution | Employer Contribution | Frequency |
|---|---|---|---|
| Maharashtra | ₹6/half year | ₹18/half year | Half yearly (June & December) |
| Karnataka | ₹20/year | ₹40/year | Annual (January) |
| Tamil Nadu | ₹10/half year | ₹20/half year | Half yearly |
| Delhi | ₹0.75/month | ₹0.75/month | Half yearly |
| Andhra Pradesh | ₹30/year | ₹70/year | Annual |
| Gujarat | ₹6/half year | ₹12/half year | Half yearly |
Contract Labour (Regulation and Abolition) Act, 1970
| Factor | Details |
|---|---|
| Applicability for principal employer | 20 or more contract workers on any day in the preceding 12 months |
| Applicability for contractor | 20 or more workers on any day in the preceding 12 months |
| Registration | Principal employer must register; contractor must obtain a licence |
The Complete Threshold Map: When Each Law Kicks In
This section gives you a clear picture of what happens as your business grows from 1 employee to 50 and beyond.
Growth Stage: 1 to 9 Employees
| Law | Status |
|---|---|
| Shops & Establishments Act | Applicable (register within 30 days) |
| Minimum Wages Act | Applicable (pay at least the state minimum wage) |
| Professional Tax | Applicable (in states that levy it) |
| TDS on Salary | Applicable if salary exceeds basic exemption limit |
| PF | Not mandatory (voluntary registration available) |
| ESI | Not mandatory |
| Gratuity | Not applicable yet |
| Bonus | Not applicable |
| Maternity Benefit | Not applicable |
Growth Stage: 10 to 19 Employees
| Law | Status |
|---|---|
| Everything from Stage 1 | Still applicable |
| ESI | Mandatory if it is a factory (10+ threshold) |
| Gratuity | Now applicable (10+ threshold) |
| Maternity Benefit Act | Now applicable (10+ threshold) |
| PF | Still not mandatory (but voluntary registration available) |
| Bonus | Still not applicable |
Growth Stage: 20 to 49 Employees
| Law | Status |
|---|---|
| Everything from Stage 1 and 2 | Still applicable |
| PF | Now mandatory (20+ threshold) |
| ESI | Now mandatory for non-factory establishments (20+ threshold) |
| Bonus | Now applicable (20+ threshold) |
| Contract Labour Act | Applicable if you use 20+ contract workers |
Growth Stage: 50+ Employees
| Law | Status |
|---|---|
| Everything from previous stages | Still applicable |
| Crèche facility | Mandatory under Maternity Benefit Act |
| Industrial Disputes Act | Specific provisions on layoffs, retrenchment, and closure apply at 100+ |
| Internal Complaints Committee | Mandatory under POSH Act (10+ employees) |
How to Check Which Laws Apply to Your Business
Follow this step by step process to determine your compliance requirements:
Step 1: Count your total employees correctly
Include every person who works for your business: full time, part time, temporary, contract, and casual workers. Do not exclude anyone based on their designation or salary level when counting for threshold purposes.
Step 2: Identify your establishment type
Determine whether your business is classified as a factory, shop, or commercial establishment. This affects the ESI threshold (10 for factories versus 20 for others).
Step 3: Check the wage and salary levels
Even if your establishment crosses the employee threshold, individual employees may be exempt from certain laws based on their salary. For example, employees earning above ₹21,000 gross are exempt from ESI contribution, and employees earning above ₹21,000 per month are exempt from the Bonus Act.
Step 4: Verify state specific requirements
Check your state’s Shops and Establishments Act, Professional Tax rules, and Labour Welfare Fund requirements. These vary significantly across states. If your business operates in multiple states, you need to comply with each state’s rules separately.
Step 5: Register within the prescribed timeline
| Law | Registration Deadline |
|---|---|
| EPF | Within 1 month of crossing 20 employees |
| ESI | Within 15 days of becoming applicable |
| Shops & Establishments | Within 30 days of starting business |
| Professional Tax | Within 30 days of becoming liable |
Penalties for Not Registering on Time
Missing the registration deadline does not make the law inapplicable. You will owe contributions from the date the law became applicable, plus interest and penalties.
| Law | Penalty for Non Registration |
|---|---|
| EPF | Up to ₹5,000 fine + 1 year imprisonment + 1% per month damages on delayed contributions |
| ESI | Up to ₹5,000 fine + 12% annual interest on delayed contributions |
| Gratuity | Up to ₹10,000 fine + 1 year imprisonment + ₹1,000/day for continuing offence |
| Bonus | Up to ₹1,000 fine + 6 months imprisonment |
| Shops & Establishments | ₹1,000 to ₹25,000 depending on state |
For a detailed breakdown of all labour law penalties in India including exact fine amounts, imprisonment terms, and how to avoid them, refer to our complete penalty guide.
Code on Social Security, 2020: What Changes Are Coming
The Code on Social Security, 2020 consolidates 9 existing laws (including the EPF Act, ESI Act, Payment of Gratuity Act, and Payment of Bonus Act) into a single code. Here is what may change when the rules under this code are fully notified:
| Current Law | Current Threshold | Expected Under New Code |
|---|---|---|
| EPF | 20 employees | Government may notify a lower threshold |
| ESI | 10/20 employees | May be extended to all establishments with 10+ employees |
| Gratuity | 10 employees | May be reduced to cover gig and platform workers |
| Bonus | 20 employees | Threshold likely to remain at 20 |
The Code also introduces coverage for gig workers, platform workers, and self-employed individuals, which is a significant expansion from the current framework. However, until the rules are fully notified and enforced, the existing thresholds under individual Acts remain applicable.
Keep track of recent changes in Indian payroll laws to stay updated as these transitions happen.
Real Scenario: A 15 Employee Bengaluru Startup
Let us walk through a practical example. Imagine you run a 15 employee SaaS startup in Bengaluru with the following team:
| Employee Category | Count | Monthly Salary (Gross) |
|---|---|---|
| Senior developers | 3 | ₹80,000 each |
| Junior developers | 4 | ₹35,000 each |
| Sales team | 3 | ₹25,000 each |
| Operations and support | 3 | ₹18,000 each |
| Office assistant and housekeeping | 2 | ₹12,000 each |
Here is what applies to you:
| Law | Applicable? | Why? |
|---|---|---|
| Shops & Establishments (Karnataka) | Yes | Applies to all establishments |
| Professional Tax (Karnataka) | Yes | Karnataka levies PT on all salaried employees |
| Minimum Wages | Yes | Must pay at least Karnataka minimum wage |
| TDS on Salary | Yes | For employees above ₹3,00,000 annual (new regime) |
| PF | No (but recommended) | You have only 15 employees (threshold is 20) |
| ESI | Yes, if notified area | For 5 employees earning below ₹21,000 gross |
| Gratuity | Yes | 15 employees (threshold is 10) |
| Bonus | No | You have only 15 employees (threshold is 20) |
| Maternity Benefit | Yes | 15 employees (threshold is 10) |
| POSH Act (ICC) | Yes | 15 employees (threshold is 10) |
Your estimated monthly compliance cost:
| Component | Monthly Cost |
|---|---|
| Gratuity provision (4.81% of basic for all 15) | Approximately ₹18,000 to ₹22,000 |
| ESI employer contribution (3.25% for 5 eligible employees) | Approximately ₹3,250 |
| Professional Tax (employer registration) | ₹2,500/year total |
| TDS filing | Time and effort, no direct cost |
| Total additional compliance cost | Approximately ₹23,000 to ₹27,000/month |
Once you hire 5 more employees and reach 20, PF and Bonus will also become mandatory, adding approximately ₹50,000 to ₹60,000 per month to your compliance costs (depending on salary levels).
Common Mistakes Businesses Make
Mistake 1: Not Counting Contract Workers
Many businesses believe that contract workers or outsourced staff do not count toward the threshold. This is incorrect. For PF, ESI, and the Contract Labour Act, contract workers employed through a contractor at your premises are counted when determining applicability.
Mistake 2: Thinking Salary Exempts the Establishment
If all your employees earn above ₹21,000 per month, you still need to register for ESI if you meet the employee count threshold. No ESI deductions will be made from their salary, but the registration requirement remains.
Mistake 3: Not Provisioning for Gratuity from Day One
Many small businesses do not set aside gratuity provisions until an employee actually completes 5 years and claims it. This leads to a sudden, large payout that strains cash flow. The correct approach is to provision 4.81% of basic salary every month from the time the Gratuity Act becomes applicable.
Mistake 4: Ignoring the “Once Covered, Always Covered” Rule
As discussed earlier, once PF, Gratuity, or the Bonus Act becomes applicable to your establishment, it continues to apply even if your employee count drops below the threshold. Some businesses try to deregister after reducing staff, but this is not legally permitted and can result in penalties.
Mistake 5: Not Registering for Multiple State Compliances
If your business operates across multiple states, you need separate registrations for Professional Tax, Labour Welfare Fund, and Shops & Establishments in each state. Using HRMS software with multi state compliance can automate this significantly.
How SalaryBox Automates Compliance Tracking
Keeping track of when each law becomes applicable, calculating the right contributions, and filing returns on time is a significant burden for growing businesses. This is especially true when you are crossing thresholds and new laws keep getting triggered.
SalaryBox payroll software automates the entire process:
Automatic PF and ESI calculation: SalaryBox calculates PF contributions at 12% of basic + DA and ESI at 3.25% (employer) and 0.75% (employee) automatically. You do not need to manually compute these for each employee every month. The software handles the ₹15,000 wage ceiling for PF and the ₹21,000 wage ceiling for ESI, applying exemptions where applicable.
Gratuity provisioning: SalaryBox tracks each employee’s service period and calculates gratuity liability in real time. You can see your total gratuity provision at any point and plan your cash flow accordingly.
Bonus computation: When your establishment crosses the 20 employee threshold, SalaryBox automatically identifies eligible employees (those earning up to ₹21,000/month), calculates bonus on the correct ceiling (₹7,000 or minimum wage, whichever is higher), and generates the bonus register.
Professional Tax and TDS: SalaryBox applies the correct Professional Tax slabs based on your state and calculates TDS on salary based on the employee’s declared regime (old or new) and investment declarations.
Compliance alerts: The software alerts you when you are approaching a threshold (for example, when you have 18 employees and are nearing the PF registration trigger) so you can prepare for registration before the deadline hits.
For startups setting up HR for the first time, SalaryBox can be configured in under 24 hours with all applicable compliances pre-set based on your employee count, location, and industry.
Frequently Asked Questions
1. Can an employer with fewer than 20 employees voluntarily register for PF?
Yes. Under Section 1(4) of the EPF Act, an employer and the majority of employees can jointly apply to the Central Provident Fund Commissioner for voluntary coverage. Once granted, the establishment becomes covered under the EPF Act with the same rights and obligations as mandatorily covered establishments. Many startups opt for voluntary registration to offer PF benefits and attract better talent.
2. Do contract workers count toward the employee threshold for PF and ESI?
For PF, the count of 20 employees includes all categories of workers, including contract workers engaged through a contractor. For ESI, the threshold count includes employees directly employed by the establishment. Contract workers are covered under their contractor’s ESI registration. However, the principal employer has the ultimate responsibility to ensure compliance.
3. What happens if an employee’s salary crosses ₹21,000 after ESI registration?
If an employee who was contributing to ESI receives a salary increase that takes their gross above ₹21,000, they continue to receive ESI benefits until the end of the current contribution period (either September or March). From the next contribution period, they become exempt from ESI contribution. The establishment itself remains registered as long as it meets the employee count threshold.
4. Is gratuity applicable to employees who resign before completing 5 years?
Generally, no. An employee must complete 5 years of continuous service to be eligible for gratuity. However, there are exceptions. Gratuity is payable regardless of the service period in the event of death or disablement of the employee. Some court rulings have also held that a service period of 4 years and 240 days can be treated as 5 years for gratuity purposes.
5. Can a startup claim exemption from the Bonus Act for the first 5 years?
Yes, under Section 16 of the Payment of Bonus Act, a new establishment is not required to pay minimum bonus during the first 5 years. However, bonus is payable in any profitable year during this period, calculated based on the allocable surplus. From the 6th year onward, the minimum bonus of 8.33% is mandatory regardless of profitability.
6. How do I determine whether my establishment is a “factory” for ESI purposes?
Under the Factories Act, 1948, a “factory” is a premises where 10 or more workers work (or worked on any day in the preceding 12 months) with the aid of power, or 20 or more workers work without the aid of power, in a manufacturing process. If your establishment meets this definition, the lower ESI threshold of 10 employees applies. Most IT companies, consulting firms, and service businesses are not factories and follow the 20 employee threshold.
7. Does the Maternity Benefit Act apply even if the establishment is covered under ESI?
If an establishment is covered under ESI and the female employee is eligible for ESI benefits (earning up to ₹21,000 gross), the maternity benefit is provided through the ESI scheme. The employer does not need to separately comply with the Maternity Benefit Act for that employee. However, for female employees earning above ₹21,000 (who are not covered under ESI), the employer must provide maternity benefits directly under the Maternity Benefit Act, 1961.
8. What are the penalties for not paying gratuity on time?
Under Section 9 of the Payment of Gratuity Act, the employer must pay gratuity within 30 days of it becoming payable (from the date it becomes due). If the employer does not pay within this period, the employer is liable to pay simple interest at a rate notified by the government (currently 10% per annum) from the date of the employee’s application. Additionally, non-payment can result in a fine of up to ₹10,000, imprisonment of up to 1 year, or both. For a continuing offence, an additional penalty of ₹1,000 per day can be imposed.
Understanding when each labour law becomes applicable is the first step toward building a compliant business. As your company grows, use this guide as a reference to stay ahead of registration deadlines and avoid penalties. For automated compliance tracking that grows with your business, explore SalaryBox.
