Hiring in India comes with its own legal playbook, and missing a single chapter can slow down everything—from onboarding to payroll to compliance audits. For companies setting up a Global Capability Center, getting labor law basics right isn’t just about ticking boxes. It’s about protecting your brand, building employee trust, and making sure your operations don’t hit avoidable roadblocks.
The challenge? India’s labor laws are detailed, layered, and often vary from state to state. Some rules apply the moment you hire your first employee, while others kick in as your team grows. If your GCC is in the early planning stages or already operational, knowing what applies—and what’s changing—is essential.
This guide walks through the key laws you need to understand. No legal jargon, just practical insight to help you stay compliant while you focus on building and scaling your team.
Must Know Indian Labor Laws for GCC
1. Shops and Establishments Act
This is one of the first laws you’ll deal with when starting your GCC in India. Every office-based business, including GCCs, needs to register under the Shops and Establishments Act in the state where it operates. It’s not optional.
Each state has its own version of this law, which means the rules can vary depending on whether your center is in Bangalore, Hyderabad, Pune, or any other city. The act regulates working hours, opening and closing times, weekly offs, leave policies, and working conditions.
Even if your company already follows global HR policies, you still need to align those with local law. For example, while your global handbook might offer unlimited paid time off, the state act may define a minimum number of earned leaves, sick leaves, or holidays—and you’re expected to meet those thresholds.
Inspections are part of the process. Labor officers can show up to check whether your records, such as employee registers and wage books, are updated and compliant. Failing to register or maintain proper documentation can lead to penalties or unnecessary scrutiny.
For a smooth setup, complete your registration within 30 days of starting operations, and update it every time there’s a change in address or team size. If you’re in multiple states, you’ll need to register separately in each.
2. The Factories Act, 1948
This law usually applies to manufacturing units, but if your GCC includes hardware labs, testing facilities, or any setup where physical processes are involved, you might fall under its scope. It’s worth checking—even if you think you’re running a purely digital operation.
The Factories Act focuses on safety, health, and working conditions for employees. It mandates standards around ventilation, lighting, sanitation, and equipment safety. If you employ ten or more people with power-driven machinery, or twenty or more without, you’re likely covered under this law.
What trips up companies is the assumption that “factory” means heavy industry. In India, the legal definition is broader. If your GCC involves server rooms, engineering labs, or even an in-house product testing environment, you may be subject to it.
The act also sets rules for working hours, overtime, weekly holidays, and rest intervals. You can’t simply implement global shift policies without making sure they comply with these local rules.
It’s a law you might not expect to deal with, but skipping it can lead to issues if your operations grow or change scope. The best move is to consult with a local legal advisor as soon as your center starts planning anything beyond standard office work.
3. The Industrial Disputes Act, 1947
This law comes into play the moment you have employees on payroll. It sets out the legal framework for managing disputes, layoffs, retrenchments, and termination. If you ever need to downsize, restructure, or manage exits, you’ll need to follow this act closely.
For example, if you’re letting go of more than 100 workers in certain states, you may need government permission before doing so. Even for smaller teams, advance notice, severance, and proper documentation are required. Skipping steps or using global templates that don’t align with this law can lead to lawsuits or delays in settlement.
This act also requires companies to establish a grievance redressal mechanism. It’s not just a best practice—it’s a compliance need. So, whether it’s a junior engineer or a senior team lead, there must be a formal way for them to raise issues and get responses.
Your internal policies must reflect these requirements. HR teams in India should be trained on how the act works, especially around disciplinary actions and terminations. Being reactive here is risky. Plan ahead.
4. The Payment of Gratuity Act, 1972
Gratuity is a statutory benefit, not a bonus. Any employee who completes five or more years of continuous service is entitled to receive gratuity when they leave, whether due to resignation, retirement, or termination.
The amount is based on a formula: 15 days’ wages for every completed year of service, calculated using the last drawn basic salary and dearness allowance. There’s a cap on the total payout, which the government revises from time to time.
Many global companies miss this because gratuity isn’t a common practice in all countries. But in India, it’s mandatory. Your finance team should account for it from day one, as it builds up as a liability on your books.
You also need to file forms and maintain records as per the law. If you delay or default on gratuity payments, it can attract interest and even legal penalties.
5. The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
If your GCC has 20 or more employees, you’re legally required to enroll them in the Employee Provident Fund (EPF) scheme. This is a retirement benefit plan where both employer and employee contribute 12% of the employee’s basic salary each month.
It’s not optional unless the employee qualifies for exemption based on previous salary history and documentation. Many international companies assume they can replicate their global retirement plans here. That’s a mistake.
The law also includes provisions for pension and insurance. So it’s more than just savings. It’s part of India’s social security net.
You need to register with the EPFO, file monthly returns, and ensure timely payments. Non-compliance can lead to penalties and employee dissatisfaction. Automating this through payroll software or a local payroll provider is a good idea, especially as your team grows.
6. The Employees’ State Insurance Act, 1948
If your GCC hires any employees earning ₹21,000 per month or less, you are required to enroll them under the Employee State Insurance (ESI) scheme. This law ensures they have access to healthcare, maternity benefits, and disability coverage.
The employer contributes 3.25% of wages, while the employee contributes 0.75%. These contributions go to the ESI Corporation, which manages hospitals and dispensaries across India.
Even if your company offers private health insurance, you can’t skip ESI for eligible employees. This is a statutory obligation, and opting out is not permitted unless the employee exceeds the wage threshold.
You’ll need to register with the ESIC portal, maintain accurate records, and file returns regularly. It’s especially relevant if you’re hiring junior support staff, interns, or contractors through third parties. You’re still responsible for ensuring compliance.
7. The Code on Wages, 2019
This is one of the newer labor codes introduced to simplify India’s complex wage laws. It combines four previous laws, including the Minimum Wages Act and Payment of Wages Act, into a single code.
The Code defines minimum wages at the national and state levels and applies to all employees, not just those in scheduled employment. It also outlines rules on equal pay for equal work, timelines for salary payments, and bonus eligibility.
For your GCC, this means reviewing all offer letters, salary structures, and bonus policies to make sure they align with the latest wage code provisions. Since enforcement rules vary by state, you’ll also need to stay updated on notifications specific to your location.
The government is still finalizing implementation timelines, so staying in touch with a local compliance advisor is key. Even if you follow fair compensation practices globally, Indian labor law has specific formats and timelines that must be followed.
8. The Maternity Benefit Act, 1961
This law applies to every company with 10 or more employees and provides paid maternity leave for women employees. After recent amendments, the leave period has increased to 26 weeks for the first two children and 12 weeks for any subsequent births.
The law also covers leave for adoption and commissioning mothers. In addition to paid leave, companies with 50 or more employees must provide crèche facilities, either onsite or through a tie-up with a local provider.
You can’t offset this requirement by offering extra salary or private benefits. It’s a compliance matter. Your HR policies must reflect this act clearly, and employees should be informed about their rights and the process for applying for leave.
Failure to comply can lead to legal trouble, but more importantly, it sends the wrong message to your team. This law is not just about legal risk—it’s about showing you’re a responsible employer.
9. The Sexual Harassment of Women at Workplace Act, 2013
This law mandates every company with more than 10 employees to set up an Internal Complaints Committee (ICC) to address issues of sexual harassment. It’s not just about having a policy. You need to create awareness, train your team, and ensure that the process is accessible and transparent.
You’re required to display policy information in the workplace, conduct regular sensitization programs, and file annual reports on complaints and resolutions.
It applies regardless of gender or seniority, and covers employees, interns, vendors, and visitors. Remote work doesn’t exempt you either. Virtual meetings and digital communication still fall under the scope.
Ignoring this law or taking a checkbox approach can cause serious reputational damage and invite penalties. Treat this as part of your core workplace culture, not just a legal obligation.
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Conclusion
Labor law compliance in India isn’t just about avoiding penalties, it’s about building a credible, stable operation that earns employee trust and runs without unnecessary friction. For Global Capability Centers, getting these basics right from day one makes it easier to scale, attract talent, and avoid operational setbacks.
India’s legal environment is detailed, and many laws vary by state, role, and employee count. While your global policies provide a foundation, they must be adapted to fit local requirements. From EPF and ESI to maternity leave and workplace conduct, every law plays a role in how your GCC is perceived and how well it runs.
Stay proactive. Work with a local compliance expert, keep your policies updated, and treat labor law as part of your core business setup, not an afterthought.
FAQs
Do labor laws in India vary by state?
Yes. While many labor laws are central, their implementation and certain provisions—like those under the Shops and Establishments Act—are controlled by individual states. Always check state-specific rules when setting up a new GCC location.
Is it mandatory to register under the Shops and Establishments Act?
Yes. All commercial establishments, including offices, must register under the respective state’s Shops and Establishments Act within 30 days of starting operations.
Can we offer better benefits than what the law requires?
Yes, but never less. You can enhance benefits like leave policies or bonuses, but the legal minimums set by Indian labor laws must always be met.
Are global HR policies enough to cover compliance?
No. Global policies can be a strong starting point, but they must be adapted to align with Indian laws. Legal language, payroll structures, and compliance documentation often differ.
How often do labor laws in India change?
Many laws remain stable for years, but there has been significant recent reform through labor codes. Companies should monitor changes regularly or work with compliance consultants to stay current.