India Employment Law

Employment Law Regime

India employment law is determined by the Indian Constitution and the Concurrent List (Seventh Schedule). These documents give the state governments and central government permission to implement additional legislation that impacts employment. Indian law distinguishes between two types of employers—all employers are understood to be either factories or establishments.

In India, employees are broadly split into two specific categories:

(1) “Workman” (which is specifically defined in the Industrial Disputes Act 1947 (IDA)), (2) Non-workman.

A “workman”, as defined under the IDA, is an employee who is engaged to do, among other things, any manual, skilled or unskilled, technical, operational, clerical or general supervisory work for hire or reward, which does not include either:

• Being engaged in a managerial or administrative capacity.
• Being engaged in a supervisory capacity and drawing wages of more than INR10,000 (approximately USD120) per month.

Any employee not categorized as a “workman” is, in effect, a “non-workman” (that is, employees engaged in a managerial, administrative or supervisory capacity and earning more than INR10,000 per month).

Employment Contracts

Permanent employees are those hired for any skilled, semi-skilled or unskilled, manual, operational, supervisory, managerial, administrative, technical or clerical work for hire or reward, whether the terms of employment be expressed or implied, with no fixed termination date. Employees in industrial establishments become permanent after their probation of 6 months.

Permanent employees enjoy statutory benefits such as paid annual leave, sick leave, gratuity pay, provident fund, compulsory health insurance. 

Under the Contract Act, oral contracts are allowed in India and are binding between the parties. However, since oral agreements are difficult to uphold in court, a written contract is the best option for any employment relationship. 

According to the Industrial Relations Code 2020, written contracts are not mandatory for hiring permanent or casual employees, however, fixed-term employees must be hired on a written contract. Oral contracts, like written contracts, may be revoked with sufficient notice to the employee. 

Industrial Relations Code 2020 recognizes implied employment contracts. Certain terms are implied in every contract, such as the entitlement of the employee to recover wages owed from the employer. The Contract Act protects implied promises as long as the implications are rightfully part of the job. Terms that are generally implied in the employment relationship include an employee’s duty of fidelity, confidentiality, and protection of the employer’s property.

Holiday’s in India

National holidays:

• Republic Day – January 26
• Independence Day – August 15
• Gandhi Jayanthi – October 2

Nationwide gazetted holidays:

• Republic Day
• Independence Day
• Gandhi Jayanti
• Mahavir Jayanti
• Budha Purnima
• Christmas Day
• Dussehra
• Diwali (Deepavali)
• Good Friday
• Guru Nanak’s Birthday
• Eid ul-Fitr
• Eid al-Adha (Bakrid)
• Muharram
• Prophet Mohammad’s Birthday (Id-e-Milad)

In addition to the holidays listed above, there are also individual state and union territory holidays.

Termination of Employment

Notice Period

Employees who have worked for at least one year must be given written notice to terminate their contracts. The duration of notice period depends on the number of employees in the establishment and reason for termination:

Establishments with at least 50 employees – 1 month 

Closure of establishment with at least 50 employees – 60 days

Establishments with at least 300 employees – 3 months 

Severance Benefits

Employees who have worked for at least 1 year are entitled to severance pay equal to 15 days’ wages for each year of work when they are dismissed by their employers with valid reason. No compensation is paid to employees who refuse to accept any alternative employment offered by their employers or dismissed as a result of disciplinary action. Employees who are dismissed due to transfer or closure of establishment due to unavoidable reasons are also entitled to severance pay, provided that their severance pay does not exceed 3 months’ wages.

Employees who leave a job after having rendered 5 continuous years of service are entitled to gratuity payment at the rate of 15 days’ pay for each completed year of continuous service or any part thereof exceeding 6 months.

Provident Fund

The Employees’ Provident Fund (EPF) is insurance for employers with at least 20 employees and some organizations with more than 50 employees. For companies with fewer than 20 workers, the program is voluntary. For employees with basic wages less than or equal to INR 15,000 per month, contributions are 12% of the monthly salary, and the employer contributes 3.67%. For employees with basic wages over INR 15,000 per month, the contribution is the same: 12% of the monthly salary and the employer contributes 12%.