Ravi owns a small water purifier sales business in Pune. His cousin Meena runs a bakery from home with two helpers, while their friend Sadiq manages a 30-person garment stitching unit on the city outskirts. All three are MSME entrepreneurs — but each is caught in a different stage of the same struggle: figuring out labour law compliance.
Do they need to register under EPF? What if they don’t have 20 employees? What even counts as “formal employment”?
If you’re an entrepreneur like them, you’ve probably faced these questions too. Labour laws often feel overwhelming, especially when you’re juggling inventory, sales, staff, and customers. That’s why we created this guide — to break down India’s labour law maze in a way that makes sense for real-world MSMEs, whether you have 2 employees or 200.
Why Labour Law Compliance Matters for MSMEs
Labour laws are not just legal obligations; they are tools to create safe, fair, and productive workplaces. Timely compliance helps:
- Avoid penalties and legal complications
- Gain credibility with clients, vendors, and funders
- Ensure employee welfare and retention
- Access benefits like subsidies, schemes, and formal credit
Key Labour Laws and Their Applicability to MSMEs
This section outlines major labour laws and which MSMEs they apply to, based on employee count, type of work, and nature of establishment.
1. Minimum Wages Act, 1948
- Applies to all MSMEs employing at least 1 worker, where the role falls under scheduled employment. (Scheduled Employment differs from state to state).
- Ensures state-mandated minimum wages are paid.
Even informal setups are not exempt when their activities fall under scheduled employment categories. In Our Example, Meena’s bakery may be required to follow the Minimum Wages Act, 1948, even if she employs just two helpers, provided their work falls under a scheduled employment in her state. Most states include “bakery work”, “food processing,” or “shops and establishments” in their list of scheduled employments. If her helpers are working regular hours and she pays wages, she is likely expected to:
- Pay at least the state-notified minimum wages
- Maintain basic wage records
- Ensure no unauthorized deductions
2. Payment of Wages Act, 1936
- Applies to employees earning less than ₹24,000/month.
- Requires timely, full wage payments with no unauthorized deductions.
3. Equal Remuneration Act, 1976
- Applicable where male and female employees are engaged in similar work.
- Ensures equal pay for equal work, regardless of gender.
4. Employees’ State Insurance (ESI) Act, 1948
- Mandatory for MSMEs with 10+ employees/20+ Employees (Number of Employees and establishment covered Depends on State) earning < ₹21,000/month.
- Requires registration and contribution to ESI fund.
5. Payment of Gratuity Act, 1972
- Applicable when an MSME employs 10+ workers at any point during the last 12 months.
- Gratuity payable after 5 years of continuous service.
6. POSH Act, 2013 (Sexual Harassment of Women at Workplace)
- Applies to all establishments with 10+ employees.
- Requires formation of Internal Complaints Committee (ICC).
7. Employees’ Provident Fund (EPF) Act, 1952
- Applies to MSMEs with 20+ employees.
- Mandates PF contributions from employer and employee.
8. Payment of Bonus Act, 1965
- Applicable to MSMEs with 20+ employees.
- Bonus must be paid annually if eligibility conditions are met.
9. Factories Act, 1948
- Applies to manufacturing units employing:
- 10+ workers with power, or
- 20+ workers without power
- Covers working hours, safety, sanitation, and welfare.
10. Industrial Disputes Act, 1947
- Applies to all industrial establishments, regardless of size.
- Governs lay-offs, retrenchments, strikes, and grievance redressal.
- Stricter provisions apply at 50+/100+ employees.
11. Industrial Employment (Standing Orders) Act, 1946
- Mandatory for establishments with 50+ workmen.
- Requires certified standing orders on employment conditions.
12. Trade Unions Act, 1926
- Applies where 7 or more workers wish to form a union.
- Minimum 10% of workforce or 100 members (whichever is less) needed for registration.
13. Shops and Establishments Act (State-specific)
- Applies to all commercial establishments regardless of size.
- Regulates working hours, leaves, holidays, and closure.
Common Labour Records MSMEs Should Maintain
- Employee master data (name, ID, salary, etc.)
- Attendance and leave records
- Salary slips and wage register
- Appointment letters and resignation letters
- Bonus and gratuity records (where applicable)
- Digital records and HR tools can greatly simplify this process.
Status of New Labour Codes: What Has Been Notified?
The Government of India has introduced four labour codes, but as of now, only partial provisions of the Code on Wages, 2019 have been notified. Specifically:
- Sections 42(1), (2), (3), (10), and (11) – only to the extent they relate to the Central Advisory Board
- Clauses (s) and (t) of Section 67(2) – for rule-making regarding the Central Advisory Board
- Section 69 – only insofar as it relates to Sections 7 and 9 (Central Government) and Section 8 of the Minimum Wages Act, 1948
This means that the main provisions concerning minimum wages, payment of wages, bonuses, equal remuneration, and compliance have not yet come into effect. Until then, existing acts like the Minimum Wages Act, Payment of Wages Act, Payment of Bonus Act, and Equal Remuneration Act continue to apply.
Final Thoughts: Know What You Need, When You Need It
There’s no “one-size-fits-all” for labour compliance. Here’s a quick mindset guide:
- 1–5 employees? Focus on wages, working conditions, and fair pay.
- 10+ employees? Start tracking ESI, Gratuity, POSH, and Shops Act seriously.
- 20+ employees? You’re now in full compliance zone — EPF, Bonus, Factories Act (if applicable).
- Manufacturing or industrial? Expect extra rules under IDA and Factories Act.
⚠️ Note: This blog focuses only on labour laws applicable to MSMEs. Depending on your business type (food, healthcare, education, fintech, etc.), sector-specific regulations may also apply — such as FSSAI, Clinical Establishments Act, SEBI, etc.
Grow smart, stay compliant. 2025 is your year!