Which Labour Code Obligations Apply at What Headcount
By Varun M
There's no single "small business exemption" headcount under the new labour codes — five different obligations kick in at five different worker counts, spread across three different codes. The one most small businesses miss isn't a high threshold at all.
New Labour Code Salary Calculator
Model wage and PF obligations that apply regardless of your headcount.
The short answer
The lowest, easiest-to-miss threshold is 20 workers — that's when a Grievance Redressal Committee becomes mandatory, well before any of the higher-profile thresholds (factory registration, contract labour licensing, standing orders) apply. A business thinking of itself as "too small" for labour-code compliance at 25 or 30 workers is very likely wrong.
Six obligations, spread across several different headcounts
Sorted by threshold, lowest first. Each row is a genuinely separate rule from a different part of the codes — crossing one threshold doesn't mean you've crossed any of the others.
| Threshold | Obligation | Source code |
|---|---|---|
| 20+ workers | Grievance Redressal Committee mandatory (equal employer/worker representation, max 10 members, women representation proportionate to your women workforce) | Industrial Relations Code, 2020 |
| 20+ employees | Statutory bonus becomes applicable (employed on any day during the accounting year, not necessarily all at once) — see when statutory bonus must be paid for the full coverage rules, including new-establishment treatment | Code on Wages, 2019 |
| 20+ / 40+ workers | Factory registration required (20+ with power, 40+ without power — up from 10/20) | OSH Code, 2020 |
| 50+ contract workers | Contract labour licensing required (up from 20) | OSH Code, 2020 |
| 50 / 300 workers | Lay-off/retrenchment/closure obligations — a 3-tier structure, see below | Industrial Relations Code, 2020 |
| 300+ workers | Standing Orders must be framed and certified (up from 100) — below this, the Code doesn't require standing orders at all (unlike the old Standing Orders Act, the Code removed the fallback that used to apply Model Standing Orders below the threshold) | Industrial Relations Code, 2020 |
The lay-off/retrenchment/closure tier, in full
This is the one most often oversimplified as "under 300 = exempt." It isn't — it's a genuine three-tier structure:
- Fewer than 50 workers: no government permission, no notice requirement — retrenchment compensation only (15 days' average pay per completed year of service).
- 50–299 workers: no government permission needed, but 1 month's notice (or pay in lieu) plus retrenchment compensation is required for retrenchment; a worker who is laid off (not retrenched) must be paid 50% of basic wages + DA for the lay-off period.
- 300+ workers: prior government permission is required before any lay-off, retrenchment, or closure — on top of the notice and compensation obligations above.
For the full detail on notice requirements specifically (including the resignation-notice distinction, which the law doesn't set at all), see notice period under the new labour code. The 50% wages + DA lay-off obligation for the 50–299 tier is distinct from retrenchment notice — lay-off is a temporary work stoppage, retrenchment is a termination, and they carry different obligations even within the same headcount tier.
Why the 20-worker thresholds get missed
Every other threshold on this page is 40 workers or higher, so it's easy to assume "labour code compliance" only starts mattering once you're a mid-sized employer. Two obligations break that pattern at once, both landing at 20 workers — the Grievance Redressal Committee and statutory bonus applicability — well within range for many small businesses that would otherwise consider themselves exempt from everything on this page. If you're at or approaching 20 workers, these are the first obligations you'll actually hit, not the last.
What doesn't have a threshold at all
Don't read this page as "small businesses are broadly exempt." The Code on Wages' core obligations — timely wage payment, wage slips, the 50% wage floor for PF and gratuity purposes — apply regardless of headcount, from your very first employee. See payslip and wage payment rules under the new labour code for what applies to every employer, no threshold involved.
FAQ
20 workers — that's when a Grievance Redressal Committee becomes mandatory under the Industrial Relations Code. It's the lowest and most frequently missed threshold, well below the higher-profile 50/300-worker thresholds most employers focus on.
No — that's an oversimplification. Below 300 workers, you're exempt from the government-permission requirement for lay-off/retrenchment/closure and from mandatory Standing Orders, but obligations like the Grievance Redressal Committee (20+), factory registration (20+/40+), contract labour licensing (50+), and the lay-off/retrenchment notice-and-compensation rules (50+) can all still apply well before 300.
It's a 3-tier structure. Under 50 workers: no government permission, no notice requirement, retrenchment compensation only. 50–299 workers: no permission needed, but 1 month's notice plus compensation for retrenchment, and 50% of wages+DA for lay-off. 300+ workers: prior government permission is required on top of the above.
No — timely wage payment and mandatory wage slips under the Code on Wages apply to every employer from their first employee, with no small-business exemption at all.
No, and unlike the old Industrial Employment (Standing Orders) Act, there's no fallback to Model Standing Orders below the threshold either — the Industrial Relations Code removed that provision, so establishments under 300 workers simply aren't required to have certified standing orders under the Code.
Last verified: 18 Aug 2026
Sources: Industrial Relations Code, 2020 (Grievance Redressal Committee, standing orders, lay-off/retrenchment/closure tiers); Occupational Safety, Health and Working Conditions Code, 2020 (factory registration, contract labour licensing thresholds).
This is general information, not legal advice. Thresholds, exemptions, and state-specific variations can change with notified rules — confirm your organisation's exact obligations with legal or HR compliance counsel before relying on this for a compliance decision.