Mandatory Employment Policies Every Indian Company Must Establish
Operating a business in India demands adherence with numerous employment statutes. No matter if you're a startup or an established organization, knowing and implementing the right guidelines is essential for statutory compliance and building a fair workplace.
Why Employment Policies Are Important
Employment policies function as the foundation of your business's HR management. They ensure transparency to employees, shield both employers and employees, and maintain you're fulfilling your regulatory responsibilities.
Not managing to adopt compulsory policies can result in serious fines, hurt to your standing, and workforce discontent.
Essential Employment Policies Required in India
Let's examine the most essential employment policies that every domestic company should maintain:
1. Anti-Sexual Harassment Policy (Prevention of Sexual Harassment Policy)
The Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act, 2013 is mandatory for all companies with 10 or more employees. This act mandates companies to:
Adopt a comprehensive anti-harassment policy
Constitute an Internal Complaints Committee (ICC)
Communicate the policy visibly in the workplace
Conduct annual awareness programs
Even smaller teams with fewer than 10 employees should implement a zero-tolerance policy and can leverage the Local Complaints Committee (LCC) for Payment of Gratuity Act 1972 complaints.
For organizations looking to streamline their HR policy creation, policy management tools can assist you create legally sound policies rapidly.
2. Maternity Benefit Policy
The Maternity Benefit Act, 1961 offers female staff members significant benefits:
Up to 26 weeks of paid parental leave for the first two children
12 weeks of paid leave for subsequent children
Required to organizations with 10+ employees
Employers must guarantee that pregnant employees are provided their full benefits without any discrimination. The policy should transparently define the request process, documentation needed, and payment terms.
3. Leave Policy (Sick, Casual, and Earned Leave)
Under the Shops & Establishments Act and the Factories Act, 1948, employees are eligible to:
Sick Leave: Generally 12 days per year for health issues
Casual Leave: Usually 12 days per year for short-term matters
Earned Leave: Usually 15 days per year, accrued based on service duration
Your leave policy should transparently outline:
Entitlement criteria
Approval process
Encashment terms
Advance intimation requirements
4. Working Hours and Additional Hours Policy
Under Indian labor laws, working hours are limited at:
8-9 hours per day
48 hours per week
Any work beyond these hours must be compensated as overtime at 2x the normal wage rate. Your policy should clearly outline meal times, work schedule patterns, and overtime calculation methods.
5. Salary and Payment Policy
The Minimum Wages Act, 1948 and the Payment of Wages Act, 1936 ensure that:
Employees are paid at least the minimum wage rates
Compensation are paid on time—generally by the 7th or 10th day of the next month
Cuts are restricted and transparently stated
Your compensation policy should outline the pay breakdown, disbursement timeline, and allowable withholdings.
6. Provident Fund (PF) and Employee State Insurance (ESI) Policy
Statutory security schemes are compulsory for certain establishments:
EPF (Employees' Provident Fund): Required for organizations with 20+ employees
ESI (Employee State Insurance): Mandatory for companies with 10+ employees, applicable to staff earning under ₹21,000 per month
Both company and employee contribute to these schemes. Your policy should explain payment rates, registration process, and claim procedures.
For complete HR compliance management, contemporary HR software can manage PF and ESI contributions automatically.
7. Gratuity Policy
The Payment of Gratuity Act, 1972 is applicable to companies with 10+ employees. Key terms include:
Due to employees with 5+ years of continuous service
Determined at 15 days' pay for each finished year of service
Disbursed at termination
Your gratuity policy should transparently explain the computation method, disbursement timeline, and entitlement criteria.
8. Equal Opportunity and Disability Policy
The Rights of Persons with Disabilities Act, 2016 compels organizations with 20+ staff to:
Maintain an equal opportunity policy
Provide support accommodations
Prohibit discrimination based on disability
This policy demonstrates your pledge to equal opportunity and fosters an welcoming workplace.
9. Appointment Letter and Employment Terms Policy
Every new hire should receive a written appointment letter specifying:
Job designation and duties
Compensation structure and allowances
Working hours and place of work
Time off entitlements
Termination period
Other terms and conditions
This contract functions as a official record of the employment relationship.
Common Pitfalls to Steer Clear Of
Many employers make these blunders when creating employment policies:
Duplicating Generic Templates: Policies should be adapted to your unique business, industry, and state requirements.
Neglecting State-Specific Requirements: Several labor laws differ by state. Make sure your policies conform with state-level requirements.
Neglecting to Communicate Policies: Having policies is useless if employees don't aware about them. Consistent training is essential.
Not Revising Policies Annually: Labor laws change. Audit your policies yearly to maintain ongoing compliance.
Missing Records: Always maintain recorded policies and worker confirmations.
Process to Establish Employment Policies
Follow this systematic approach to create effective employment policies:
Step 1: Assess Your Requirements
Determine which policies are mandatory based on your:
Organization size
Industry domain
Geography
Staff composition
Step 2: Draft Comprehensive Policies
Work with HR professionals or law advisors to draft detailed, legally-compliant policies. Evaluate using software-based tools to streamline this process.
Step 3: Validate and Finalize
Get compliance sign-off to verify all policies meet statutory obligations.
Step 4: Share to Employees
Organize training sessions to explain policies to all workers. Make sure everyone comprehends their rights and duties.
Step 5: Obtain Acknowledgments
Preserve written records from all employees stating they've received and acknowledged the policies.
Step 6: Review and Revise Periodically
Set up periodic assessments to update policies based on law updates or business evolution.
Value of Comprehensive Employment Policies
Implementing clear employment policies provides numerous advantages:
Legal Protection: Reduces exposure of penalties
Transparent Guidelines: Employees know what's expected of them
Consistency: Maintains equal treatment across the workforce
Improved Employee Satisfaction: Well-communicated policies build positive relationships
Streamlined Processes: Eliminates misunderstandings and disputes
Summary
Employment policies are not just legal obligations—they're fundamental instruments for building a positive, well-managed, and harmonious workplace. Whether you're a small business or an mature organization, investing time in developing thorough policies pays benefits in the long run.
With contemporary HR platforms and professional assistance, creating and updating compliant employment policies has become easier than ever. Take the first step today to safeguard your organization and build a positive workplace for your team.