HR Compliance

HR compliance is the process of ensuring that an organization’s HR policies, employment practices, and workforce processes follow applicable labour and employment requirements. Compliance affects how an organization hires employees, pays them, manages benefits and working conditions, maintains records, and handles employment throughout the employee lifecycle.

In India, HR compliance involves both Central and state requirements because labour falls under the Concurrent List. Applicable requirements can therefore vary by location, establishment type, workforce, and other factors.

HR teams may deal with compliance across areas such as wages, industrial relations, social security, and occupational safety and working conditions. At the Central level, the Ministry of Labour & Employment oversees labour policy, while bodies such as the Employees’ Provident Fund Organisation (EPFO) and Employees’ State Insurance Corporation (ESIC) administer major social security schemes.

How HR Compliance Differs from General Business Compliance

HR compliance focuses on workforce and employment-related obligations. General business compliance is broader and covers areas such as corporate governance, company filings, financial reporting, and taxation.

For example, the Ministry of Corporate Affairs administers company filings and related compliance services.

Example	HR compliance	General business compliance
Payroll	Wage, deduction, and social security requirements	Financial and accounting requirements
Employees	Working conditions, statutory benefits, and employment records	Company-level governance requirements
Filings	Employment and payroll-related filings	Company forms and returns with the Registrar of Companies

Why is HR Compliance Important?

HR compliance helps organizations meet legal obligations while supporting accurate payroll, statutory benefits, workplace safety, and fair employment practices. Here are the key reasons HR compliance matters:

Legal and Financial Risks of Non-Compliance

Non-compliance can expose employers to interest, damages, additional costs, and other liabilities. Here are three examples:

1. Delayed EPF payments

Delayed EPF remittances can create direct financial liability for employers. Delayed dues can attract 12% annual interest, along with damages for defaults. Damages were rationalized to 1% per month of default from June 2024. The EPF Scheme, 2026, which replaced the 1952 Scheme on 29 June 2026, now governs these dues.

This means delayed statutory payments can add to an employer’s cost even after the original contribution is paid.

2. Delayed ESI contributions

Delayed ESI contributions can also increase an employer’s financial exposure. ESIC provisions allow interest on delayed contributions and damages for defaults. For employers, this makes timely ESI contributions more than an administrative task. Delays can create additional financial liabilities alongside the outstanding contribution itself.

3. TDS non-compliance

TDS defaults can similarly result in additional costs. Under the Income Tax Act, 2025, failure to deduct or collect TDS/TCS attracts interest at 1% per month or part thereof. If the tax is deducted or collected but not deposited on time, interest applies at 1.5% per month or part thereof.

Reputational and Operational Benefits

Strong HR compliance can also support employee confidence and help organizations manage workforce-related risks. Here’s how it benefits employers:

Employee trust and experience

Employees rely on their employer to get salary, deductions, and statutory processes right. Consistent payroll practices can therefore support employee confidence, while repeated errors may generate queries, corrections, and a poorer employee experience.

Types of HR Compliance in India

HR compliance can be grouped by the nature of an employer’s obligations. Here are the three main types organizations commonly manage:

Statutory Compliance

Statutory compliance involves meeting workforce obligations imposed by law, including social security, payroll deductions, employee benefits, and tax requirements. Common examples include:

• EPF: Managing applicable provident fund registration, employee enrolment, contributions, and filings.
• ESI: Completing applicable registration and contribution requirements for covered establishments and employees.
• Professional tax: Deducting and paying professional tax where applicable, based on state-specific requirements.
• Gratuity: Determining eligibility and paying statutory gratuity where applicable.
• TDS: Calculating, deducting, depositing, and reporting tax on salary under the Income Tax Act, 2025.
• Labour Welfare Fund (LWF): Managing applicable contributions and filings in states where an LWF framework applies.

We’ll cover key thresholds, contribution rates, and other requirements in the next section.

Regulatory Compliance

Regulatory compliance covers registrations, licences, records, and procedural requirements administered by government authorities. Requirements can vary by establishment, industry, and state or Union Territory. Examples include:

• Shops and Establishments requirements: Completing applicable establishment registration and related requirements under state or UT law.
• Factory licensing: Completing applicable factory registration, licensing, renewals, and approvals.

Contractual Compliance

Contractual compliance means ensuring employment-related agreements comply with applicable law and are followed in practice. Key areas include:

• Employment terms: Document and follow agreed terms covering compensation, benefits, designation, notice periods, and other employment conditions.
• Confidentiality: Clearly document applicable NDA and confidentiality obligations.
• Restrictive clauses: Review non-compete and similar clauses carefully. Section 27 of the Indian Contract Act, 1872 generally makes agreements restraining a lawful profession, trade, or business void to that extent, subject to the statutory exception for the sale of goodwill. This mainly affects restrictions that apply after employment ends; reasonable restrictions during employment are generally enforceable.

Key HR Compliance Laws and Regulations in India

HR compliance in India is governed by Central labour laws along with state- and UT-specific requirements. A major change came on 21 November 2025, when the government implemented the four Labour Codes, rationalising 29 Central labour laws into a consolidated framework.

Here are the key laws and requirements HR teams should be familiar with:

Labour Codes

The current Central labour-law framework is organized under four Codes:

• Code on Wages, 2019: wages and related requirements.
• Industrial Relations Code, 2020: industrial relations and employment-related matters.
• Code on Social Security, 2020: social security and employee benefits.
• Occupational Safety, Health and Working Conditions Code, 2020: workplace safety, health, and working conditions.

Together, these Codes consolidate the earlier Central framework across these major areas.

EPF / Provident Fund Requirements

EPF coverage generally applies to specified factories and establishments employing 20 or more employees. The standard contribution is 12% of applicable EPF wages from the employee and 12% from the employer, with part of the employer’s contribution going towards the Employees’ Pension Scheme (EPS). A 10% rate applies to establishments notified by the Central Government. These requirements are now governed by the Employees’ Provident Fund Scheme, 2026 under the Code on Social Security, 2020, which replaced the EPF Act, 1952. Mandatory contributions apply to wages up to a ceiling, which was raised from ₹15,000 to ₹25,000 per month with effect from 17 September 2026.

Employers are generally required to pay monthly contributions through the EPFO portal on or before the 15th of the following month.

ESI Requirements

ESI generally applies to covered factories and establishments with 10 or more employees, subject to the applicable coverage provisions. The current wage ceiling is ₹21,000 per month, or ₹25,000 per month for persons with disabilities. Since ESIC’s December 2025 circulars, the contribution base follows the Code on Social Security definition of wages rather than gross pay.

The current contribution rates are 3.25% of wages for employers and 0.75% for employees. Employers need to identify covered employees correctly and manage applicable contributions and records.

Gratuity Requirements

Gratuity is generally payable after an employee completes five years of continuous service, subject to applicable exceptions. Fixed-term employees can qualify after completing one year of service under the contract.

Gratuity is generally calculated at 15 days’ wages for each completed year of service, subject to applicable conditions and limits.

State Shops and Establishments Requirements

Employers also need to follow the Shops and Establishments requirements applicable in their state or Union Territory. Depending on the jurisdiction, these can cover registration, working hours, rest intervals, overtime, weekly holidays, leave, employment conditions, and recordkeeping.

POSH Act

Under the POSH framework, workplaces with 10 or more employees must constitute an Internal Committee to address sexual-harassment complaints. Employers also have responsibilities relating to employee awareness, complaint handling, confidentiality, and reporting.

A complaint is ordinarily required within three months of the incident, with an extension of up to another three months in specified circumstances. The inquiry should generally be completed within 90 days.

Maternity Benefit Requirements

Eligible women employees are entitled to maternity benefits subject to applicable conditions. Maternity benefit is available for up to 26 weeks for women with fewer than two surviving children. Women with two or more surviving children are entitled to up to 12 weeks. Eligibility generally requires at least 80 days of work in the preceding 12 months. Maternity benefit is now governed by Chapter VI of the Code on Social Security, 2020, which replaced the Maternity Benefit Act, 1961.

Establishments with 50 or more employees must also provide access to a crèche facility, including through permitted common crèche arrangements.

Common HR Compliance Issues in India

Even when organizations have compliance policies in place, errors can occur during everyday HR and payroll operations. These often involve inaccurate employee data, filing discrepancies, workforce classification, workplace practices, or employee records.

Here are some common HR compliance issues that teams should identify and correct early:

PF and ESI Filing Errors

PF and ESI filing errors can occur when employees are omitted, wage or employee details are incorrect, contributions do not match payroll records, or filings are delayed or inaccurate.

HR and payroll teams should reconcile payroll and statutory data before submission and investigate mismatches promptly. If an error has already been filed, teams should use the applicable correction or revision mechanism. EPFO’s revamped ECR framework, for example, provides validations and allows revised or supplementary returns in specified cases.

Incorrect Employee and Contract-Worker Classification

Compliance problems can arise when the actual working relationship is not correctly reflected in employment or contractor records. This can affect the application of wages, social security, benefits, and other workforce requirements.

Where contract labour is engaged, HR should also verify the applicable responsibilities of the principal employer and contractor. Teams should document the actual working arrangement, maintain relevant contractor and worker records, and verify applicable registrations and compliance documents. Legal guidance may be useful where classification is unclear.

TDS Calculation and Reporting Errors

TDS errors can arise from incorrect salary calculations, treatment of taxable salary components or perquisites, deduction mistakes, or inaccurate reporting.

This requires particular attention following the Income Tax Act, 2025 taking effect from 1 April 2026. Payroll teams should ensure that tax references, payroll configurations, and internal processes reflect the current framework. Reporting discrepancies should be reconciled and corrected through the applicable TDS correction process. Several forms were also renamed: Form 16 is now Form 130, Form 16A is Form 131, the quarterly returns 24Q, 26Q and 27Q are now Forms 138, 140 and 144, and Form 26AS is Form 168.

Gaps in Workplace Safety Compliance

Safety gaps can arise when applicable health and safety measures, welfare facilities, records, or establishment-specific safeguards are not maintained.

HR should coordinate with relevant teams to conduct periodic checks and address identified gaps.

Data Privacy and Employee Records

HR teams handle significant amounts of employee data, creating risks around excessive collection, weak access controls, insecure storage, and unnecessary retention.

India is transitioning from the existing IT Act/SPDI framework towards the Digital Personal Data Protection Act, 2023 and DPDP Rules, 2025, which commence in phases. The Data Protection Board has been operational since November 2025, consent-manager registration opens in November 2026, and the main obligations on notice, security safeguards, breach reporting, and data principal rights apply from May 2027, when Section 43A of the IT Act is omitted.

HR teams should therefore review what employee data they collect, why they need it, who can access it, how long it is retained, and how HRMS, payroll, and other third-party vendors handle that information.

HR Compliance Checklist for Indian Organizations

HR compliance requirements vary by establishment, workforce, employee coverage, and state or Union Territory. HR teams can use this checklist to review key requirements across the employee lifecycle.

Pre-Employment Compliance

Before an employee joins, HR should:

• Issue offer and appointment documents covering the role, compensation, benefits, place of work, probation, and notice provisions, where applicable.
• Collect the information and documents required for payroll, statutory registration, and employment records.
• Conduct required background or reference checks with appropriate authorization and data safeguards.
• Determine applicable statutory coverage and ensure employment terms comply with relevant laws.
• Protect candidate and employee information during collection and storage.

Payroll and Statutory Compliance

Regular payroll compliance checks should include:

• Complete applicable employee enrolments and keep statutory information updated.
• Reconcile payroll with statutory records and complete required contributions, deductions, filings, and payments within prescribed timelines.
• Maintain required payroll, wage, deduction, and statutory records.
• Pay monthly wages before the expiry of the 7th day of the following month, as required under Section 17(1) of the Code on Wages, 2019.
• Update payroll configurations when statutory requirements change.

Workplace Compliance

During employment, HR should:

• Maintain required workplace committees, notices, and statutory records.
• Align leave, holidays, working hours, and overtime with applicable Central and state/UT requirements.
• Review applicable workplace health, safety, and welfare requirements.
• Update HR policies when labour laws or state requirements change.

Exit and Separation Compliance

During employee separation, HR should:

• Record the resignation or termination and complete the required offboarding documentation.
• Complete the applicable full and final settlement, including outstanding wages, leave-related dues, gratuity, and other payable amounts.
• Complete applicable payroll and statutory updates and recover company property or system access.
• Pay wages due on resignation, dismissal, termination, or other covered separations within two working days, as required under Section 17 of the Code on Wages, 2019. This timeline applies to wages, not every component of the full and final settlement; gratuity and EPF follow their own timelines.
• Issue applicable relieving, experience, or service documents and retain required employment records.

Maintain a Compliance Calendar

Use a centralized calendar to track monthly payroll and statutory obligations, quarterly filings and reviews, and annual or periodic returns, renewals, policy reviews, training, and audits.

For each requirement, record the applicable entity or state, due date, responsible owner, completion status, and supporting evidence.

How HR Ensures Compliance with Employment Laws

HR needs clear processes to turn employment requirements into consistent day-to-day practices. Here are three ways to strengthen compliance execution:

Establish Compliance Ownership and Controls

Assign clear responsibility for each compliance activity and define how completion will be verified. Key controls include:

• Assign an owner and define approval or escalation points.
• Require supporting evidence for important compliance activities.
• Reconcile statutory filings and payments with HR and payroll records.
• Track discrepancies until corrective action is completed.

Maintain Documentation and Records

Compliance should be supported by records that show what the organization has done. Ministry of Labour & Employment guidance covers employer obligations relating to registers, records, notices, returns, and other documentation.

HR should maintain applicable employee, attendance, leave, payroll, statutory, and workplace records. These should be accurate, retrievable, appropriately protected, and retained for the required period.

Coordinate Across Functions

HR compliance rarely sits with HR alone. Payroll, finance, legal, managers, and employees may all play a role in completing different requirements. Important areas of coordination include:

• HR + Finance/Payroll: Align employee data, statutory deductions, payments, reconciliations, and corrections.
• HR + Legal/Compliance: Interpret requirements, review policies and employment terms, and address complex compliance matters.
• HR + Managers/Employees: Communicate requirements and maintain necessary acknowledgements, awareness, or training.

How to Conduct an HR Compliance Audit

An HR compliance audit reviews HR practices against applicable employment requirements to identify gaps and corrective actions. Here are the key stages:

Audit Planning and Scope

Before starting, define what the audit will cover. Key decisions include:

• Coverage and requirements: Identify the entities, locations, employee categories, and applicable Central and state/UT requirements.
• Review period and scope: Set the period to examine and decide whether the audit will cover specific areas or HR compliance comprehensively.
• Review approach: Decide whether the audit will be conducted internally, externally, or through a combination of both.
• Audit frequency: Set future reviews based on the organization’s compliance risks and needs.

Key Areas to Review

The audit should examine evidence of compliance across areas such as:

• Payroll and statutory compliance: Compare payroll data with PF/ESI filings, TDS records, payments, challans, and acknowledgements.
• Employee records: Review employment documentation, worker classifications, statutory enrolments, and required records.
• Leave and working conditions: Check leave, working hours, and workplace practices against applicable requirements.
• POSH compliance: Verify required committee constitution, policies, training, reporting, and complaint-handling processes.
• Contract labour: Where applicable, review contractor documentation, licences or registrations, worker records, and statutory evidence.
• Workplace safety: Review applicable notices, safety documentation, accident records, and other required safeguards.

Where possible, cross-check internal records against statutory acknowledgements, challans, filings, or other supporting evidence.

Documenting Findings and Remediation

An audit becomes useful only when identified gaps lead to corrective action. Once the review is complete, each finding can be prioritized based on:

• Legal or statutory exposure
• Financial impact
• Employee or workplace impact
• Urgency or applicable deadline
• Whether the issue is isolated or systemic

Follow up to confirm that corrective actions were completed and the underlying issue was addressed.

When Should External Specialists Be Involved?

Not every HR audit requires an external specialist. However, independent legal, compliance, or audit support may be useful when:

• The organization operates across multiple states or jurisdictions.
• Applicability or worker classification is unclear.
• Historical non-compliance or a finding creates material legal or financial exposure.

Best Practices for HR Compliance in India

Effective HR compliance requires processes that help organizations stay updated, build awareness, and address issues before they become recurring problems. Here are some best practices to follow:

Stay Updated on Labour Law Changes

Employment requirements can change at both the Central and state/UT levels. HR teams should:

• Monitor notifications, rules, FAQs, and guidance from the Ministry of Labour & Employment.
• Track relevant updates from EPFO, ESIC, the Income Tax Department, and State Labour Departments.
• Review affected policies, payroll configurations, contracts, and procedures when requirements change.
• Maintain a regulatory-change log covering what changed → where it applies → action required → owner → implementation date.

Build a Compliance-First Culture

Employees involved in HR and compliance processes should understand the requirements relevant to their roles. Organizations can:

• Provide role-specific training: Train payroll teams on statutory processes, managers on employment policies, and relevant employees on areas such as POSH.
• Create clear escalation routes: Define how compliance issues are identified, assigned, escalated, corrected, and closed, with high-risk matters addressed promptly.
• Include contractor compliance: Where contract workers are engaged, maintain applicable documentation and verify relevant compliance evidence.

Automating HR Compliance with HRMS

An HRMS can centralize employee and payroll data while automating repetitive compliance tasks such as PF, ESI, TDS, and statutory reporting.

However, automation does not transfer the employer’s legal responsibility to the software. HR teams still need to determine which requirements apply, maintain accurate employee data, and verify that statutory obligations are completed correctly.

Here are some ways an HRMS can simplify compliance management:

Payroll and Statutory Filing Automation

Payroll compliance involves recurring calculations, reports, and filing-related activities. An HRMS can use centralized employee and payroll data to automate many of these processes. Key areas include:

• PF and ESI: Calculate applicable contributions and generate ECR and other statutory reports required for compliance workflows.
• TDS and tax documentation: Automate salary TDS calculations and prepare filing-related data and employee tax-document workflows, including applicable changes in tax reporting requirements.
• Government filing workflows: Prepare and reconcile filing-ready data for processes such as EPFO ECR and tax reporting. Where submission must still be completed through a government portal, the HRMS can help maintain the underlying data and records needed for the process.

For example, Keka’s payroll compliance software supports compliance workflows across PF, ESI, TDS, professional tax, LWF, gratuity, and statutory reporting. Its Form 16 workflow also allows payroll administrators to manage Part A and Part B after the required TRACES-related steps are completed.

Compliance Alerts and Tracking

Automation can also help HR teams keep recurring compliance activities visible. An HRMS can help teams:

• Track upcoming compliance tasks and deadlines.
• Set reminders for filings, renewals, and other recurring activities.
• Monitor pending actions or missing payroll information.
• Maintain compliance records and supporting documentation in one place.

This gives HR teams better visibility into pending compliance activities while reducing dependence on spreadsheets and manual follow-ups.