Penalties in the 2025 Labour Code for Indian SMEs

Aarthi

Welcome back to The People Stack! I'm Aarthi, and with me is Raj from Offrd—our resident compliance savant. Raj, are you ready to dig into penalties today?

Raj

Hi everyone. Happy to play the nerd role again.

Aarthi

Today we are talking about a topic that every founder and HR manager keeps hearing about, but nobody wants to sit and read one hundred pages of law for the new Labour Codes are in force, and the big question we keep getting is this.

Aarthi

What happens if we get it wrong

Aarthi

What are the fines and penalties under these new Codes for Indian small and medium enterprises. This episode is your short, practical answer.

Raj

And quick note at the start. We are going to keep this in very simple language. We are talking from the central government point of view, not going state by state.And this is not legal advice. You should always talk to your labour law expert or CA for your exact situation.

Aarthi

Perfect. So let us start with the basics.

Aarthi

What exactly changed in 2025

Raj

In simple terms, the central government has taken 29 old labour laws and packed them into 4 Labour Codes.

Raj

Code on Wages of 2019

Raj

Occupational Safety Health and Working Conditions Code of 2020

Raj

Code on Social Security of 2020

Raj

Industrial Relations Code of 2020

Raj

All 4 are now in force from November 21, 2025 at central level. States will have their own rules under these Codes, but the penalty structure sits in the central text.

Aarthi

So from a founder point of view, it is no longer about remembering Payment of Wages Act, Bonus Act, PF Act and so on.It is these 4 Codes that matter.

Raj

Correct. And the big change is that penalties are now more clearly written, especially for repeat non compliance and for serious issues such as safety and social security.

Aarthi

And that is what we are going to unpack today.

Aarthi

I want to zoom in on small and medium enterprises for a second.If I am a founder with, say, 50 or 150 employees, what is the mindset shift I need

Raj

Earlier, many founders looked at labour laws as a list of random forms and registers.Now, with the Codes, the message is more direct.

Raj

Small one time gaps can often be regularised.

Raj

But if your company keeps repeating the same problem, or if the gap is linked to safety or social security, the cost can rise very quickly.

Aarthi

So the first time you slip up, it may be a smaller fine.But if you keep doing it, it becomes a pattern, and then things get serious.

Raj

Exactly. The Codes are trying to be more compliance friendly for genuine mistakes and more strict on repeated or serious non compliance.

Aarthi

Let us go Code by Code.We start with the one everybody touches, even a team of 5 people.

Aarthi

The Code on Wages 2019.

Aarthi

What does it cover, and what are the penalty numbers we should remember

Raj

Code on Wages covers minimum wages, timely payment of wages, bonus and wage related records.In the central Code text, there are three simple penalty buckets that small and medium enterprises should know.

Raj

If an employer pays less than the amount that is legally due under the Code, the fine can go up to rupees 50,000 for the first offence.

Raj

For other contraventions of the Code or rules, the fine can go up to Rupees 20,000 for the first time.

Raj

If wage and record registers are not kept properly, it can attract a fine up to rupees 10,000.

Raj

If the employer repeats the offence, the Code allows higher fines and even jail time.

Raj

For example, repeat under payment can go up to Rupees 1 lakh and jail up to 3 months.

Aarthi

So for founder listening, there are two messages here.

Aarthi

First, do not try to quietly underpay someone and hope nobody will notice. It is explicitly captured in the Code.

Aarthi

Second, wage slips and payroll records are not just for your auditor. They are your first defence if someone questions wages.

Raj

Yes. If your salary structure is clear, your wage slips are correct, and your digital payroll register is clean, you have a strong line of defence under Code on Wages.

Aarthi

Let us move to the safety Code.

Aarthi

Occupational Safety Health and Working Conditions Code of 2020.

Aarthi

Even office first companies think this is only for factories, which is not true.What does the penalty picture look like here

Raj

This Code is about safety and working conditions in factories, offices, warehouses, stores and similar workplaces.The numbers that stand out are these.For general contravention of safety provisions under the Code, the penalty is a minimum of 2 lakhs and can go up to 3 lakhs.

Raj

If the contravention continues after conviction, there can be an extra penalty up to 2,000 per day till it is fixed.

Raj

In cases where failure of duties leads to death or serious injury, the fines are higher. For death, the minimum fine is 5 lakhs. For serious injury, it can go up to 4 lakhs.

Raj

There are also penalties for obstructing inspectors or giving false records.

Aarthi

So this is no longer a soft area. Even if I run a service company with only laptops and chairs, I still need to think about basic safety, emergency exits, fire equipment, and documentation.

Raj

Exactly. A small safety checklist, a basic log of checks and drills, and clear responsibility can make a big difference.

Aarthi

Now the Code that probably makes most founders a bit nervous.The Code on Social Security of 2020.

Aarthi

This is where PF, ESI, gratuity, maternity benefits and so on live. What are the penalties we should not ignore

Raj

In Social Security Code, the law is especially strict when money is deducted from salary and not deposited.

Raj

If an employer fails to pay social security contributions, including cases where they have already deducted from wages but not deposited, the Code allows jail terms with fine.Repeat offences can go up to 3 years of jail and higher fines.

Raj

There are also fines for not paying gratuity when it is due, or not giving maternity benefits, or not paying other dues under the schemes. Those can go up to rupees 50,000, with possible jail up to 1 year depending on the clause.

Aarthi

The summary here is clear.If you cut rupees 3,000 from an employee for PF or ESI, that money should go to the right place, on time.You cannot use it as working capital.

Raj

Yes. That is where companies get into serious trouble. The law is much more forgiving of a delayed form than of a missing deposit after deduction.

Aarthi

The last Code is the Industrial Relations Code of 2020.

Aarthi

This feels more relevant for slightly larger teams, especially during restructuring.What is the big picture for penalties here

Raj

Industrial Relations Code covers things like layoff, retrenchment, closure, strikes, lockouts and unfair labour practices for certain categories of establishments.

Raj

Some key penalty ranges in the Code are:

Raj

Closure or retrenchment without following the provisions where those sections apply can attract a fine not less than rupees 1 lakh and it can go up to rupees 20 Lakhs.

Raj

Violation of strike or lockout provisions can mean fines from rupees 50,000 up to rupees 5 lakhs with higher levels for repeat offences.

Raj

Unfair labour practices listed in the schedule can attract fines starting at rupees 10,000 and going up to 5 lakhs for repeat offenses.

Raj

This usually becomes critical when companies are doing large scale retrenchment or closing units without planning for the legal side.

Aarthi

So for a fast growing start up that suddenly wants to shut a unit or let go of 100 people, this is not just an HR decision, it is a legal event.

Raj

Correct. That is the time to loop in a labour law specialist early, not at the last minute after notices go out.

Aarthi

Let us now move from fear mode to action mode.If I am a founder or HR head listening, what can I do over the next 6 to 12 months so that I am not living in panic about Labour Code penalties

Aarthi

Can we frame a simple checklist

Raj

Yes. Think of it in 3 buckets.

Raj

Bucket 1 – Wages and payroll Clean up salary structures so that fixed pay, variables and statutory parts are clearly documented.Make sure wage slips go out every salary cycle and are stored safely.Ensure your payroll register can produce reports by month, by branch and by employee.

Raj

Bucket 2 – Social security and benefits Check PF and ESI applicability for each location and category of worker.Match your deduction figures with actual deposits and keep proof of payment handy.Review gratuity and maternity benefit for long tenure employees.

Raj

Bucket 3 – Safety and people processes Create a basic safety checklist for each workplace.Document drills, maintenance and any incidents.Ensure grievance and internal committees are formed where required and their details are recorded.

Aarthi

If someone does just these 3 buckets properly, they are already in a much better place than most companies.

Aarthi

Now lets bring Offrd into this picture, but in a very honest way.

Raj

Yes. thanks for bringing it up. Offrd is not a law firm.We cannot tell you whether section x applies to your factory in a particular state. What we can do is keep your HR and payroll data clean enough so that your CA and labour consultant can give real advice. Let us talk through that.

Raj

When we look at inspections and audits in real life, the first questions are always about records.

Raj

Can you show attendance for this employee for this month

Raj

Can you show the wage slip for that period

Raj

Can you show PF deduction and deposit proof If those are scattered across spreadsheets and WhatsApp and paper files, your legal expert is already on the back foot.

Aarthi

So the role we see for O f f r d dot c o is simple. Offer letters and HR letters that are consistent and stored centrally

Aarthi

Attendance that connects to payroll

Aarthi

Salary registers and wage slips that can be exported quickly

Aarthi

Location wise and organisation wise views for PF and ESI checks

Aarthi

If those are in place, your CA or labour law advisor can look at the actual data and map it to the Code.

Raj

Exactly. Technology cannot do compliance by itself, but it can remove a lot of chaos from the data side of compliance.

Aarthi

If you are listening and wondering what to do with all this information, here is a very practical way to use this episode.

Aarthi

Step 1. Share this episode with your CA or labour law consultant and ask a simple question“Looking at these penalty ranges, where do you think we are most exposed”

Aarthi

Step 2. Sit with your HR and finance teams and do a quick reality check against the 3 buckets we mentioned.Wages and payroll, social security, safety and processes.

Aarthi

Step 3. Decide what you want to digitise first. For many companies, it is attendance and payroll registers, and for some it is offer letters and HR letters.

Raj

And once you have that base in place, ask your advisors to read the actual Code text and the official government PDFs.

Raj

We will add those links in your show notes and on the penalties landing page, so that you are not relying on random blogs.

Aarthi

Raj, before we close, I want us to clearly say the legal disclaimer in plain words.

Raj

Yes, very important.

Raj

Nothing in this episode is legal advice.

Raj

We have based this discussion on the central Labour Code text and official government publications that are current at the time of recording, but every organisation has its own facts, size, locations and sector.

Raj

Before you take any final decision on wages, social security, safety or restructuring, please speak to a qualified labour law professional or CA who understands your business.

Aarthi

We are sharing this to help you ask better questions, not to replace your legal review.

Raj

Exactly !! If you would like to see how Offrd can help you clean up your HR and payroll records, you can book a free, no commitment demo on o f f r d dot c o. We will also link to the Labour Code hub page and this penalties explainer page in the show notes.

Aarthi

Thank you for listening to People Stack by O f f r d. Stay curious, stay compliant, and we will see you in the next episode.

Raj

Bye everyone.