Decoding Penalties Under India’s Unified Labor Framework: Wage, Safety, & Social Security Violations

India’s new labor codes introduce a new compliance regime that reduces criminal liability, decriminalizes procedural lapses, and strengthens enforcement around wages, safety, social security, and industrial relations.

We outline key penalties, compounding mechanisms, and emerging employer obligations, offering practical guidance for businesses to mitigate risks and adapt to the 2025 compliance landscape.

India’s transition to a unified labor regulation system, through the Code on Wages (2019), Industrial Relations Code (2020), Code on Social Security (2020), and the Occupational Safety, Health and Working Conditions Code (2020), signals the start of a comprehensive compliance reform cycle. With the rollout of these consolidated frameworks, the penalties and offences regime has been restructured to promote greater predictability, transparency, and worker-centric protections.

A notable policy shift is evident. Under the new labor laws of India, imprisonable offences have been drastically reduced from 87 to 22; routine procedural violations have been decriminalized, and enforcement mechanisms are increasingly digital, data-driven, and risk-based.

New era of labor laws enforcement

The restructured penalty system for labor laws violations reflects a dual objective: easing the compliance burden for businesses while simultaneously strengthening the legal protection framework for workers. The most consequential changes include the following:

• Only six offences now attract imprisonment for first-time violations, largely restricted to serious safety lapses and deliberate social security evasion.
• 16 offences are compoundable, allowing employers to settle them through monetary payment without entering litigation.
• The inspector-cum-facilitator system has been operationalized to encourage self-correction before punitive action.
• Enforcement agencies have transitioned to digital, risk-based inspections that reduce discretion and improve transparency.
• Procedural lapses, including delays in filing returns or maintaining registers, are fully decriminalized and treated as administrative contraventions.

Penalties now follow a structured hierarchy differentiating technical lapses, civil breaches, and serious criminal violations.

Wage-related violations (Code on Wages, 2019)

The Wage Code reinforces compliance around timely, adequate, and non-discriminatory wage payments. While authorities may initially issue improvement notices, intentional underpayment or wage suppression can trigger strict penal action. 

How enforcement works

1. Inquiry-based administrative penalties: The central or state government may appoint a senior officer to conduct inquiries for specific violations such as improper wage payments or non-compliance with directions. If the inspector-cum-officer determines that a violation occurred, they may impose penalties directly, without immediate court proceedings.

2. Key offences and penalties

(a) Underpayment of wages

• First offence: Fine up to INR 50,000 (US$555.96) for paying less than the wages legally due.
• Repeat offence (within five years): Imprisonment up to three months, or a fine up to INR 100,000 (US$11,119.27), or both.

(b) Other violations of the wage code or rules

• First offence: Fine up to INR 20,000 (US$222.38).
• Repeat offence (within five years): Imprisonment up to one month, or a fine up to INR 40,000 (US$444.77), or both.

(c) Record-maintenance failures: Non-maintenance or improper maintenance of registers, records, or notices may result in a fine of up to INR 10,000 (US$111.19).

Liability of companies

If an offence is committed by a company:

1. Both the company and the person in charge (e.g., manager, partner, director) are deemed guilty of Wage Code violation unless the person proves lack of knowledge or due diligence.
2. If the offence occurred with the consent, negligence, or involvement of a director or officer, that individual is also liable.

Compounding of offences (settlement without court trial)

Certain offences (mainly those punishable with fines) may be settled through compounding:

• Compounding can be done for 50 percent of the maximum fine.
• It may be done before or after a prosecution is initiated.
• If compounded before prosecution, no case will be filed.
• If compounded during prosecution, the court is notified and the accused is discharged.

Compounding is not permitted if the offence is repeated within 5 years of an earlier similar offence, whether previously compounded or convicted. Failure to comply with a compounding order can lead to an additional penalty of 20 percent of the maximum fine applicable to the offence.

ALSO READ: A Guide to Minimum Wage in India in 2025

Safety and working conditions violations (OSH Code, 2020)

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Given the criticality of workplace safety, the OSH Code imposes some of the highest penalties under India’s new labor regime. General safety violations can draw fines of up to INR 200,000 (US$2,223.8), while incidents resulting in serious injury or death may lead to imprisonment of up to one year. Obstruction of inspectors, operating without the required OSH registration or license, and failure to constitute mandatory safety committees (for entities with 500 or more workers) can also attract major sanctions, including possible closure orders. Persistent working-hour breaches beyond the statutory 8-hour day or 48-hour week may additionally lead to prosecution.

How OSH penalties are enforced

The OSH Code sets out a clear process for determining and enforcing penalties for safety and working-condition violations:

1. Government-authorized inquiry officers: An officer of at least under secretary rank (or equivalent in a state government) is empowered to conduct enquiries into labor law violations. During the enquiry, the officer may summon individuals, request documents, and gather any evidence needed to determine whether an offence has occurred.

2. Imposition of penalties after inquiry: If the officer concludes that a violation has been committed, they may impose the applicable penalty in line with the provisions of the OSH Code. This provides an administrative, time-bound mechanism for enforcing safety compliance.

3. Right to appeal: Employers may appeal the penalty within 60 days to an appellate authority. The appellate authority must provide an opportunity to be heard and issue its decision, confirming, modifying, or cancelling the penalty, within another 60-day period.

4. Consequences of non-payment: If the employer does not pay the imposed penalty within 90 days, an additional fine applies. This fine cannot be less than INR 25,000 (US$277.98) and may extend up to INR 200,000 (US$2,223.8).

5. Compounding of penalties and offences: Certain penalties and offences can be settled (compounded) without court proceedings.

• Penalties may be compounded at 50 percent of the maximum amount.
• Offences may be compounded at 75 percent of the maximum fine.

Compounding is not available if the employer has committed the same violation again within three years. Once compounded, the employer is discharged from further action for that specific violation.

Social security defaults (SS Code, 2020)

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The SS Code strengthens enforcement against provident fund (PF) / employee state insurance (ESI) non-compliance, misclassification of workers, and denial of statutory benefits. Failure to comply with the regulatory requirements can lead to stricter consequences for wilful evasion, misclassification, and non-registration.

PF/ESI contribution defaults

Failure to deposit statutory contributions attracts a fine of up to INR 100,000 (US$1,119.27), while wilful non-payment may result in imprisonment of up to three years.

Non-registration of employees

Employers who fail to register eligible employees may face a penalty of INR 50,000 (US$555.96), with an additional INR 30,000 (US$333.57) per day for continuing violations.

Gig and platform worker non-compliance

Aggregators in India are now liable for non-payment of mandatory contributions (1-2 percent of annual turnover), with penalties for delays or underpayment.

Gratuity and other statutory benefit violations

Offences include non-payment of gratuity to eligible fixed-term employees, incorrect benefit calculations, and failure to recognize commuting accidents for dependent benefits, each attracting monetary penalties and potential prosecution for repeated breaches.

Industrial relations offences (IR Code, 2020)

The IR Code emphasizes orderly industrial conduct, transparent employment practices, and effective dispute resolution.

What counts as an offence under the IR Code?

Offences generally relate to:

• Violations of strike/lockout procedures
• Breaches of retrenchment, lay-off or closure rules
• Non-compliance with standing orders
• Failure to follow dispute-resolution requirements
• Contravention of provisions relating to trade unions and worker participation

Compounding of offences

The Code distinguishes serious offences (which may involve imprisonment) and less serious, procedural offences (punishable with fines only). Instead of going to court, certain offences can be settled by paying a prescribed penalty.

• Offence punishable with fine only: Pay 50 percent of the maximum fine.
• Offence punishable with imprisonment up to one year + fine: Pay 75 percent of the maximum fine.

Once compounded (settled), no prosecution will be initiated for that offence.

Time-bound dispute resolution

While not a penalty, time-bound dispute settlement is closely linked to enforcement.

• Disputes not settled in conciliation within 90 days can go directly to the Tribunal.
• Industrial tribunals now have two members (judicial + administrative) for quicker adjudication.

Penalties related to strikes, lockouts & lay-offs

To maintain industrial continuity, illegal strikes or lockouts may attract fines of up to INR 50,000 (US$555.96), while lapses in maintaining statutory records can result in penalties ranging from INR 10,000 (US$111.19) to INR 100,000 (US$1,119.27).

Compliance failures related to contract labor, particularly operating without an all-India license, carry additional risks, and principal employers remain liable for unpaid contractor wages.

Newly enforceable requirements with penal consequences

Beyond traditional labor law elements, the new codes introduce obligations linked to migrant workers, women employees, and digital governance. Employers must now ensure:

• Annual travel allowance
• Appointment letters
• Free annual health checkups
• Registration in the national migrant worker database
• Disclosure of migrant worker numbers
• Access to toll-free grievance channels

In terms of women’s employment rights, the new codes mandate equal access for women to all job roles and consent-based night work supported by safety measures.

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Learn More About Digital Filings, e-Governance, & Labour Law Compliance in India

The new labor codes makes digital governance compulsory for businesses and employers. Penalised offences include:

• Maintaining only paper-based registers
• Failure to report vacancies to career centres prior to hiring
• Filing inaccurate digital returns

How employers can mitigate penalty risks under labor codes

Even with stronger enforcement, the codes incorporate mechanisms designed to support self-correction and proactive compliance.

Improvement notices

Inspector-cum-facilitators must issue improvement notices for non-serious violations before initiating prosecution.

Voluntary rectification

Employers may correct filings, registers, and worker classifications before penalties apply.

Digital human resource management system (HRMS)-driven compliance

Automated statutory registers, attendance logs, wage slips, and audit trails drastically reduce errors and strengthen employer defense during inspections.

Professional advisory support

Periodic compliance audits and PF/ESI assessments help organizations stay inspection-ready throughout the year.

Conclusion

India’s new labor codes replace a punitive, fragmented system with a modern compliance framework built on digital transparency, compounding, and risk-based enforcement. By clarifying expectations and concentrating penalties on wage, safety, and social security violations, the 2025 regime supports both industrial stability and enhanced worker protection. For employers, the imperative is clear; move toward continuous, digital-first compliance to fully benefit from the rationalized, predictable labor landscape.

(US$1 = INR 89.93)

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