What are the Essential Labor Law Compliance Every MSME Must Follow in India?

5. EMPLOYEE STATE INSURANCE (ESI)
ESI registration is compulsory for businesses employing 10 or more workers earning up to ₹21,000 per month. It is a social security scheme that provides medical and financial benefits to employees. Here’s what MSMEs need to do:
• Register your business under the Employees’ State Insurance Corporation (ESIC).
• Employers must contribute 3.25% of the employee’s salary, while 0.75% is deducted from the employee’s wages.
• File ESI returns and maintain accurate employee records.
This compliance helps ensure employee welfare and protects businesses from liability during medical emergencies.

6. PROFESSIONAL TAX
Professional tax is levied by state governments and applies to salaried employees and business owners. As an MSME, you are responsible for professional tax registration and collection. Key steps include:
• Deduct the prescribed amount from employees’ salaries.
• Remit the collected tax to the state government.
• File professional tax returns as per the due dates.

7. GRATUITY ACT, 1972
Gratuity is a benefit given to employees who have completed five years of continuous service with the organization. MSMEs must:
• Calculate gratuity based on the employee’s last drawn salary and years of service.
• Pay the amount within 30 days of an employee’s exit.
• Maintain proper records of gratuity payments.
This act helps build trust and ensures long-term employee satisfaction.

8. EQUAL REMUNERATION ACT, 1976
According to this law, men & women should receive equal pay for equal work. As an MSME owner:
• Offer equal wages for employees performing the same duties, regardless of gender.
• Maintain records of salaries, promotions, and hiring practices to prove compliance.
Discrimination in wages or work conditions can attract legal action.

9. PAYMENT OF BONUS ACT, 1965
This Act applies to those businesses with 20 or more workers. Key points include:
• Pay an annual bonus to eligible employees earning up to ₹21,000 per month.
• The minimum bonus is 8.33%, and the maximum can be 20% of the salary.
• Maintain accurate records of bonus calculations and payments.
Bonuses help motivate employees and improve workplace productivity.

10. COMPLIANCE WITH MATERNITY BENEFIT ACT, 1961
This law provides benefits to female employees during maternity. As an MSME, you must:
• Grant 26 weeks of paid maternity leave to eligible employees.
• Ensure job security during and after the maternity leave period.
• Provide medical bonuses and other prescribed benefits.
Supporting women employees enhances workplace inclusivity and compliance.

11. ADVISORY AND COMPLIANCE AUDITS
To ensure you’re meeting all labor law requirements, it’s beneficial to conduct regular advisory and compliance audits. These audits:
• Identify gaps in your current compliance practices.
• Help you stay updated on new labor laws and amendments.
• Reduce the risk of penalties or legal issues.
Engaging with experts for audits can make compliance management smoother and more effective.