Penalties under the new Labour Codes, plain English for Indian SMEs
Last updated 12 September 2026
The four Labour Codes came into force on 21 November 2025. For an SME the most common ways to attract a penalty are ordinary ones: missing appointment letters, salary structure that ignores the 50 percent wage rule, late PF or ESI deposits, and registers that do not match payslips. This page lists the headline fines, the inspector triggers, and the records you want clean before a notice arrives.
1. What are the headline penalties?
Exact numbers vary by code section and whether the offence is a first or repeat. The pattern below is what an SME founder should keep in mind. For a specific number, check the relevant code section or speak to your compliance advisor.
| Area | Common offence | Indicative exposure |
|---|---|---|
| Wage code | Underpayment of wages or bonus | Fine up to ₹50,000 for first offence; up to ₹1,00,000 with possible imprisonment for repeat |
| Wage code | Failure to maintain or produce wage records | Fine up to ₹10,000 per offence |
| Industrial Relations | Layoff or retrenchment without compliance | Fine up to ₹1,00,000, higher for repeats |
| Industrial Relations | Not issuing appointment letters | Fine up to ₹50,000 per offence |
| Social Security | Delay or default in PF / ESI deposits | Damages, interest, and prosecution under section 14B and section 85 |
| OSH | Obstruction of an inspector | Fine up to ₹1,00,000, higher for second offence |
| OSH | Contravention causing injury | Fine plus possible imprisonment depending on severity |
These figures are indicative ranges drawn from the published codes. Use them to set internal priorities, not as a final legal reference.
2. What triggers an inspector visit?
Most SME inspections begin with one of three things.
A complaint from a current or former employee
Common around exit. Unpaid notice pay, missing relieving letter, or a salary that did not match the offer letter.
A PF or ESI portal mismatch
Returns filed but contributions not credited, headcount jumps that do not match payroll, or wages reported below the wage definition.
A surprise check on records
The OSH Code allows a single inspection scheme. If your registers are scattered across spreadsheets and email, the inspector will pull on every loose thread.
3. Where do SMEs slip under the wage code?
Three patterns account for most SME exposure under the wage code.
- Salary gets loaded into allowances. If your basic plus DA is below half the CTC, the law will treat the missing portion as wages anyway. PF, gratuity and bonus all owe more than your sheet shows.
- Wages get paid late or missed. They are due by the 7th of the next month for establishments with up to 1,000 workers. A pattern of late payments is easy to spot from bank statements.
- Final settlement drags after exit. Two working days is the new expectation. Treat this as a hard deadline in your exit process, not a target.
5. Which records and registers should you keep?
The OSH Code allows single registers, single returns, and a unified inspection scheme. That is good news only if your records are unified. Keep these clean and current.
- Appointment letter for every employee from day one, with role, salary structure and main terms.
- Wage register matching what the bank paid.
- Attendance and overtime records that match the payslips.
- PF and ESI returns matching the wage register.
- Leave register and grievance log.
- Exit documents: full and final calculation, relieving letter, experience letter, gratuity calculation where due.
6. How does Offrd keep you covered?
Offrd is built around HR documentation for Indian SMEs. The penalties above almost always come from one of four document gaps: missing appointment letters, mismatched salary structure, untidy registers, or sloppy exit paperwork. Offrd keeps these in one structured place.
- Issue appointment and offer letters with salary structure that matches the wage definition. Offer letter generator.
- Generate monthly payslips and registers an inspector or auditor can read. Payslip generator.
- For PF and ESI specifics, see our ESI and PF compliance guide.
- Track attendance and leave alongside payroll so overtime maths is consistent.
- Generate clean exit documents inside the same account.
7. Frequently asked questions
Can a founder or director be personally liable?
Yes. Several offences place personal liability on the principal employer or person in charge. Repeat offences attract higher fines and in some cases imprisonment.
Do the codes apply if we are below 20 employees?
Most wage and appointment letter requirements apply from the first employee. Thresholds matter for some sections, like Standing Orders or Grievance Redressal Committees.
Are the fine amounts on this page exact?
They are indicative ranges drawn from the published codes. Treat them as a planning view. For a final number on a specific situation, refer to the code section or your compliance advisor.
Does Offrd handle the actual PF and ESI filings?
Offrd handles the document and record side, salary structure, payslips, registers, and exit paperwork. Filing PF and ESI returns sits with your payroll service or finance team. Clean records from Offrd make their work easier.
Is this page legal advice?
No. This is a practical explainer for founders and HR managers. For decisions specific to your company, state, or industry, consult a labour law specialist.
4. Which PF and ESI defaults get missed?
The numbers most often missed are the ordinary ones.
Late deposit attracts damages under section 14B and interest. Repeat default invites prosecution. Most SME defaults are clerical, not deliberate, and almost all are avoidable with one cleanly maintained register.