Running a manufacturing unit today involves much more than managing machines, production schedules, and supply chains. It also requires strict adherence to labour and safety regulations that protect workers and ensure lawful operations. With the implementation of India’s new labour codes, factory compliance has undergone a major transformation.
For factory owners, plant heads, HR leaders, and compliance teams, understanding these changes is critical. This updated factory compliance checklist explains what has changed, what now applies, and how manufacturing units can remain compliant under the new legal framework.
Why Factory Compliance Is More Important Than Ever
Non-compliance in factories is no longer treated as a minor administrative lapse. It can result in heavy financial penalties, suspension of licences, stoppage of operations, and, in severe cases, prosecution of management. Workplace accidents and wage disputes can also damage a company’s reputation and employee trust.
On the other hand, compliant factories benefit from safer workplaces, higher workforce morale, smoother inspections, fewer disruptions, and long-term operational stability. Compliance is not just a legal obligation; it is a foundation for sustainable growth.
New Labour Codes Applicable to Factories in India
India has consolidated 29 labour laws into four comprehensive labour codes, which now govern factory operations:
- The Occupational Safety, Health and Working Conditions Code, 2020
- The Code on Wages, 2019
- The Social Security Code, 2020
- The Industrial Relations Code, 2020
Together, these codes replace the Factories Act, 1948, Contract Labour (Regulation & Abolition) Act, 1970, Minimum Wages Act, 1948, and several other legacy laws.
What Is Considered a Factory Under the New Codes
The definition of a factory has been revised under the OSH Code.
A premises is classified as a factory if it employs:
- Twenty or more workers where power is used
- Forty or more workers where power is not used
Units falling below these thresholds may move out of the factory category but will still need to comply with other applicable labour laws.
Registration and Licensing Requirements
- The new framework allows factories to operate under a single common licence that covers both factory operations and contract labour engagement, significantly reducing regulatory duplication and administrative effort.
- All applications, renewals, and modifications can be carried out online.
- The labour codes provide for deemed approval of registrations and licences, subject to prescribed timelines and conditions, where authorities fail to act within the stipulated period.
- Independent Directors cannot be nominated as Occupier.
Working Hours, Overtime and Annual Leave with wages
The labour codes formally cap working hours to protect employee welfare.
- Daily working hours must not exceed eight hours
- Weekly working hours must not exceed forty-eight hours
The daily spread-over, including intervals, may extend up to twelve hours - Overtime is permitted only beyond these limits and must be voluntary.
- Workers must give consent for overtime, and overtime wages must be paid at twice the ordinary rate of wages.
- Overtime registers and management approvals must be properly maintained
- Leave eligibility has been brought down to 180 days from 240 days in a calendar year
- Worker shall be entitled on his demand for encashment of leave at the end of calendar year, where his total number of leave carry forward exceeds thirty days
Wages and Payroll Compliance
The Code on Wages has introduced uniform wage definitions across all industries.
Minimum wages now apply to all workers, regardless of sector or skill category. Basic pay and dearness allowance together must constitute at least fifty percent (or more) of total wages.
- Exclusions exceeding fifty percent are not permitted, which impacts calculations for provident fund, gratuity, bonus, ESIC and overtime.
- Fixed-term employees who complete one year of service are eligible for gratuity, even if their employment ends on contract expiry.
- Monthly wages must be paid on or before the seventh day of the following month. The principal employer must ensure that contractors are paid in time to enable timely wage disbursement to contract workers.
- Payslips must be issued to all employees, and deductions must remain within prescribed limits.
- In cases of termination, retrenchment, dismissal, or resignation, all dues must be settled within two working days.
Employment Documentation and Appointment Letters
- Issuing formal appointment letters is now mandatory for all workers, including permanent, fixed-term, temporary and contract labour.
- Employment terms must clearly mention wages, job roles, working hours, and statutory benefits.
- Factories must maintain consolidated digital or physical registers for attendance, wages, overtime, leave, and accidents.
Health, Safety, and Welfare Obligations
- Under the OSH Code, employers carry enhanced responsibility for workplace safety and employee health.
- Factories must ensure adequate ventilation, lighting, cleanliness, and safe machinery guarding.
- Drinking water, clean washrooms, restrooms, and first-aid facilities are mandatory.
- Periodic health check-ups are compulsory for workers exposed to hazardous conditions.
- Annual health examinations are mandatory for employees above forty-five years of age.
- Separate toilet and locker facilities must be provided for men, women, and transgender employees.
- Threshold-based welfare facilities include canteens and crèches must be ensured.
- Appointment of welfare officers and safety officers, depending on workforce size and nature of operations.
- The principal employer is responsible for ensuring that prescribed welfare amenities and safety facilities are provided to contract workers engaged in the establishment.
Women’s Employment and Night Shifts
Women are now permitted to work night shifts across all states, subject to their written consent. -Employers must ensure adequate lighting, security, safe transportation, and workplace safeguards during night operations.
Crèche facilities are mandatory for establishments employing fifty or more employee and are now gender-neutral, replacing the earlier requirement that applied only to establishments with more than thirty women employees.
Contract Labour Compliance
Contract labour provisions have been fully integrated into the OSH Code.
- Contractors must hold a valid common licence if they employ 50 or more contract workers, as per the new labour codes.
- The principal employer remains responsible for ensuring wage payment, social security contributions, safety measures, and welfare facilities for contract labour.
- Permanent employees of a contractor are not considered contract labour of the principal employer.
- Contract labour engagement is regulated, particularly for core activities.
Social Security Compliance
Factories must ensure social security benefits are extended to all eligible workers.
- Provident fund and ESIC registrations must be valid, and contributions must be remitted on time.
- Gratuity provisions apply to eligible workers, including fixed-term employees after one year of service.
- Maternity and other statutory benefits must be provided as prescribed under the Social Security Code.
- Where applicable, social security schemes for gig and platform workers must be complied with as notified by the government.
- The principal employer is responsible for ensuring that statutory bonus is paid to eligible workers, including those engaged through contractors, in accordance with applicable law.
Industrial Relations and Workforce Management
Under the Industrial Relations Code, standing orders are mandatory only for factories employing three hundred or more workers.
Government approval for layoffs, retrenchment, or closure is required only when a factory crosses this workforce threshold of three hundred or more workers.
Factories with fewer workers must still maintain clear HR policies and documented procedures for disciplinary action and termination.
Inspections, Penalties, and Enforcement
The labour codes have introduced web-based, risk-based inspections, with Inspector-cum-Facilitators focusing on compliance guidance rather than frequent physical visits making the inspection process more transparent and less disruptive.
Inspections are now web-enabled and risk-based. Inspectors function as facilitators and issue digital notices before inspections.
Penalties for non-compliance have increased significantly. However, the codes introduce compounding of offences, allowing certain violations to be resolved by paying a prescribed fine instead of facing prosecution.
How Often Should Factories Review Compliance
Compliance is an ongoing process and should be reviewed regularly.
- Monthly internal compliance checks
- Quarterly safety and payroll audits
- Annual labour code compliance audits by professionals
- Regular reviews help factories remain inspection-ready and avoid last-minute corrective actions.
Moving Forward with Labour Code-Ready Compliance
The new labour codes aim to simplify compliance while strengthening worker protection. For factories, this means fewer registrations, clearer wage structures, digitised records, and higher accountability for safety and welfare.
Factories that proactively align with the new labour code requirements not only reduce legal risks but also create safer, more efficient, and more resilient workplaces. Compliance, when managed well, becomes a strategic advantage rather than an operational burden.
