State vs. Central Labor Laws in India: What EOR Clients Should Know

When expanding into India through an Employer of Record (EOR), one of the most overlooked yet crucial aspects of hiring is understanding the difference between State and Central labor laws.

For companies unfamiliar with India’s legal structure, it may come as a surprise that labor is a concurrent subject meaning both the central (federal) government and the individual state governments have the power to legislate on it. This creates a complex web of rules that can vary dramatically based on where your employees are located.

If you’re planning to hire in India using an EOR like DevX EOR, a trusted partner in India understanding how these dual systems interact will help you remain compliant, avoid penalties, and treat your remote employees fairly.

The Dual Legal Framework: An Overview

India’s Constitution divides responsibilities between the Central and State governments. Labor laws fall under the “Concurrent List,” which means:

• The Central Government enacts foundational laws applicable across India.
• The State Governments can make changes, add provisions, or enforce their own rules for workers within their state.

So while the core framework is national, the actual application often depends on local rules.

This matters for you as an EOR client because a payroll or HR strategy that works in Bangalore (Karnataka) may not be fully compliant in Mumbai (Maharashtra) or Chennai (Tamil Nadu).

Common Central Labor Laws EORs Must Follow

Here are some key central labor laws that EOR partners like DevX EOR follow for all employees across India:

1. Payment of Wages Act, 1936

Ensures timely payment of salaries to employees. EORs must process salaries within the specified timeline.

2. Minimum Wages Act, 1948

Mandates that employers pay at least the prescribed minimum wage. These rates vary by job role and region.

3. Employees Provident Fund (EPF) Act, 1952

Requires companies to contribute a portion of employee salaries toward retirement savings. The standard contribution is 12% from both employer and employee.

4. Employees State Insurance (ESI) Act, 1948

A health insurance scheme applicable to employees earning below a threshold (₹21,000/month). Contributions are made by both employer and employee.

5. Payment of Bonus Act, 1965

Provides statutory bonuses for employees earning below ₹21,000/month, depending on company profitability.

6. Gratuity Act, 1972

Applicable when an employee completes 5 years of continuous service with the employer, offering a lump sum benefit upon exit.

Where States Make a Difference

Now, here’s where things get more nuanced. Each Indian state can amend certain labor laws based on regional economic conditions, industry needs, or political decisions. These state-specific variations impact how EORs manage:

1. Minimum Wages

• States revise minimum wage rates every 6 months or annually.
• These rates differ by industry and skill level (unskilled, semi-skilled, skilled).
• For example:
  • Minimum wage in Delhi is significantly higher than in Odisha for the same role.
  • A developer in Maharashtra may have a different base pay requirement than one in Karnataka.

2. Shops & Establishment Acts

• Each state has its own Shops and Establishment Act, which governs:
  • Working hours
  • Overtime rules
  • Leave policies
  • Women working at night
• These laws affect non-factory workplaces like IT companies, startups, and remote teams.
• Example: Tamil Nadu allows extended night shift work for women under strict conditions, while Kerala requires prior approval from the Labor Commissioner.

3. Professional Tax

• Imposed by some states (e.g., Maharashtra, Karnataka, West Bengal).
• EORs must deduct this from employees’ salaries and deposit it with the local government.

4. Holiday Lists

• Public holidays differ across states.
• EORs must align employee holiday calendars with their state’s official list.

5. Contract Labor Rules

• Rules for third-party contract labor differ by state.
• Registration and compliance requirements vary for example, some states require registration for hiring even 10 contract workers, while others do not.

Why This Matters for EOR Clients

As a global startup or business using an EOR model in India, here’s why understanding this distinction is key:

1. Avoid Compliance Breaches

If your EOR partner doesn’t account for local state rules, you could face:

• Labor inspections
• Legal penalties
• Payroll errors

2. Protect Your Brand

Non-compliance reflects poorly on your company’s global image even if it’s technically the EOR’s responsibility.

3. Ensure Fair Compensation

Failing to meet the correct minimum wages in a specific state can result in underpaid employees and high attrition.

4. Build Better Employee Trust

Indian workers are increasingly aware of their rights. Localized policies help build trust, satisfaction, and retention.

How DevX EOR Handles State vs. Central Labor Complexity

At DevX EOR, we maintain up-to-date compliance checklists for every Indian state we operate in. Here’s how we keep our clients protected:

• Geo-specific payroll processing: Our payroll engine maps employees to their state’s statutory wage and tax structure.
• Local registration: We comply with state Shops & Establishment Acts where required.
• Holiday calendars by region: We ensure holiday policies match the employee’s location.
• Labor law updates: We track and incorporate updates in real-time, such as new maternity benefits, leave laws, or tax thresholds.

Whether you hire in one state or across five, DevX ensures full compliance with both central and local labor laws.

Best Practices for EOR Clients Expanding into India

1. Ask your EOR partner about state-wise hiring strategy.

Before selecting locations for hiring, understand the pros, cons, and compliance differences.

2. Avoid assuming uniform laws.

India isn’t a one-size-fits-all market. What’s legal in Gujarat may not be in Tamil Nadu.

3. Clarify onboarding policies and local holidays.

Ensure employment agreements reflect the correct jurisdiction and legal framework.

4. Factor professional tax and other regional deductions into payroll estimates.

It impacts the employee's net take-home.

Final Thoughts

Hiring in India is a massive opportunity but it’s layered. The central government lays the foundation, but state-level rules paint in the details.

With a reliable EOR partner like DevX, your business doesn’t need to worry about decoding 28 states’ labor laws. We do it for you seamlessly managing your team’s compliance, compensation, and documentation while you stay focused on your business goals.

Whether you're onboarding your first hire in India or building an entire team, understanding the interplay of state vs. central laws helps you stay ahead of the curve and avoid costly missteps.