Hiring Remote Employees in Other States: PT, LWF and S&E
Hiring your first remote employee in a new Indian state triggers Professional Tax, Labour Welfare Fund and Shops and Establishments obligations. Here is what each requires.
Hiring your first remote employee in a state you do not already operate in triggers a set of state-specific obligations - Professional Tax, Labour Welfare Fund and Shops and Establishments registration - that are easy to overlook because there is no physical office to remind you.
Key facts at a glance
- Professional Tax (PT) is levied by state governments on salaried employees and professionals, but not all states levy it - some, like Delhi, do not.
- Labour Welfare Fund (LWF) exists in a subset of states and requires small periodic contributions from both employer and employee, typically deducted through payroll.
- Shops and Establishments (S&E) registration is required in most states for any commercial establishment, and many states interpret "establishment" to include remote work arrangements, not just physical premises.
- PT is typically capped by law at a maximum annual amount per employee under the Constitution (historically Rs 2,500 per year, though states set their own slab structures within this).
- Each state has its own S&E Act, with different registration processes, renewal cycles and record-keeping requirements.
- LWF contribution amounts and payment frequency (monthly, half-yearly or annual) differ meaningfully by state.
Why one remote hire changes your compliance map
Before remote work became routine, most SMEs only dealt with the state-level compliance rules of wherever their office was physically located. A single remote employee in a new state changes that: several state labour laws attach obligations to the location where an employee performs work, not just to where the employer has a registered office.
This means hiring one person in, say, Karnataka when your company is based in Maharashtra can trigger a fresh set of state-specific registrations, even if that employee never visits a company office in Karnataka. The obligations are genuinely new registrations, not simply an update to an existing one.
Professional Tax: check if the state levies it
Professional Tax is deducted from the employee's salary each month and remitted to the state government by the employer, who must first register as an employer for PT purposes in that state. Not every state levies PT, and among those that do, the slab structure (income bands and corresponding tax amount) differs.
If your remote hire is in a state that levies PT, you will typically need a PT registration certificate and, depending on the state, a PT enrollment certificate for the business itself, in addition to the monthly deduction and remittance process for the employee.
Labour Welfare Fund: check if it exists and what it costs
LWF is a welfare scheme that exists in only some states. Where it applies, both employer and employee contribute small, fixed amounts, collected through payroll and remitted at intervals set by the state (commonly half-yearly). Because the amounts are small, LWF is often the easiest of these three obligations to miss - it rarely shows up in vendor contracts or invoices the way PT or GST would, so it depends on someone actively checking the state's requirement.
Shops and Establishments: the broadest net
S&E registration is the most likely of the three to apply, since most states require any commercial establishment employing people within the state to register, and several states' definitions are broad enough to capture remote employees. S&E registration also typically governs working hours, leave entitlements, and record-keeping obligations that apply specifically in that state, separate from your company's usual HR policies.
State-by-state comparison snapshot
| Obligation | Applies in | Trigger | Typical cadence |
|---|---|---|---|
| Professional Tax | Most states, not all (e.g. not Delhi) | Any salaried employee in a PT state | Monthly deduction and remittance |
| Labour Welfare Fund | A subset of states | Employment in an LWF state, often with a minimum headcount | Half-yearly or annual, state-dependent |
| Shops and Establishments | Nearly all states | Commercial establishment or work performed in the state | One-time registration, periodic renewal |
Building a repeatable process
The practical fix is to treat "new state" as a compliance trigger event, the same way you would treat crossing a headcount threshold. Before or immediately after extending an offer to a candidate in a new state, check that state's PT, LWF and S&E requirements as a standard part of onboarding, rather than discovering the gap during an audit or a funding due diligence process months later.
If you are not sure which state-specific obligations apply to your current or planned remote hires, ComplianceCheck's state-wise compliance assessment gives you a clear picture in a few minutes.
Sources
- Respective state labour department official portal
- Respective state commercial taxes department (for Professional Tax)
- Ministry of Labour and Employment - labour.gov.in
This guide is general information, not legal advice. Requirements vary by state, sector and headcount - confirm specifics with a compliance professional or the relevant authority.
Frequently Asked Questions
- Do I need to register my company in a new state just to hire one remote employee there?
- You generally do not need a full corporate registration, but you typically do need state-specific registrations like Shops and Establishments, Professional Tax and possibly Labour Welfare Fund, since these are tied to having an employee working from that state, not to having an office there.
- What is Professional Tax and does every state have it?
- Professional Tax is a state-level tax on salaried income and professions, deducted from employee salary and remitted by the employer, but not every state levies it, so you need to check the specific state your remote employee is based in.
- Do I need a Shops and Establishments registration for a remote employee with no physical office?
- Most Shops and Establishments Acts define coverage based on where work is carried out, not just where a physical office exists, so a remote employee working from a state can still trigger a registration requirement in that state, though the exact interpretation varies by state.
- What is the Labour Welfare Fund and is it mandatory everywhere?
- The Labour Welfare Fund is a state-level welfare scheme funded by small periodic employer and employee contributions, but it exists in only some states, and even where it exists, applicability thresholds and contribution amounts differ by state.
- What happens if I do not register for these state obligations for a remote hire?
- Non-registration can expose the employer to penalties, back-payment demands with interest, and complications during audits or due diligence, even if the employee's day-to-day work was unaffected.
- Does hiring remote employees change my EPF or ESI obligations?
- EPF and ESI are central schemes with nationwide applicability thresholds based on total headcount, so a remote hire in a new state counts toward those thresholds the same way any other employee does, separate from state-specific PT, LWF and S&E obligations.
- How do I track multiple states' PT and LWF rules as I hire more remotely?
- Most growing companies maintain a simple per-state compliance checklist or use a compliance assessment tool, since PT slabs, LWF contribution amounts and S&E renewal cycles all vary by state and change periodically.
Check your status
State-Wise Compliance Check
Identifies which state-specific laws apply to your business — Professional Tax, Labour Welfare Fund, and Shops & Establishment deadlines.