Retrenchment and Layoffs: The 100 vs 300 Employee Threshold
Why the retrenchment and layoff headcount threshold matters, how it changes from 100 to 300 workers under the Industrial Relations Code, and where states currently stand.
For decades, Indian establishments with 100 or more workers needed prior government permission before retrenching employees, imposing a layoff, or closing down. The Industrial Relations Code raises that threshold to 300 workers, but whether the higher number applies to your business right now depends on your state, not just the national law.
Key facts at a glance
- Under the earlier Industrial Disputes Act framework (Chapter V-B), establishments with 100 or more workers needed prior government permission for retrenchment, layoff or closure.
- The Industrial Relations Code, 2020 raises this threshold to 300 workers.
- All four Labour Codes, including the IR Code, came into force nationally on 21 November 2025.
- Labour is a concurrent subject, so each state must notify its own rules before the new threshold is operational there.
- As of mid-2026, most states have not yet fully notified their Labour Code rules.
- Retrenched workers are generally owed notice (or pay in lieu) plus retrenchment compensation based on completed years of service, regardless of which threshold applies.
- Some states had already raised this threshold through their own amendments to the earlier Industrial Disputes Act, even before the Codes.
Why this threshold exists at all
The idea behind the threshold is straightforward: below it, an employer can retrench, lay off or close operations by following notice and compensation rules directly. Above it, the employer historically needed prior government approval, which added time, scrutiny and the possibility of refusal. Raising the threshold from 100 to 300 is meant to give mid-sized, growing businesses more flexibility to restructure without going through that approval process.
What actually changes at 300 versus 100
| Aspect | Below threshold | At or above threshold |
|---|---|---|
| Prior government permission for retrenchment/layoff/closure | Not required | Required |
| Notice and compensation obligations | Still apply | Still apply |
| Administrative process | Direct, employer-driven | Application and approval process |
| Threshold under old law (Industrial Disputes Act) | Below 100 workers | 100 or more workers |
| Threshold under IR Code (once operational in a state) | Below 300 workers | 300 or more workers |
The key point many employers miss: crossing the threshold does not remove the underlying obligation to pay retrenchment compensation or give notice. It only changes whether prior government sign-off is needed before acting.
Retrenchment, layoff and closure are not the same thing
Retrenchment is the termination of a worker's service for reasons other than misconduct, most commonly redundancy or restructuring. Layoff is a temporary failure or inability to provide work, for example due to shortage of raw material, power or accumulation of stock. Closure is the permanent shutting down of an establishment or a part of it. Each has its own notice period and compensation formula, and the government-permission threshold applies somewhat differently across the three under the Code.
Where the 300-worker threshold actually stands today
This is the detail that trips up most HR and finance teams: the Industrial Relations Code is legally in force nationwide since 21 November 2025, but that is not the same as the 300-worker threshold being operational in every state. Because labour is a concurrent subject, each state has to notify its own rules to bring the Code's provisions, including this threshold, into practical effect locally.
As of mid-2026, most states have not completed that notification. Some states had already amended their own version of the old Industrial Disputes Act to raise the threshold above 100 even before the Codes existed, which adds another layer of state-specific variation. The safest approach for any establishment approaching either the 100 or 300 mark is to check the current, state-specific position rather than assume the national headline figure applies immediately.
What growing businesses should do
If your headcount is approaching 100 or 300, do not assume you automatically have the flexibility associated with the higher threshold just because the IR Code is technically in force. Confirm your state's notification status, and keep your retrenchment, layoff and closure procedures aligned with whichever framework currently applies to your establishment.
If you are not sure where your business stands as the Labour Codes roll out, ComplianceCheck's labour code assessment gives you a clear picture in a few minutes.
Sources
- Ministry of Labour and Employment — labour.gov.in
- Relevant state labour department portal
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
- What is the 100 vs 300 employee threshold in retrenchment law?
- Under the earlier Industrial Disputes Act, establishments with 100 or more workers needed prior government permission before retrenchment, layoff or closure. The Industrial Relations Code raises this threshold to 300 workers, meaning more establishments can act without prior government permission once the Code is fully operational in that state.
- Is the 300-employee threshold already in effect everywhere?
- The Industrial Relations Code is in force nationally since 21 November 2025, but each state must notify its own rules before the higher threshold actually applies there, and as of mid-2026 most states have not completed that step, so employers should confirm their specific state's status.
- What is the difference between retrenchment, layoff and closure?
- Retrenchment is termination of a worker for reasons other than punishment, such as redundancy; layoff is a temporary inability to provide work due to reasons like shortage of raw material; closure is the permanent shutdown of an establishment. Each has separate notice and compensation rules.
- Do smaller employers below the threshold have no obligations at all?
- No, employers below the threshold still owe retrenchment compensation, notice and other procedural obligations under the applicable law; they simply do not need prior government permission before acting, unlike larger establishments above the threshold.
- What compensation is typically owed on retrenchment?
- Retrenched workers are generally entitled to notice or pay in lieu of notice, plus retrenchment compensation calculated on the basis of completed years of service, in addition to any other dues like gratuity where applicable.
- Why does this threshold matter so much to growing businesses?
- Crossing 100 or 300 employees changes an employer's legal flexibility to restructure the workforce, so businesses growing through that range should track which threshold actually applies to them in their state before assuming they have more or less flexibility than they do.
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