You Just Hit 10 Employees. Here's What Just Became Mandatory
Crossing 10 employees in India triggers ESI, POSH Internal Committee, gratuity coverage and maternity benefit obligations. Here is exactly what changes.
Crossing 10 employees is one of the sharpest compliance cliffs an Indian business faces - four separate obligations switch on at once, and none of them are optional once you're over the line.
Key facts at a glance
- The Employees' State Insurance (ESI) Act becomes mandatory for establishments with 10 or more employees (1 or more in hazardous units).
- ESI applies to employees earning up to Rs 21,000/month (Rs 25,000 for employees with disability), at 0.75% employee and 3.25% employer contribution.
- The POSH Act requires an Internal Committee (ICC) at any workplace with 10 or more employees.
- The Payment of Gratuity Act starts applying to the establishment at 10 employees, though individual payout eligibility still needs 5 years of continuous service.
- The Maternity Benefit Act applies once an establishment has 10 or more employees.
- Below 10 employees, POSH complaints go to a Local Committee via the District Officer instead of an internal one.
ESI registration becomes compulsory
Once your headcount touches 10 (or even 1, in a notified hazardous unit), ESI registration is no longer optional. You must register the establishment with the Employees' State Insurance Corporation and start deducting and depositing contributions for every covered employee - 0.75% from the employee's wages and 3.25% as the employer's share, on wages up to Rs 21,000 a month.
ESI coverage has also been extended in several states to categories of commercial and IT/software/BPO offices that were previously often left out in practice, so do not assume your sector is exempt just because it isn't a traditional factory.
You now need a Internal Committee, not just a policy
Many small businesses think a POSH policy document is enough. It isn't. At 10 or more employees, the law requires a properly constituted Internal Committee with a senior woman employee as presiding officer, at least two employee members, and one external member with relevant experience. The Committee must be able to receive and inquire into complaints, not merely exist on paper.
This is also an area under active regulatory attention - courts have been pushing for mandatory registration of Internal Committees on the government's SHe-Box portal, and employers increasingly face scrutiny during licence renewals and board-level disclosures over ICC compliance.
Gratuity coverage starts now, payouts come later
The Payment of Gratuity Act, 1972 applies to your establishment as soon as you employ 10 or more people. This does not mean you owe gratuity to everyone immediately - an employee only becomes eligible for a gratuity payout after completing 5 years of continuous service (with some exceptions, like death or disablement). But the coverage itself, and the obligation to plan for eventual payouts, starts the day you cross 10.
Maternity benefits become a statutory requirement
The Maternity Benefit Act, 1961 (as amended) also kicks in at 10 employees. Eligible women employees are entitled to paid maternity leave, and larger establishments crossing 50 employees separately trigger a crèche facility requirement - worth planning for as you keep growing.
What changes, at a glance
| Obligation | Trigger | Key requirement |
|---|---|---|
| ESI registration | 10+ employees (1+ in hazardous units) | Register with ESIC, deduct and deposit contributions |
| POSH Internal Committee | 10+ employees | Constitute ICC with presiding officer and external member |
| Payment of Gratuity Act | 10+ employees | Establishment covered; individual eligibility after 5 years' service |
| Maternity Benefit Act | 10+ employees | Paid maternity leave for eligible women employees |
What to do this week
Start with a headcount audit that includes every category of worker on your rolls, not just full-time staff, since most of these thresholds count broadly. Then register for ESI if you haven't already, constitute your Internal Committee formally with documented appointment letters, and confirm your gratuity and maternity leave policies are aligned with the law rather than just an internal HR document.
Sources
- EPFO - epfindia.gov.in
- ESIC - esic.gov.in
- Ministry of Labour and Employment - labour.gov.in
- Respective state labour department portals
If you're not sure where your business stands on this, ComplianceCheck's statutory compliance assessment gives you a clear picture in a few minutes.
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
- Does the 10-employee threshold count all staff or only full-time workers?
- Most Indian labour laws count everyone on the rolls, including part-time, contract and temporary workers on a given day, not just full-time permanent employees - check the specific Act for its own counting rule.
- Do I still need ESI if my employees earn above the wage ceiling?
- If your headcount hits 10, the establishment becomes covered under the ESI Act, but individual employees are only enrolled if their wages are at or below Rs 21,000 a month (Rs 25,000 for employees with disability).
- Is the Internal Committee required even if no complaint has ever been made?
- Yes, the Internal Committee under the POSH Act must be constituted the moment a workplace has 10 or more employees, regardless of whether any complaint exists.
- Does gratuity apply immediately once we cross 10 employees?
- The Payment of Gratuity Act applies to the establishment once it employs 10 or more people, but individual employees only become eligible for a gratuity payout after 5 years of continuous service.
- If our headcount later drops below 10, do these obligations go away?
- No. Once an establishment has been covered under the Payment of Gratuity Act, ESI or POSH, coverage generally continues even if headcount later falls below the threshold - check the specific Act's continuation rule before assuming an exemption.
- Does the Maternity Benefit Act apply at 10 employees too?
- Yes, the Maternity Benefit Act applies to establishments employing 10 or more persons, covering paid maternity leave and related benefits for eligible women employees.
- Which state registration do we need alongside these central laws?
- You still need Shops and Establishments registration in your state, which typically applies from a much lower headcount than 10 and should already be in place before you scale further.
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A 12-question health check of PF, ESI, Professional Tax, Gratuity and Bonus compliance for Indian employers.