Layoff rules in India stay manageable once you know the 50 and 300 worker lines
Layoff rules in India depend on three things: how many workers you employ, how long each person has served, and whether that person counts as a “worker” in law at all. Get one of the three wrong and a planned cost saving turns into a labour dispute with penalties attached. Count your headcount, check every tenure, and price the exit before anyone gets a meeting invite.
That sounds like a lot of conditions, and it is. But the legal structure is simpler than it looks. The Industrial Relations Code, 2020 took over from the Industrial Disputes Act when the four labour codes came into force on 21 November 2025, and it sets one clear sequence for ending a role the business no longer needs.
We work with 550+ clients on India employment, and the same few exit mistakes keep repeating. Most of them come down to a missed threshold or a missing notice, and both are cheap to prevent.
Layoff rules in India start with one question: is this person a worker?
The Industrial Relations Code protects “workers”, and that word has limits. Managers and administrators sit outside it, and so does anyone in a supervisory role who draws wages above ₹18,000 a month (Section 2(zr) of the Code). Plenty of senior engineers, product leads and team managers therefore fall outside the retrenchment rules below.
But outside the Code doesn’t mean unprotected. Their employment contract, the state Shops and Establishments Act and the notice terms you signed still govern the exit. For these roles, treat the contract as the law and follow it to the letter.
One more edge case matters. Ending a fixed term contract on its expiry date isn’t retrenchment, so the payments covered here don’t apply. Our guide to fixed term employment in India shows how to keep that distinction clean.
Lay off and retrenchment mean different things in Indian law
When your head office says “layoff”, Indian law usually hears “retrenchment”. A legal lay off is temporary: the employer can’t provide work because of a shortage of coal, power or raw materials, and the worker stays employed. Retrenchment is the termination itself, “for any reason whatsoever”, with listed exceptions such as voluntary retirement (Section 2(zh)).
Real lay offs are rare in office based teams. What you’ll almost always run is a retrenchment, so plan around Section 70 and the sections that follow it.
Layoff rules in India change at the 50 and 300 worker lines
Headcount at the establishment decides how much process you owe. The table below sets out the core rules from the text of the Code on India Code, with the permission and fund provisions as read in Taxmann’s analysis.
| Rule | Who it covers | What you owe | Code section |
| Retrenchment notice and pay | Workers with at least one year of continuous service | One month’s written notice stating reasons, or wages in lieu; 15 days’ average pay for each completed year of service, where a part year above six months counts as one year; notice to the appropriate government | 70 |
| Order of exit | Workers in the same category | Retrench the last person hired first unless you record why not; offer new openings to retrenched Indian citizens first if you rehire within one year | 71 and 72 |
| Reskilling fund | Retrenched workers | 15 days’ last drawn wages credited to the worker’s account within 45 days of retrenchment | 83 |
| Layoff pay | Establishments with 50 or more workers; workers with a year of service | 50% of basic wages plus dearness allowance for each day laid off | 67 |
| Prior permission | Establishments with 300 or more workers | Government permission before layoff, retrenchment or closure (the old threshold was 100) | 77 |
Here’s our position. Treat the 300 worker line as a risk ceiling, not a licence to skip notice. Most teams hired through an Employer of Record sit well below it, and that’s exactly why they get relaxed about the one month notice and the government intimation.
Also confirm how your state counts contract staff toward the 50 and 300 figures. Rules differ, and a count that lands near a line deserves a legal opinion before you act.
A worked example shows what one exit really costs
Consider a company that retrenches one quality analyst with 6 years and 8 months of service and wages of ₹90,000 a month. This is an illustration, not a quote, and the average pay formula depends on your wage definition and pay cycle, so have your payroll team confirm the figures.
The service rounds up to 7 years, because a part year above six months counts. Taking 15 days as half a month, retrenchment compensation comes to about ₹3.15 lakh. Notice pay in lieu adds ₹90,000, and the reskilling contribution adds about ₹45,000.
That’s roughly ₹4.5 lakh before gratuity, leave encashment and final salary. And you must settle all of those dues within two working days of the last day under Section 17(2) of the Code on Wages. Our note on full and final settlement in India walks through that clock.
Documentation is what protects you if an exit gets challenged
A clean paper trail decides most disputes before they start. Keep the selection list, the reasons recorded for any departure from last in, first out, the dated notice, proof of the government intimation and the signed settlement receipt in one file per person.
Meanwhile, resist the urge to dress a business reduction up as a performance exit. A role eliminated for cost reasons is a retrenchment, and calling it anything else invites a claim that you skipped the compensation. Be direct with the employee, pay what the Code requires, and the conversation stays short.
Follow this order when you need to reduce your India team
A fixed sequence protects you from the two errors we see most: serving notice before the numbers are checked, and skipping the government intimation because the team looks small.
- Confirm who counts as a worker, and record each person’s start date and wages.
- Count workers at the establishment to see whether the 50 or 300 line applies.
- Choose selection criteria by job category, and write down the reason for any departure from last in, first out.
- Calculate compensation, notice pay, the reskilling contribution and all final dues before notice goes out.
- Serve one month’s written notice with reasons, and notify the appropriate government.
- Pay everything inside the settlement window, and collect signed acknowledgements.
If the cut is part of a larger exit, our guide to winding down your India operations covers closure, PF and tax steps. For single exits, the termination, severance and notice period rules are the better companion read.
An Employer of Record keeps the paperwork clean, but you own the decision
If your team sits with an Employer of Record in India, the EOR is the legal employer. It issues the notices, runs the payroll side of the settlement and closes the PF records. You still own the business reason, the selection logic and the conversation with each person.
Exit mechanics live in the service agreement, so read them before you hire, not after. Our fifty question guide to Employer of Record services lists the termination clauses worth negotiating, and plans start from $49 per employee per month.
Everything above is general information, not legal advice. Have Indian employment counsel review any exit that touches more than a handful of people.
Your next step takes about an hour. Pull a list of every India employee with start date, wages and job level, then mark who counts as a worker with a year of service. That one sheet tells you whether you face a notice and pay exercise or a request for government permission.