HR Compliance Basics for Indian Startups Hiring Their First Team

Last updated: 23 October 2026 · By the Asuraa Team

Quick answer: Before hiring in India, a startup should check its state shops and establishments registration, issue written appointment letters to every worker as the Labour Codes require, and set up TDS on salaries. EPF applies at 20 or more employees, and ESI and gratuity at 10 or more. Every employer needs a POSH policy, with an Internal Committee once it has ten or more workers. This is general information, not legal advice.

Key takeaways

• India's four Labour Codes took effect on 21 November 2025 and make written appointment letters mandatory for all workers, so issue one to every hire from day one.
• Under the Code on Social Security, EPF applies to establishments with 20 or more employees, while ESI and gratuity apply at 10 or more, according to a Ministry of Labour summary.
• Fixed-term employees become eligible for gratuity after one year of continuous service under the Labour Codes, instead of the five years that apply to permanent staff.
• The POSH Act requires every employer to constitute an Internal Committee, and complaints from workplaces with fewer than ten workers go to the district Local Committee.
• An intern's legal status in India depends on the facts of the arrangement, not the title, so record each intern's purpose, duration, supervision and stipend in writing.

Where should you start?

This guide gives general information for Indian founders and HR teams. It is not legal advice; confirm your obligations with a qualified lawyer, chartered accountant or your state labour department before you act.

HR compliance for a first team is mostly about doing a few things in the right order: register, document, pay correctly, and set up the policies the law expects once you cross certain headcounts. Read in this order:

1. What the new Labour Codes change for the rules that now govern wages, appointment letters, gratuity and leave.
2. Offer letter vs appointment letter because the appointment letter is now a compliance document, not a courtesy.
3. PF and gratuity explained to understand the two benefits that drive most headcount thresholds.
4. The 50% wages rule before you design salary structures.
5. Is an intern an employee under Indian law? if your first hires include interns.
6. TDS on internship stipends so stipend payments are handled correctly from the first month.
7. POSH Act rights for employees so you know what a workplace harassment policy must protect.

Which registrations does a startup need as headcount grows?

Your obligations grow with headcount: some apply from the first employee, others switch on when you cross a threshold. The four Labour Codes took effect on 21 November 2025, according to the Ministry of Labour and Employment, and promise a single registration, single licence and single return. The table below is an index, not a substitute for checking the current rules for your state and sector.

Thresholds are counted on employees, and the Code on Social Security defines an employee broadly as a person employed on wages for almost any kind of work, directly or through a contractor, while excluding apprentices engaged under the Apprentices Act, 1961. Interns, trainees and contract staff can therefore count toward your headcount depending on the facts, which is why the intern question below matters.

What paperwork should every hire receive?

Every hire should have a written appointment letter, a clear pay structure and documented terms for probation, notice, leave and any restrictions. Under the Labour Codes, appointment letters are mandatory for all workers, so the letter is now part of your compliance record.

These pages are written for employees, which is useful: they show exactly what your hires will check and expect. A clear, consistent document set prevents most early disputes before they start.

How should you handle interns, trainees and stipends?

Treat the intern question as a facts question, not a title question. Indian labour law has no separate category for interns, so a short, learning-focused student internship is usually treated differently from a graduate doing full-time staff work on a monthly stipend.

• Is an intern an employee under Indian law? explains how status depends on the arrangement, and why apprentices engaged under the Apprentices Act are treated separately.
• TDS on internship stipends covers how to decide whether a stipend is salary or a fee, and what that means for deduction.
• Unpaid internships: rules and what to accept shows how candidates judge unpaid offers.
• Internship stipend benchmarks for employers helps you set a fair stipend.
• How to design an internship programme and how to hire interns cover structure, mentoring and conversion.

Write down the purpose, duration, supervision and stipend for every intern before they start. That record is your best evidence of what the arrangement really was.

How do you verify candidates and handle their data?

Background verification is a normal step, but it should be proportionate, consented to and handled carefully. Tell candidates what you will check, get written consent, and keep only what you need.

• Background verification process lists what typically gets checked.
• BGV cost and agencies helps you decide whether to outsource.
• Employment verification letters and documents covers the documents previous employers are asked for.
• Recruitment automation: uses, limits and compliance and handling ChatGPT use in hiring tests touch on the data that screening and proctoring tools collect, and why clear notice to candidates matters.

What do most people get wrong about HR compliance in a startup?

The most common mistake is waiting for a threshold before doing anything. Founders often assume nothing applies until the twentieth hire, then discover that appointment letters, TDS, state registration and a harassment policy were expected much earlier. Retrofitting letters, payroll records and policies for a team that is already working is slower and riskier than setting them up for the first hire.

The second mistake is relying on titles. Calling someone an intern, consultant or trainee does not decide their legal status; the work, supervision and payment do. If a person works full time, under your direction, on core work, for months, assume the employee rules may apply and take advice.

The third mistake is treating salary structure as purely a tax-saving exercise. Under the Labour Codes, the wages definition affects PF and gratuity calculations, so a structure that looked efficient under the old rules may now need review.

Where does compliance fit in your hiring process?

Compliance is part of hiring, not a separate department. The employer guide to hiring freshers covers the full flow from job description to day 90, and how startups can hire freshers covers the early decisions. For the candidate side of the same documents, the first job guide from offer to joining shows what your new hires will be reading, and the AI hiring and recruitment guide covers the tools many teams now use to screen.

When your paperwork is ready, look at how fresher roles and internships are presented on Asuraa Jobs to see what entry-level candidates compare when they choose between employers.

Related guides

• Hiring Freshers in India: The Complete Employer Guide
• Your First Job in India: From Offer Letter to Joining Day and Beyond
• AI Hiring and Recruitment: A Guide for Candidates and Employers

FAQ

Does a startup need to register under shops and establishments law before hiring?

In most cases, yes. Shops and establishments registration is governed by each state, and many states expect registration when you open premises or hire your first employee. Rules, timelines and exemptions differ by state and city, so check your state labour department's website before your first hire. This is general information, not legal advice.

When does EPF become mandatory for a startup in India?

Under the Code on Social Security, EPF applies to establishments employing 20 or more employees, according to a Ministry of Labour summary of the Code. Once covered, you register with EPFO, generate UANs for employees and deposit contributions monthly. Smaller employers can also explore voluntary coverage. Confirm current rules with EPFO or a qualified adviser before acting.

Do startups need a POSH Internal Committee?

The POSH Act says every employer of a workplace must constitute an Internal Committee, and complaints from workplaces with fewer than ten workers go to the district Local Committee instead. In practice, every startup should have a written anti-harassment policy from day one and constitute its Internal Committee once it has ten or more workers. Take advice on composition and training.

Is an appointment letter mandatory for every employee?

Yes. Under the Labour Codes that took effect on 21 November 2025, appointment letters are mandatory for all workers, according to the Ministry of Labour and Employment. The letter should set out role, pay, working terms, probation and notice. An informal offer email or WhatsApp message is not a substitute, so issue a proper letter to every hire.

Are interns counted as employees for compliance?

It depends on the facts. Indian labour law has no separate intern category, and the Code on Social Security defines an employee broadly as anyone employed on wages, excluding apprentices engaged under the Apprentices Act. A short, supervised, learning-focused student internship is usually viewed differently from full-time staff work on a monthly stipend. Document each arrangement and take advice.

Do I need to deduct TDS on an intern's stipend?

It depends on whether the stipend is treated as salary or as a fee for independent work. Where the intern works under your supervision, it is generally treated like salary, and TDS depends on the intern's estimated taxable income for the year, which is often nil for modest stipends. Collect the intern's PAN and keep records either way.

Final thoughts

Compliance is easiest when it is built in from the first hire: written appointment letters, clean payroll, a harassment policy and clear intern terms. Treat this guide as a map and confirm the details for your state with a qualified adviser, since it is not legal advice. When you are ready to hire, see how entry-level roles are listed on Asuraa Jobs.