Does your business employ workers in a factory, mine, or plantation? If you lay off, retrench, or close an establishment without following the procedure under the Industrial Relations Code 2020, every affected worker can challenge the action before a tribunal. Industrial establishments with 300 or more workers need prior government permission before any layoff, retrenchment, or closure. Non-compliance attracts fines up to Rs 1 lakh and imprisonment up to one month. The old Industrial Disputes Act 1947 was repealed on 21 November 2025, and the IR Code 2020 is now the governing law.
Indian business owners across manufacturing, construction, mining, logistics, and services deal with workforce changes: seasonal slowdowns, restructuring, technology shifts, or economic downturns. Most employers understand PF and ESI obligations, minimum wages, and gratuity calculations. But when it comes to legally managing layoffs, retrenchment, or plant closures, many discover their obligations only after a worker files a dispute or an inspector issues a notice.
This guide covers every employer obligation: dispute resolution mechanisms, standing orders, layoff rules, retrenchment procedures, closure requirements, prior government permission, strikes and lockouts, trade union provisions, penalties, and the transition from the IDA 1947 to the IR Code 2020.
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From IDA 1947 to IR Code 2020
The Industrial Disputes Act 1947 (IDA) governed industrial dispute resolution, layoffs, retrenchment, and closures in India for over 78 years. On 21 November 2025, the IDA was repealed when the Industrial Relations Code 2020 (IR Code) came into force.
The IR Code replaces three laws:
- Industrial Disputes Act, 1947 (dispute resolution, layoff, retrenchment, closure)
- Trade Unions Act, 1926 (trade union registration and rights)
- Industrial Employment (Standing Orders) Act, 1946 (workplace rules and conditions)
Parliament passed the IR Code (Amendment) Act 2026 on 12 February 2026 to clarify that these three Acts stand repealed from 21 November 2025. The Ministry of Labour and Employment notified the Industrial Relations (Central) Rules 2026 on 8 May 2026.
Tax Rate Chart
Summary
IDA 1947 (repealed 21 Nov 2025)
IR Code 2020 (effective 21 Nov 2025)
IR (Central) Rules 2026
Who Is Covered?
Industrial Establishment
The IR Code applies to every industrial establishment, defined as any establishment or undertaking in which any industry is carried on. This includes factories, mines, plantations, and any establishment where the predominant activity is an industry.
Worker
A worker under the IR Code means any person employed in any industry to do manual, unskilled, skilled, technical, operational, clerical, or supervisory work for hire or reward. The definition excludes:
- Persons employed in a managerial or administrative capacity
- Persons employed in a supervisory capacity drawing wages exceeding Rs 18,000 per month
- Apprentices under the Apprentices Act 1961
Employer
An employer includes the owner or occupier of a factory, the proprietor of a mine or plantation, and any person responsible for the supervision and control of any other industrial establishment.
Dispute Resolution Framework
The IR Code establishes a structured dispute resolution mechanism that every employer must understand.
Grievance Redressal Committee (GRC)
Every industrial establishment with 20 or more workers must constitute one or more GRCs.
- Maximum 10 members per committee
- Equal representation of employer and workers
- Women workers must be represented proportionally
- Must resolve grievances within 30 days
- If unresolved, worker may approach conciliation officer within 60 days
Works Committee
Industrial establishments with 100 or more workers must have a Works Committee with equal employer and worker representation. The committee promotes harmonious relations, not dispute resolution.
Conciliation Officer
The appropriate government appoints conciliation officers to mediate industrial disputes. The conciliation officer must complete proceedings and send a report within 45 days (or a shorter period fixed by the government).
Industrial Tribunal
The IR Code replaces the Labour Courts and Industrial Tribunals of the IDA with a unified Industrial Tribunal consisting of two members: one judicial member and one administrative member. The Tribunal adjudicates disputes that conciliation fails to resolve.
National Industrial Tribunal
For disputes of national importance or affecting establishments in more than one state, the Central Government may constitute a National Industrial Tribunal.
Standing Orders
Standing orders are workplace rules governing employee conduct, attendance, leave, shift work, disciplinary procedures, and termination.
Who Must Have Standing Orders?
Industrial establishments with 300 or more workers on any day in the preceding 12 months must prepare and certify standing orders. The IDA threshold was 100 workers, so this change exempts many small and mid-sized establishments.
Model Standing Orders
The Central Government has notified Model Standing Orders. The IR Code 2020 adds provisions for work-from-home arrangements in the Model Standing Orders, reflecting the evolving nature of work.
Employers must prepare draft standing orders based on the Model Standing Orders within 6 months of the code start date, in consultation with the recognised bargaining union or negotiating council.
Tax Rate Chart
Summary
IDA 1947 standing order threshold
IR Code 2020 standing order threshold
Layoff: Rules and Compensation
What Is a Layoff?
A layoff is the employer's inability to provide employment to a worker on the muster roll due to:
- Shortage of coal, power, or raw materials
- Accumulation of stocks
- Breakdown of machinery or natural calamity
- Any other connected reason
A layoff is temporary. The employment relationship continues, and the worker remains on the rolls.
Who Can Be Laid Off?
Layoff provisions under Chapter IX apply to industrial establishments where more than 50 workers have worked on average per working day in the previous calendar year.
Layoff Compensation
Every laid-off worker who has completed at least one year of continuous service is entitled to:
50% of basic wages + dearness allowance for all days of layoff (excluding weekly holidays)
This compensation is payable for the first 45 days of layoff in any 12-month period. Beyond 45 days, compensation continues only if there is no agreement to the contrary.
When Compensation Is Not Payable
- Worker refuses alternate employment in the same establishment or in any establishment within 8 km belonging to the same employer (if no special skill is required)
- Worker does not present himself for work at the appointed time during normal working hours at least once a day
- Layoff is due to a strike or go-slow in another part of the establishment
Prior Permission for Layoff (300+ Workers)
Industrial establishments with 300 or more workers on average per working day in the preceding 12 months must obtain prior permission from the appropriate government before laying off any worker under Chapter X of the IR Code.
Under the IDA 1947, this threshold was 100 workers.
Retrenchment: Conditions and Compensation
What Is Retrenchment?
Retrenchment means the termination of service of a worker by the employer for any reason other than:
- Disciplinary action (punishment for misconduct)
- Voluntary retirement
- Retirement on reaching superannuation age
- Non-renewal of a fixed-term employment contract
- Termination due to continued ill-health
Conditions Precedent to Retrenchment (Chapter IX)
Before retrenching any worker who has been in continuous service for at least one year, the employer must:
- Give one month's written notice stating reasons for retrenchment, or pay wages in lieu of notice
- Follow LIFO: the worker who was last employed must be retrenched first, unless the employer records reasons for departing from this principle
- Pay retrenchment compensation at the time of retrenchment
Retrenchment Compensation
15 days' average pay for every completed year of continuous service (or any part thereof exceeding 6 months)
| Years of Service | Average Monthly Pay | Compensation |
|---|---|---|
| 3 years | Rs 15,000 | Rs 22,500 |
| 5 years | Rs 20,000 | Rs 50,000 |
| 10 years | Rs 25,000 | Rs 1,25,000 |
| 15 years | Rs 30,000 | Rs 2,25,000 |
Worker Re-skilling Fund (Section 83)
In addition to retrenchment compensation, the employer must contribute 15 days' wages of every retrenched worker to the Worker Re-skilling Fund. This fund disburses re-skilling amounts to retrenched workers within 45 days.
This is a new provision with no equivalent under the IDA 1947. It shifts the framework from pure severance to active re-employment support.
Prior Permission for Retrenchment (300+ Workers)
Establishments with 300 or more workers must apply for prior permission from the appropriate government before retrenching any worker under Chapter X.
The application must state reasons for retrenchment with a copy served on the worker. The government must decide within 60 days. If no decision is communicated within 60 days, the application is deemed granted.
Tax Rate Chart
Summary
IDA 1947 prior permission threshold
IR Code 2020 prior permission threshold
Closure of an Establishment
Notice Requirement
An employer intending to close an industrial establishment must serve 60 days' notice before the intended closure date, clearly stating reasons. The notice must be served on:
- The appropriate government
- The workers or their representative trade union
Closure Compensation
Every worker who has been in continuous service for at least one year in the establishment immediately before closure is entitled to retrenchment compensation as if the worker had been retrenched (15 days' average pay per year of service).
If the closure is due to unavoidable circumstances beyond the employer's control (natural disaster, financial impossibility), compensation is capped at 3 months' average pay.
Prior Permission for Closure (300+ Workers)
Establishments with 300 or more workers must obtain prior government permission before closure. The application must be made at least 90 days before the intended closure date.
Fixed-Term Employment
The IR Code introduces a statutory framework for fixed-term employment (FTE) that did not exist under the IDA 1947.
Benefits Parity
Fixed-term employees are entitled to:
- Same wages, hours of work, allowances, and other benefits as permanent workers doing the same or similar work
- All statutory benefits (PF, ESI, bonus) on a pro-rata basis
- Gratuity eligibility if the fixed-term contract is for one year or more
Termination
Non-renewal of a fixed-term contract on its expiry is not retrenchment. The employer does not need to pay retrenchment compensation or follow LIFO when a fixed-term contract expires.
Strikes and Lockouts
Notice Requirements
| Action | Notice Period | Notice Validity |
|---|---|---|
| Strike | 14 days before strike | 60 days from notice |
| Lockout | 14 days before lockout | 60 days from notice |
Prohibited Periods
Strikes and lockouts are illegal:
- During conciliation proceedings and up to 7 days after
- During tribunal or arbitration proceedings and up to 60 days after
- During any period when a settlement or award is in operation
Penalties for Illegal Strikes and Lockouts
| Offence | Fine | Imprisonment |
|---|---|---|
| Worker: illegal strike | Rs 1,000 to Rs 10,000 | Up to 1 month |
| Employer: illegal lockout | Rs 50,000 to Rs 1,00,000 | Up to 1 month |
| Instigation of illegal strike/lockout | Rs 10,000 to Rs 50,000 | Up to 1 month |
Trade Union Registration
Minimum Membership
A trade union may be registered with 7 or more members. To maintain registration, the union must have membership of at least 10% of workers or 100 workers, whichever is less.
Sole Negotiating Union
- If there is only one registered trade union in an establishment, the employer must recognise it as the sole negotiating union
- If there are multiple unions, the union with support of at least 51% of workers on the muster roll is recognised as the sole negotiating union
- If no union has 51%, a negotiating council is formed with representatives from unions having at least 20% membership
Unfair Labour Practices
The IR Code prohibits unfair labour practices by both employers and workers/trade unions, listed in the Second Schedule.
By Employers
- Interfering with, restraining, or coercing workers in exercising their right to organise or join a union
- Discriminating against union members in hiring, tenure, promotion, or conditions of service
- Discharging or dismissing workers for filing complaints or participating in proceedings under the Code
- Refusing to bargain collectively in good faith with the recognised negotiating union
- Recruiting during a legal strike (except to maintain minimum service)
By Workers/Trade Unions
- Coercion or intimidation of workers to join or not join a union
- Go-slow tactics
- Refusal to bargain collectively in good faith
- Staging demonstrations at the employer's residence
Penalty
Fine of Rs 10,000 to Rs 2,00,000 under Section 86(5).
All Penalties at a Glance
| Offence | Fine | Imprisonment |
|---|---|---|
| Illegal strike (worker) | Rs 1,000 to Rs 10,000 | Up to 1 month |
| Illegal lockout (employer) | Rs 50,000 to Rs 1,00,000 | Up to 1 month |
| Instigation | Rs 10,000 to Rs 50,000 | Up to 1 month |
| Unfair labour practice | Rs 10,000 to Rs 2,00,000 | - |
| Contravention of any provision | Rs 1,00,000 (first), Rs 2,00,000 (repeat) | - |
| Closure without notice (under 300) | Rs 50,000 to Rs 2,00,000 | - |
| Layoff/retrenchment/closure without permission (300+) | Up to Rs 1,00,000 + Rs 5,000/day continuing | Up to 6 months |
Tax Interactions
TDS on Retrenchment Compensation
Retrenchment compensation paid under the IR Code is exempt from income tax under Section 10(10B) of the Income Tax Act up to Rs 5,00,000. Amount exceeding this limit is taxable as salary income. The employer must deduct TDS under Section 192 on the taxable portion.
Gratuity Component
Workers with 5+ years of continuous service are also entitled to gratuity under the Payment of Gratuity Act 1972, which is separate from retrenchment compensation. Both are payable simultaneously.
PF and ESI
PF and ESI contributions continue during layoff (since the worker remains on the rolls). The employer must continue PF contributions on layoff compensation paid.
IDA 1947 vs IR Code 2020: Key Changes
| Feature | IDA 1947 | IR Code 2020 |
|---|---|---|
| Standing orders threshold | 100 workers | 300 workers |
| Prior permission threshold | 100 workers | 300 workers |
| Fixed-term employment | Not defined | Statutory framework with parity |
| Worker Re-skilling Fund | No provision | 15 days' wages contribution |
| Grievance Redressal Committee | No specific provision | Mandatory for 20+ workers |
| Negotiating union recognition | Multiple unions allowed | 51% threshold for sole negotiating union |
| Strike/lockout notice | 14 days (public utility) | 14 days (all establishments) |
| Adjudication bodies | Labour Court + Industrial Tribunal | Unified Industrial Tribunal |
| Work-from-home in standing orders | Not covered | Included in Model Standing Orders |
| Government notification for threshold change | Required legislation | Executive notification sufficient |
12-Point Employer Compliance Checklist
- Check worker count: determine whether your establishment crosses the 300-worker threshold for Chapter X obligations (prior permission for layoff/retrenchment/closure)
- Constitute GRC: if you employ 20+ workers, set up a Grievance Redressal Committee with proportional women representation
- Set up Works Committee: if you employ 100+ workers, form a Works Committee with equal employer-worker representation
- Certify standing orders: if you employ 300+ workers, prepare, submit, and certify standing orders within the prescribed timeline
- Follow LIFO for retrenchment: last employed, first retrenched, unless you record reasons for departing from this principle
- Issue retrenchment notice: one month's written notice stating reasons, or wages in lieu
- Pay retrenchment compensation: 15 days' average pay per year of service at the time of retrenchment
- Contribute to Re-skilling Fund: 15 days' wages per retrenched worker to the Worker Re-skilling Fund
- Apply for prior permission (300+): apply 90 days before closure, with reasons, copy served on workers
- Give 60 days' closure notice: serve notice on government and workers before closing any establishment
- Recognise negotiating union: recognise the sole negotiating union (single union or 51% support union)
- Avoid unfair labour practices: do not interfere with trade union activities, discriminate against union members, or refuse to bargain collectively
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IR Code (Central) Rules 2026
The Ministry of Labour and Employment notified the Industrial Relations (Central) Rules 2026 on 8 May 2026. These rules prescribe:
- Forms for applications, notices, and returns
- Procedure for conciliation, tribunal proceedings, and arbitration
- Standing order certification process
- Worker Re-skilling Fund administration
- GRC and Works Committee constitution procedures
State-specific rules are still being notified. Until a state notifies its own rules, the Central Rules apply to Central Government establishments, and the state's existing rules under the repealed Acts continue for state-sphere establishments through transitional provisions.
Interaction with Other Labour Laws
The IR Code is one of four labour codes that together replace 29 legacy labour laws:
- Code on Wages 2019: minimum wages, payment of wages, bonus
- Code on Social Security 2020: PF, ESI, gratuity, maternity benefits
- OSH Code 2020: occupational safety, contract labour, working conditions
- IR Code 2020: industrial disputes, trade unions, standing orders (this guide)
For a consolidated overview, see the Four Labour Codes compliance guide.
