Is it Mandatory for Gratuity Insurance?

[SOWJANYA1]

Hi All,
Could someone clarify about the Labour License registration, is mandatory to register for below 20 employees?
Is it a default registration to run an office with 15 employees, where they do not have PF & ESI registration. Any Particular Law or Circular for office location in Telangana?

Looking forward to hear from you folks!

Regards,
Sowjanya

[SOWJANYA1]

@Bhuvana_Anand , madam looking for your inputs pls.

[Bhuvana_Anand]

Hi Sowjanya,

For Telangana
The Contract Labour (Regulation and Abolition) Act, 1970 (CLRA Act) primarily governs the licensing of establishments employing contract labour. It applies only if:

• The establishment employs 20 or more contract workers, or
• A contractor employs 20 or more contract workers.

So, Labour License under the CLRA Act is NOT required if:

• You directly employ workers (not through a contractor).
• The number of contract workers engaged is less than 20.

If you’re running an office in Telangana and have 15 regular employees (not contract labour):

• The CLRA Act does not apply.
• Therefore, Labour License is not mandatory under the CLRA framework.

However, you may still be required to comply with other statutory registrations, such as:

Law/Registration	Applicability
Shops and Establishments Act	Mandatory irrespective of employee count. Telangana has its own state-specific law—Telangana Shops & Establishments Act, 1988.
EPF & MP Act, 1952 (PF)	Mandatory if employee count is 20 or more.
ESI Act, 1948	Mandatory if employees are 10 or more and drawing less than ₹21,000/month (₹25,000/month for persons with disability).
Professional Tax	Mandatory irrespective of number of employees.
Trade License (Municipal)	As per local municipal rules—required to operate an office legally.

You should refer to the Telangana Shops and Establishments Act, 1988, which mandates registration within 30 days of commencing business, even if you have just 1 employee.

• There is no threshold exemption under this Act for fewer than 20 employees.
• Registration is required through the Telangana Labour Department’s online portal (https://labour.telangana.gov.in).

While PF and ESI registrations depend on employee count and wage levels:

• Not having PF/ESI registrations does not exempt the employer from obtaining other necessary registrations (e.g., under the Shops and Establishments Act or obtaining a Trade License).
• Delayed PF/ESI registration may attract penalties once thresholds are met.

As of now, no Telangana-specific circular mandates Labour License for employers with fewer than 20 employees under the CLRA Act. However the Labour Department of Telangana issues notifications and compliance timelines periodically. * Always it is good to check the online registration system for updated guidance or reach out to a Labour Inspector in your jurisdiction for clarity.

You can also bookmark greytHR Stacowiki pages for reference.

Regards,
Bhuvana Anand

[SOWJANYA1]

Thank you very much for your reply madam.

With reference to the subject, It’s my mistake about the query missed to edit it. Sorry for the same question twice.

My another query: Is it mandatory for Gratuity Insurance for a PVT LTD company having below 10 or 20 employees?

Thank you.

Regards,
Sowjanya

[Bhuvana_Anand]

Hi Sowjanya,

Applicability of the Act

Section 1(3) of the Act states that it applies to:

• Every factory, mine, oilfield, plantation, port, and railway company, and
• Every shop or establishment (as per state definitions) where 10 or more persons are employed on any day in the preceding 12 months
• Furthermore, Section 1(3A) clarifies that once an establishment becomes subject to the Act by crossing the 10-employee threshold even briefly it remains covered, even if employee count later falls below 10 .

Implication for your private limited company:

• If your company has never had 10 or more employees simultaneously during the past 12 months, the Act does not apply, and you are not legally required to pay gratuity under it.
• If your company ever employed 10+ employees on any single day in the past 12 months, the Act applies, and the obligation persists unless exempted.

Obligation to Pay Gratuity (S 4)

If the Act is applicable:

• Gratuity becomes payable after an employee has completed 5 years of continuous service (or upon death/disability without the 5-year requirement).
• The formula:

Gratuity=1526×Last drawn salary × Years of service \text{Gratuity} = \frac{15}{26} \times \text{Last drawn salary} \times \text{Years of service}Gratuity=2615​×Last drawn salary × Years of service

• There is now a statutory cap of ₹20 lakh per employee (heightened by the 2018 amendment)

Gratuity Insurance (S 4A)

Section 4A introduces compulsory gratuity insurance, stating:

• Employers (except central or state govt ones) must obtain insurance for their gratuity liability from LIC or another prescribed insurer, effective from the notified date
• Exemptions are allowed if the employer has:
  • An approved gratuity fund (per Income Tax rules), or
  • 500+ employees and a recognized fund
• Non-compliance (e.g., failing to pay insurance premium/fund) results in penalties and liability to pay gratuity directly

Importantly:

• While gratuity payment is mandatory where the Act applies, insurance itself becomes mandatory only after the government notifies a date under Section 4A.
• So: it’s not automatically mandatory unless that notification has been issued. Many establishments aren’t yet covered by the notification.

Summary

Scenario	Act Applies	Pay Gratuity?	Gratuity Insurance Mandatory?
Never had ≥10 employees		(unless you voluntarily offer it)
Ever had ≥10 employees last 12 months		under Act	Only after notified date
Has >500 employees			if approved fund exists
Voluntary scheme (regardless of Act)		(if in contract/policy)	Optional

The Payment of Gratuity Act,1972

Regards,
Bhuvana Anand

[SOWJANYA1]

Thank you for your response madam.

This will help me a lot!

Regards,
Sowjanya