300 Employee Threshold Under Labour Code: What HR Must Know

An HR head at a mid-sized ancillary unit once asked me, “Sir, we are at 280 workers right now, hiring is going well, but if we cross 300, does that change anything for us on the compliance side?” That question is coming up a lot these days, and it deserves a clear answer, because this particular number has real operational consequences once a factory crosses it.

The 300 employee threshold under the new labour code is one of the most talked-about changes in the Industrial Relations Code, 2020, and for good reason — it directly decides whether an establishment needs prior government permission before it can lay off, retrench, or close down operations. This article walks through what the threshold actually means, how it’s calculated, what changes once you cross it, and what HR should be doing well before that number gets close. As with most provisions under the new codes, the exact applicability date and any state-specific variation should be checked against the notified rules for your state before HR relies on this for a live decision.

Read: Union Recognition Under New Labour Code: The 51% Rule Explained

What the 300 Employee Threshold Actually Is

Under the earlier Industrial Disputes Act, an establishment with 100 or more workmen needed prior permission from the appropriate government before laying off, retrenching, or closing down. That threshold was widely seen as low enough to discourage mid-sized companies from growing past the 100-worker mark, since the permission process was often slow and uncertain.

The Industrial Relations Code, 2020 raises this threshold to 300 workers under Section 77. An industrial establishment — broadly, a factory, mine, or plantation that is not seasonal in nature or one where work is performed only intermittently — employing 300 or more workers on an average per working day over the preceding twelve months now needs to obtain prior permission from the appropriate government before any lay-off, retrenchment, or closure. The Code also allows the appropriate government to notify a higher threshold for a state or category of establishment, though it does not permit lowering the threshold below 300 through notification.

This is the change that gets the most attention in every labour law discussion right now, and rightly so — it affects a large number of mid-sized manufacturing units that previously fell squarely within the permission regime at 100 workers and now don’t.

Why This Matters for HR

For an HR or IR professional, this threshold isn’t just a number in a compliance chart. It changes the entire process HR needs to follow when a genuine business need for layoff, retrenchment, or closure arises.

• Below 300 workers, an establishment is generally not required to seek prior government permission for layoff, retrenchment, or closure, though notice requirements and retrenchment compensation obligations under the Code continue to apply regardless of headcount.
• At or above 300 workers, prior permission from the appropriate government becomes mandatory before proceeding, and carrying out a lay-off, retrenchment, or closure without that permission — or despite the government refusing it — is treated as illegal, with the affected workers entitled to be treated as continuing in service and appropriate consequential relief.

This means the same operational decision — say, shutting down an underperforming production line — plays out very differently depending on which side of 300 workers the establishment falls on. HR needs to know exactly where the organisation stands before any restructuring conversation goes beyond the planning stage.

How the 300-Worker Count Is Calculated

This is where HR teams often trip up. The threshold isn’t simply “how many people are on the rolls today.” Under the Code, it is based on the average number of workers employed per working day during the preceding twelve months. That means:

• A short-term dip below 300 workers doesn’t automatically take the establishment out of the permission regime if the twelve-month average still comes in at 300 or above.
• Similarly, an establishment that recently crossed 300 doesn’t necessarily fall under the regime immediately — the twelve-month average is what matters, not a single day’s headcount.
• Whether certain categories of workers — badli, casual, contract, or fixed-term — are included in this count for the purpose of the threshold is a detail that depends on the definitions used under the Code and the applicable rules, and this is exactly the kind of point HR should confirm with IR counsel rather than assume either way, since it can shift an establishment across the line in either direction.

HR teams that are close to this number should build a rolling twelve-month average into their regular manpower reporting, rather than working it out only when a restructuring decision comes up.

What Changes Once an Establishment Crosses 300 Workers

Prior Permission for Layoff

Under Section 78, an employer at or above the threshold is prohibited from laying off regular workers (other than badli or casual workers) without first obtaining permission from the appropriate government. The application has to state the reasons for the proposed lay-off clearly, and a copy is required to be served on the affected workers at the same time. Certain situations — such as lay-off due to power shortage, natural calamity, or specific mine emergencies like fire, flood, or gas leak — are treated differently and may not require the same prior permission process, subject to the exact conditions prescribed.

Prior Permission for Retrenchment

The same broad logic applies to retrenchment once the threshold is crossed. The employer is required to inform the government about the proposed retrenchment in the prescribed manner and obtain permission before proceeding, in addition to the notice and compensation requirements that apply regardless of headcount.

Prior Permission for Closure

Under Section 80, an employer planning to close down an establishment covered by this threshold must apply for government permission well in advance — commonly cited as at least 90 days before the intended closure date — clearly setting out the reasons. A copy of the application also needs to go to the workers’ representatives. This provision generally does not apply to closures related to temporary construction projects such as roads, bridges, or dams, subject to the specific conditions under the Code.

Standing Orders Applicability

Separately from the layoff/retrenchment/closure threshold, the requirement to prepare and certify standing orders — covering worker classification, working hours, holidays, wage information, misconduct and suspension provisions, and grievance redressal — also now applies from 300 workers onward, having been raised from the earlier 100-worker mark. HR teams that were previously exempt from formal standing orders at, say, 150 or 200 workers should note that this exemption continues under the new threshold, but it is worth confirming the exact establishment-type coverage with counsel, since standing orders applicability has its own set of conditions distinct from the layoff/retrenchment threshold.

Penalty for Non-Compliance

Carrying out a layoff, retrenchment, or closure without the required permission, where the establishment is covered by the threshold, is a serious compliance failure. The Code prescribes a monetary penalty for contravention, and this is understood to run into a meaningful range rather than a token fine — HR should treat this as a genuine legal and financial risk rather than a procedural formality, and confirm the current penalty amount from the applicable rules rather than relying on any single secondary source.

Read:Multiple Unions in One Factory: How Should HR Handle It?

What HR Should Do Before Reaching 300 Workers

• Track the twelve-month rolling average, not just the current headcount. Build this into monthly manpower MIS so HR isn’t caught off guard when the average crosses 300.
• Understand which categories of workers count toward the threshold. Confirm with IR counsel whether contract, badli, casual, or fixed-term workers are included in the calculation for your establishment type.
• Review restructuring plans against the threshold before finalising them. If a business unit is close to 300 workers and a workforce reduction is being planned, the timing and sequencing of that reduction may itself affect whether prior permission is required.
• Start the standing orders process early if approaching 300 workers. Certifying standing orders is not an overnight exercise, and it is better handled proactively than after a dispute arises.
• Keep documentation of headcount trends ready. If a permission application is ever needed, having clean twelve-month manpower records available speeds up the process considerably.

What Can Go Wrong

• HR assumes the establishment is safely below 300 workers based on current headcount alone, without checking the twelve-month average, and ends up proceeding with a retrenchment that technically required permission.
• A company deliberately keeps headcount just under 300 through extensive use of contract labour, without properly confirming whether those workers would be counted toward the threshold under the applicable definitions — creating exposure if the classification is later challenged.
• Closure planning starts without accounting for the 90-day advance permission requirement, leading to delays right when the business needs to move quickly.
• A layoff is treated as routine and executed without permission, only for it to be challenged later as illegal, with reinstatement or back-wage implications for the affected workers.

Practical Examples

Example 1 — Manufacturing/Plant: A components manufacturer with 320 workers on average faced a genuine order slowdown and needed to lay off a section of its workforce temporarily. HR, working with legal counsel, filed the permission application with full justification and copied the affected workers as required, rather than proceeding directly — avoiding a dispute that could have escalated to an industrial tribunal.

Example 2 — Corporate Office Restructuring: A back-office operation with around 260 employees decided to shut one of its smaller units. Since the establishment’s twelve-month average stayed below 300, HR proceeded with the standard notice and retrenchment compensation process without needing government permission, but still kept full documentation of the headcount calculation in case the basis was ever questioned.

Example 3 — Growing Unit Near the Threshold: A factory growing steadily from 240 to 310 workers over a year found itself needing to plan a minor headcount reduction just as it crossed the 300 mark. HR delayed the reduction by a few weeks to get the twelve-month average calculation properly verified with counsel, rather than assuming the older, smaller headcount figure still applied.

Example 4 — Contract Labour Heavy Unit: A plant with 180 permanent workers and 150 contract workers assumed it was comfortably below 300 and outside the permission regime. HR’s internal review flagged that the classification of contract workers for threshold purposes needed to be confirmed with counsel before that assumption was relied upon for a planned restructuring.

Read:Registers and Penalties Under the New Wage Code: What HRs Must Know

Frequently Asked Questions

Does the 300 employee threshold apply to every type of establishment? It applies to industrial establishments as defined under the Code — broadly, factories, mines, and plantations that are not seasonal or intermittent in nature. Applicability to specific establishment types and any state variation should be confirmed against the notified rules.

Can a state government lower the 300 worker threshold? Based on the framework of the Code, the appropriate government is generally permitted to increase the threshold through notification, not lower it below the statutory 300. HR should verify the current position for the specific state, since notified thresholds can vary and may be updated.

How is the 300-worker count calculated — current headcount or an average? It is based on the average number of workers employed per working day during the preceding twelve months, not a single-day headcount. This is a common point of confusion and should be tracked carefully.

Are contract or casual workers included in the 300-worker count? This depends on the specific definitions used under the Code and applicable rules for the type of worker and establishment. HR should confirm this with IR counsel rather than assume either way, since it materially affects the calculation.

What happens if an establishment lays off workers without the required permission? A layoff, retrenchment, or closure carried out without the required permission, where the establishment is covered by the threshold, is treated as illegal under the Code, and can expose the employer to penalties as well as claims from affected workers.

Does standing orders applicability also change at 300 workers? Yes, the requirement to prepare and certify standing orders has also been raised from the earlier 100-worker threshold to 300 workers under the new Code, though the exact coverage should be confirmed for the specific establishment type.

How much advance notice is required before applying for closure permission? Advance permission is commonly cited as required at least 90 days before the intended closure date, along with a copy of the application to workers’ representatives — HR should confirm the current requirement against the applicable rules before relying on this for a live closure plan.

Is there any relief for the establishment during the waiting period for permission? The process and any interim obligations during the permission-review period should be checked against the applicable rules and, where relevant, discussed with counsel, since this can affect operational planning during the waiting period.

Practical HR Takeaway

The 300 employee threshold is a significant change from the earlier 100-worker mark, and it genuinely reduces the compliance burden for a large number of mid-sized establishments that were previously caught in the permission regime. But the benefit only holds if HR tracks the number correctly — using the twelve-month average, not a snapshot headcount — and confirms exactly which categories of workers count toward it for the specific establishment. Establishments hovering near the threshold, in either direction, should treat this as a standing item on the HR compliance calendar, not something to work out only when a restructuring decision is already on the table.