Karnataka Labour Welfare Fund Amendment 2025: Threshold Reduced to Ten Employees

The Karnataka Labour Welfare Fund (Amendment) Act, 2025, which came into effect on January 7, 2026, has significantly expanded the scope of the state's labour welfare fund by reducing the mandatory applicability threshold from establishments employing 50 or more persons to those employing 10 or more persons. This change brings thousands of additional small and medium businesses in Karnataka under the fund's compliance requirements. For employers operating in the state, understanding the new obligations is essential to avoid penalties and ensure timely compliance.

What Is the Karnataka Labour Welfare Fund

The Karnataka Labour Welfare Fund was established under the Karnataka Labour Welfare Fund Act, 1965, to provide welfare benefits to workers and their dependants in the state. The fund is financed through contributions from both employers and employees, with the employer contribution being higher than the employee share. The fund supports programmes such as housing assistance, educational scholarships for workers' children, medical facilities, and recreational activities. The Labour Welfare Board, constituted under the Act, administers the fund and decides how the collected amounts are deployed for worker welfare. Until the 2025 amendment, only establishments with 50 or more employees were required to contribute, leaving workers in smaller establishments outside the fund's coverage.

The Key Change: From 50 Employees to 10 Employees

The 2025 amendment reduces the applicability threshold from 50 employees to 10 employees. This means that any establishment in Karnataka, whether in the manufacturing, services, or technology sector, that employs 10 or more persons must now register with the Labour Welfare Board and make regular contributions to the fund. The reduction in threshold reflects the state government's objective of extending welfare coverage to a larger base of workers, particularly those employed in small and medium enterprises who previously had no access to fund benefits. Karnataka's thriving startup ecosystem, its large IT services sector, and its extensive small-scale manufacturing base mean that the number of newly covered establishments could run into tens of thousands.

Contribution Rates and Compliance Obligations

Under the Act, the employer contribution rate and employee contribution rate are prescribed by the state government and are relatively modest amounts per employee per half-year. Contributions are typically due twice a year, with specific deadlines for each half-yearly period. Employers are required to deduct the employee share from wages and remit both the employer and employee portions to the fund within the prescribed timeline. Late remittance attracts interest and penalties. Employers must also maintain registers and records showing the number of employees covered, contributions deducted and remitted, and any claims or benefits disbursed. Newly covered establishments must register with the Labour Welfare Board and obtain a registration certificate before the first contribution becomes due.

Practical Takeaways for Employers in Karnataka

Employers in Karnataka with 10 or more employees who were previously exempt should immediately check whether they have registered with the Labour Welfare Board. Payroll systems need to be updated to include the employee deduction component for the welfare fund. HR teams should communicate the change to employees, explaining the deduction and the welfare benefits available under the fund. Companies with multiple establishments in Karnataka should verify compliance at each location, as the threshold applies per establishment. Non-compliance can result in penalties, prosecution, and disqualification from certain government contracts and tenders. Given that the amendment has been in effect since January 7, 2026, employers who have not yet registered may already be in default, making immediate action critical to regularise their compliance status.