If you run a manufacturing unit, the short answer is this: under the Occupational Safety, Health and Working Conditions Code, 2020 (OSH Code), premises are a "factory" when a manufacturing process is carried on with 20 or more workers using power, or 40 or more workers without power, on any day of the preceding twelve months. The old Factories Act, 1948 limits were 10 and 20. This guide helps you decide, with a worker-count method, a decision table and a checklist, whether your unit is inside that line.
It is a decision guide, not a filing guide. For the licence process itself, see our page on factory licence registration.
The rule in one paragraph
The OSH Code came into force on 21 November 2025 and absorbed the Factories Act, 1948. Section 2(1)(w) defines a factory by three tests that must all be met: (1) there is a manufacturing process, (2) the number of workers on any day in the last twelve months reaches 20 (with power) or 40 (without power), and (3) the premises are not specially excluded, such as a mine or a mobile unit. The Government can also notify smaller premises as factories where the process is hazardous, so headcount is not the only trigger.
Test 1: Is what you do a "manufacturing process"?
Do not rely on the label on your GST certificate. The definition is wide. It covers making, altering, repairing, finishing, packing, oiling, washing, cleaning, breaking up, demolishing or otherwise treating or adapting an article with a view to its use, sale, transport, delivery or disposal. In practice, the following are usually treated as manufacturing:
- Stitching, cutting, embroidery, washing and finishing in garment units
- Machining, fabrication, welding, powder coating and assembly in engineering units
- Mixing, grinding, baking, filling and packing in food and beverage units
- Printing, binding, lamination and corrugated box making
- Repacking, re-labelling or kitting in a warehouse, if it changes or prepares the article for sale
Pure storage, loading and unloading, and office work are not manufacturing. A godown where cartons are only received and dispatched is normally outside the definition. The moment staff open cartons, sort, assemble or re-pack, ask whether the activity has become a process.
Test 2: Who counts as a "worker"?
The Code counts persons employed directly or through any agency, including a contractor, with or without the principal employer's knowledge, in any manufacturing process or in work connected with it. Three practical consequences follow.
- Contract workers count. A unit with 12 payroll employees and 10 contractor-supplied helpers has 22 workers for this purpose.
- Workers on the floor and in connected work count. Machine operators, helpers, packers, loaders, store staff working in the process area, maintenance staff and floor supervisors are counted. Purely clerical staff in a separate office are generally not part of the floor count, but if you are close to the line, count them conservatively and keep a note of your reasoning.
- Part-time and seasonal staff count on the day they work. The test is "any day", so a festive-season spike matters.
Test 3: Do you use power?
"Power" means electrical energy or any other form of energy that is mechanically transmitted and not generated by human or animal agency. A single motor-driven machine used in the manufacturing process is enough to bring the unit into the 20-worker category. A unit where everything is hand-operated, such as manual sorting or hand-assembly, falls in the 40-worker category. Be honest about this: a "manual" unit with one electric sealing machine is a unit with power.
Decision table
| Your situation | Likely position under the OSH Code | What to do |
|---|---|---|
| Manufacturing with power, 20 or more workers on any day in the last 12 months | Factory | Plan approval (where required) and factory licence |
| Manufacturing without power, 40 or more workers on any day | Factory | Same as above |
| Manufacturing with power, 10 to 19 workers | Below the new factory line, but see the notes on transition and on State rules below | Check State registration rules; keep other licences current |
| Manufacturing without power, 20 to 39 workers | Below the new factory line | Check State establishment rules; confirm no hazardous notification applies |
| Hazardous process notified by the State, any headcount | May be treated as a factory irrespective of headcount | Ask the State inspectorate in writing if unsure |
| Only storage and dispatch, no processing | Normally not a factory | Confirm nothing on the floor amounts to a process |
| Headcount hovers around 18 to 22 depending on season | Treat as a factory if any day crosses 20 | Plan for a licence rather than waiting for an inspection |
A worked example
A garment unit in an industrial area has 14 tailors and helpers on payroll, 8 workers supplied by a contractor for finishing and packing, and runs 30 sewing machines on electric motors. Headcount on a normal day is 22. Power is used, the process is manufacturing and 22 is above 20. This is a factory, and the contractor labour is why many such units miscount. Had the unit been entirely hand-operated, the 40-worker limit would apply and the unit would sit outside the factory definition on these facts, though other registrations would still be needed.
What about units that had a licence for 10 to 19 workers?
Many small units took a factory licence under the old 10-worker rule. After 21 November 2025, the position depends on the State's transition notification and on its own OSH rules. Do not simply let the licence lapse, and do not assume it has ended automatically. Check three things:
- Whether your State has notified final OSH rules (Uttar Pradesh notified its rules on 27 August 2026; Delhi and Haryana had only draft rules as of October 2026)
- Whether the State has a separate registration or intimation requirement for smaller establishments. For example, the Uttar Pradesh rules are reported to prescribe a registration fee for units with 10 to 19 workers, but you should confirm this on the gazette or portal before relying on it
- Whether your existing licence remains valid until its expiry date or has to be surrendered
If you fall below the threshold, surrender or close the licence formally so that the portal stops generating renewal and return notices.
Self-test checklist: do I need a factory licence?
Work through this list with your accountant or HR manager. Use the highest number reached, not an average.
- List every process on the floor, including packing and finishing, and mark which are manufacturing processes.
- Pull attendance and wage registers for the last twelve months and find the single highest day.
- Add contractor workers from every contractor's bills and gate passes for that day.
- Note whether any machine runs on electricity, diesel or any non-human power.
- Compare the highest day with 20 (power) or 40 (no power).
- Check whether any chemical, hazardous or notified process is in use.
- Check whether you have a second premises. The count is per premises, not per company.
- Write down the result and the date, and keep the working papers.
State-wise starting points
The test is national, but the application route is State-specific.
- Delhi: licences are granted on the e-District Delhi portal and only for units in conforming industrial areas. Details are on our factory licence in Delhi page.
- Uttar Pradesh: the UP OSH&WC Rules, 2026 apply, with Nivesh Mitra and the Labour Department portal. See factory licence in Uttar Pradesh.
- Haryana: the Labour Department portal (hrylabour.gov.in) is used while the draft Haryana OSH Rules, 2026 are not final. See factory licence in Haryana.
If you are below the threshold: what you still need
Falling below the factory line does not mean falling outside regulation. Depending on your unit you may still need:
- Registration under the State shops and establishments law or OSH registration for establishments with ten or more employees (see shop and establishment registration)
- Pollution consent from the State Pollution Control Board where your activity is in the Red, Orange, Green or Blue list (see pollution NOC)
- Fire safety clearance where building height, area or occupancy crosses the State limit (see fire NOC)
- PF registration and ESIC registration once the employee counts and wage limits are met
- A contract labour licence where you or your contractor engage contract workers above the applicable threshold
Common mistakes in applying the threshold
- Counting only payroll staff. Contractor workers are the most frequent omission.
- Averaging. The Code looks at any day, not the monthly average.
- Calling a unit "manual" while using one power tool. Inspectors look at the electricity bill and the machine list.
- Splitting a unit into two entities at the same address. Authorities look at the premises and the actual control, not the number of GST registrations. Splitting to stay under 20 can attract questions.
- Relying on an old licence. A licence granted under the earlier Act does not answer whether you are a factory now.
- Ignoring seasonal peaks. A unit that crosses 20 for even one day in the year is within the definition.
Practical tips
Keep a simple month-wise sheet of the highest daily headcount, with contractor workers shown separately. It takes five minutes a month and settles the question in an inspection. If you plan growth, take the plan approval step before adding a floor, since the OSH Code gives the authority 30 days to decide on construction or expansion permission, after which it is deemed granted, and you will need proof of the date you applied. Finally, if the position is genuinely uncertain, ask the inspectorate in writing and keep the reply. A written answer protects you; an oral one rarely does.
When to get professional help
Get a compliance review if your headcount is within four or five workers of the threshold, if you use contractors heavily, if you handle hazardous materials, or if your State has only draft rules. Lawgical Guru can review your headcount records, process list and State position, and tell you whether to apply, surrender or wait. Call +91 92205 65553 for a first discussion.
This article is for general information as of October 2026 and is not legal advice. Labour rules are changing State by State; confirm the current notification before acting.
Related guides
Frequently asked questions
How many workers require a factory licence under the OSH Code?
Premises are a factory if a manufacturing process is carried on with 20 or more workers using power, or 40 or more workers without power, on any day of the preceding twelve months. The Factories Act figures of 10 and 20 no longer apply after 21 November 2025, though a State can notify smaller hazardous units.
Do contract workers count towards the 20 worker limit?
Yes. The Code counts workers employed directly or through any agency, including a contractor. A unit with 12 payroll staff and 10 contractor-supplied workers has 22 workers for this test. Gate passes and contractor bills are the usual evidence an inspector uses to check the count.
Is the threshold based on average or peak headcount?
It is based on any day in the preceding twelve months, not an average. A seasonal peak that crosses the limit on even one day brings the premises within the factory definition, so keep a month-wise record of your highest daily headcount, including contractor workers.
Do I need a factory licence for a warehouse?
A pure storage warehouse is usually not a factory. If staff repack, label, assemble, clean or otherwise process goods, that activity can amount to a manufacturing process. Review what actually happens on the floor and count workers in that process before deciding.
I had a factory licence for 10 to 19 workers. What happens now?
Do not let it lapse unthinkingly. Check your State's transition notification and OSH rules, and whether the licence stays valid until expiry. If you are now outside the definition, surrender it formally so the portal stops generating renewal notices. Delhi and Haryana had draft rules only as of October 2026.
Can the State treat a small unit as a factory?
Yes. The Government can notify premises as a factory irrespective of headcount, and hazardous processes are the usual target. If you handle chemicals or other notified processes with fewer than 20 workers, ask the State inspectorate in writing whether your unit is covered.
What if I am below the factory threshold?
You may still need shops and establishments or OSH registration, pollution consent, fire clearance, PF and ESIC registration and a contract labour licence, depending on your activity, building and headcount. Falling below the factory line removes one licence, not the whole compliance framework.
Official sources
Reviewed by Satyam Gupta, Company Secretary (CS) & Advocate
8+ years of industry experience. Last reviewed 16 October 2026. Always confirm current rules and fees on the official portal before acting.