Karnataka Shops and Establishments Amendment Act 2026: Complete Guide for Employers

The Karnataka state government has introduced major structural changes to its labour compliance framework through the Karnataka Shops and Commercial Establishments (Amendment) Act 2026. Effective from September 4, 2026, the legislation focuses on reducing administrative overlap, digitising processes, enforcing strict employee documentation standards, and significantly raising financial penalties for non-compliance.

For HR professionals, business owners, and legal teams operating in Karnataka, aligning internal policies with these new regulations is an immediate priority. Below is a comprehensive breakdown of the changes and the revised penal structures based on the finalized gazette notification.

Exemption from Duplicate Registration

To ease the compliance burden on larger businesses, the amendment introduces a conditional exemption from separate registration under the Karnataka S&CE Act. A business can claim this exemption if it meets two specific criteria simultaneously:

• The establishment employs 10 or more workers.
• The establishment already holds a valid registration under the Occupational Safety, Health and Working Conditions Code, 2020 (OSH Code).

Additionally, storage facilities or godowns located within 100 metres of the principal, registered establishment no longer require their own separate registration.

Digital Transition and Lifetime Validity

The state has moved the regulatory process entirely online. Applications, fee payments, and the issuance of registration certificates must now be completed through digital channels. Furthermore, the mandatory 30-day notification period for reporting changes to the establishment has been reduced to just seven days.

In a major procedural relief, the amendment extends the validity of registration certificates indefinitely. Registrations will now remain valid until the establishment officially ceases operations or closes down, eliminating the need for periodic renewal cycles.

Strict Rules on Employee Documentation

The Amendment Act introduces two stringent requirements regarding how employers handle personnel files, representing a significant shift in operational HR practices:

• Service Certificates: Employers are legally mandated to issue a service certificate in a prescribed format within seven days of receiving an application from an employee.
• Ban on Retaining Originals: Employers are strictly prohibited from holding an employee’s original educational certificates, experience letters, or any other original documents, either at the time of hiring or during the course of employment.

Updated Statutory Frameworks

To align the state act with national labour reforms, older statutory references have been updated. References to the Payment of Wages Act 1936 are replaced by the Code on Wages 2019, and the Workmen’s Compensation Act 1923 is replaced by the Code on Social Security 2020.

Decriminalization and Revised Penalties

The state has taken a strict stance on enforcement by decriminalizing several minor procedural defaults while substantially increasing the financial penalties across various provisions. Notably, the penalty under Section 4(8) for registration default has been updated from a combination of imprisonment and a fine of up to INR 5,000 to a flat financial penalty of up to INR 50,000.

Provision	Offence / Impact	Change under the Amendment Act 2026
Section 30(1)	General contraventions	Specified fines of INR 1,000 and INR 2,000 are revised to INR 3,000 and INR 5,000, respectively.
Section 30(2)	Specific administrative failures	The specified fine of INR 250 is increased to a maximum of INR 2,000.
Section 30(3)	Contraventions related to working hours, leave, or night shifts	Imprisonment removed; attracts a strict statutory minimum fine of INR 10,000.
Section 33	Enhanced general penalty / Obstructing an Inspector	The specified fine of INR 500 is increased to INR 10,000.

Compounding of Offences and Appeals

The amendment establishes a structured compounding mechanism, allowing businesses to settle certain administrative offences without prolonged litigation. A jurisdictional Labour Officer can compound offences by collecting:

• 50% of the prescribed fine for a first offence.
• 75% of the prescribed fine for a second or subsequent offence.

However, if an offence of the exact same nature is committed more than twice within a single year, it cannot be compounded. If a business wishes to challenge a compounding order, a new statutory appeal mechanism allows them to file an appeal within 30 days to a notified appellate authority, provided the ordered fine is deposited prior to the hearing.

HR Compliance Action Plan [FREE]

To mitigate financial risk and align with the revised penalty structures, HR teams should immediately execute the following:

1. Document Retention (Section 6-C): Conduct an immediate company-wide review of all physical and digital employee records. Return any original educational certificates, IDs, or past experience letters immediately. Update onboarding SOPs and recruiter training to mandate the collection of only photocopies or verified digital scans. Add a clear clause in the corporate HR policy reflecting this statutory prohibition.
2. Service Certificate Issuance (Section 6-B): Create a pre-approved Service Certificate template that aligns with the state’s format. Configure internal offboarding workflows, ticketing systems, and SLAs to ensure these certificates are verified, signed, and issued within the strict 7-day statutory window.
3. Registration Audits: Verify your OSH Code registration status to determine if you qualify for the state exemption, and plan any new premise registrations or amendments to meet the revised 7-day notification timelines.

DISCLAIMER: The information provided in this post is for general informational and educational purposes only and does not constitute legal, financial, or professional advice. While every effort has been made to ensure accuracy based on recent regulatory notifications, labour laws and compliance requirements are subject to interpretation and change. Businesses are strongly advised to consult with certified legal professionals and labour law experts to evaluate how the Karnataka Shops and Commercial Establishments (Amendment) Act 2026 specifically applies to their operations before implementing any policy changes.