Hiring Employees in India: Everything You Need to Know

Are you planning to hire employees in India? With over 600 million people aged between 18-35, India offers a substantial talent pool for foreign companies looking to hire new employees.

This article will walk you through the options for hiring employees in India. Moreover, you will get a brief overview of employment laws in India and other necessary details.

Ways to Hire Employees in India

There are 3 options to hire employees in India: you can set up a legal entity, use an Employer of Record (EOR), or hire them as independent contractors.

1. Set up a legal entity

If you are planning to hire employees at scale or put down roots in India, you can register your company in India.

However, that means you will have to understand and comply with Indian labor laws and regulations and declare your taxes here.

2. Use an Employer of Record (EOR)

An employer of record (EOR) is a simpler solution to hire employees in India without registering your company. Whether you need a few employees or are planning to have a large team in India, an EOR is suitable for both.

The EOR becomes the legal employer on your behalf and takes care of everything related to hiring, managing payrolls, employee benefits, and compliance with local laws. You on the other hand are responsible for the work-related activities of your team.

Partnering with an EOR is also a great way to test the market before you register your company in India to hire employees.

3. Hire independent contractors

Along with choosing an EOR or opening a legal entity in India, there’s also the option of hiring independent contractors. Independent contractors are short-term workers such as freelancers who are hired to work on specific tasks. This option is cost effective and you can hire an independent contractor within a day using freelancing platforms.

However, hiring independent contractors comes with its challenges. For instance, if you hire independent contractors for longer periods, it might trigger a Permanent Establishment in India. In that case, you can be considered liable to pay corporate taxes in India.

The ultimate choice depends on your goals, budget, the number of employees you want to hire in India, and how fast you want to do it.

Comparing Company Registration vs. EOR vs. Contractors in India

To provide more context, here is a comparison of the 3 options for hiring employees in India based on different factors.

Factor to Consider	Legal Entity	EOR	Independent Contractor
Legal Establishment	Yes	The EOR acts as the legal employer	No; contract basis
Compliance	Full responsibility for legal and tax compliance	EOR handles compliance	Responsibility varies by contract terms
Control	Full operational and managerial control	Full control without legal liabilities	Only on work output
Cost	High initial setup and ongoing operational costs	Fee for EOR services, no setup cost	Payment based on contract terms
Employee Benefits	As per Indian Labor law	EOR’s responsibility	Not typically required
Termination	Comply with Indian labor laws	EOR manages termination	Based on contract terms
Taxes	Corporate and payroll taxes	EOR manages payroll taxes	Contractor’s responsibility
Long-term viability	Suited for permanent operations in India	Flexible, good for medium to long-term without the need for a local entity	Best for short-term, project-based

Employment Laws and Practices in India

When hiring employees in India, there are several laws and practices that you must keep in mind.

Minimum Wage

In India, the Minimum wage is categorized by state, specific zones within a state, skill level, industry, etc, and is subject to revision every 5 years. Therefore, you will have to understand the specific requirements based on who and where you are hiring.

For instance, the minimum wage per month for a highly skilled worker in the state of Karnataka is INR 18,000 (USD 216). At the same time, the minimum wage for an unskilled worker in the same state is about INR 14,000 (USD 168).

In comparison, Nagaland has a minimum wage of INR 5000 per month (USD 60) for an unskilled worker and INR 7000 (USD 84) for a skilled worker.

Working Hours in India

A standard working day in India consists of 8 working hours and 40 hours a week. However, this may vary based on the industry and type of work.

Maternity Leave

The maternity leave period for the first and second child in India is 26 weeks, fully paid by the employer. For every child after that, the maternity leave period is 12 weeks.

Employers with 50 or more employees must also provide daycare services or access to free childcare for Indian employees returning from maternity leave. This policy does not apply to employees working from home.

Annual Leave

After completing 240 days of employment, India has a standard 15 days of paid time off in most of the states. However, this may also vary depending on the industry and state.

In addition to annual leave, employees are also entitled to casual leave, sick leave, maternity leave, compensatory leave, etc.

13th Month Pay

13th-month pay in India is often given to employees when the company makes a profit or based on their performance. However, employers are only liable to pay it if it is a part of an employee’s contract.

Termination of employment

To terminate an employment contract in India, there’s a 30-day mandatory notice period. It is applicable for both employers and employees (considering who is terminating the contract).

If the employer wants to terminate the employment without any notice, they can pay a severance pay.

Special protection for women in India

Some regions in India such as Maharashtra have several regulations in place to accommodate and protect female employees. These include:

Enhanced protections against sexual harassment
Guidelines for workplace lighting
Requirements for female security staff
Extra security for women working night shifts

Employer’s Contribution to Payroll in India

To ensure workers’ welfare and social security, Indian law mandates employers to add certain contributions to employees’ payroll. The main contributions are Provident Fund (PF), Employee’s State Insurance (ESI), and Gratuity.

Provident Fund (PF)

Employee’s provident fund is a retirement benefit scheme for all salaried employees. Both employer and employee each contribute 12% of the monthly salary towards PF.

PF is mandatory for employees making less than INR 15,000 per month in companies that have 20 or more employees. For companies with less than 20 employees, this is optional.

Employee’s State Insurance (ESI)

Employers that have at least 10 employees contribute 4.75% of employee’s wages to Employee’s State Insurance. ESI covers medical benefits such as maternity, disability, hospitalization, etc for the employees.

Gratuity

Gratuity is paid to employees upon their retirement, resignation, termination, or death if they have worked for 5 years or more. The gratuity payment is equal to 15 days of payment every year but the total amount can’t exceed INR 1M.

Hire Employees in India with Ease Using RecruitGo’s Employer of Record Services

Whether you are planning to hire a few employees or set up an entire team, RecruitGo can make this process easier for you through our local experts.

We are here to assist you in finding the right talent for your needs, handling payroll and taxes, and ensuring benefits are compliant with Indian laws.

Moreover, with RecruitGo’s platform, you can manage all these aspects in one place, making your hiring process in India as straightforward as possible.