Employer of record in India

As the most populated country in the world, India offers a workforce rich with talent, so it’s the preferred location for global shared services and outsourcing. However, setting up a team across borders can be challenging due to cultural differences, complex regulations, and logistical issues.

An employer of record can be a great asset if you’re a global enterprise aiming to recruit in India. EORs handle HR, overseas payroll, and legal compliance, making it easier to focus on building your team.

India at a glance

Critical considerations for hiring employees in India

Knowledge & technology

• Abundant talent: India’s numerous engineering colleges and institutions produce a wealth of tech-savvy professionals. These individuals are well-versed in the latest industry trends, making it easy for employers to find expertise in cutting-edge technologies.
• Local insights: India is one of the fastest-growing markets in the world. This is a significant opportunity for product expansion. Incorporating local experts into your workforce gives you direct access to consumer attitudes.
• Global perspective: Over 5 million people are employed in India by global corporations’ capability centers.
• Adaptability: The India Skills Report shows how adaptable the local workforce is, especially as new technologies enter the market. Known for their rapid learning and adaptability, Indian employees often quickly master new tools and methodologies.

Efficient process

• Tax efficiency: Employers benefit from a straightforward tax system with no complex challenges related to employee benefits. This simplifies Indian payroll management and ensures compliance with tax regulations.
• Flexible labor laws: Unlike some countries, India does not have specific unions for IT professionals, making global workforce management easier.
• Seamless operations: Employers enjoy ease of execution when onboarding or offboarding employees in India, facilitated by digital transactions and transparent processes. Additionally, single payroll frequencies simplify administrative tasks.

Indian employer of record (EOR) vs. entity

Employer of record in India

An employer of record (EOR) is a third-party organization that acts as the legal employer for businesses that want to hire employees in India or other countries without establishing a legal entity or subsidiary.

The EOR is an intermediary between the client company and the employees, handling various employment-related tasks and responsibilities.

Pros

• Fast and easy setup.
• Reduced administrative burden.
• Automatically handles payroll implementation and payments.
• Ensures legal compliance on the company’s behalf.

Cons

• Less control over the employment relationship.

Legal entity in India

A legal entity operates under Indian law and regulations. This means international corporations must obtain necessary licenses, adhere to local labor laws, and follow tax regulations via the entity. Businesses also need to maintain Indian accounting records and file tax returns.

Pros

• Direct relationship with employees.

Cons

• More complex to set up and maintain.
• Only worth it once a company headcount increases to the point where it outweighs costs.
• The business owner is responsible for documenting, processing, and paying employees, including calculating all necessary taxes.
• Indian legal compliance for the business falls entirely on the shoulders of the owner.

Work permits

The Ministry of Home Affairs and the Ministry of External Affairs set the main rules for work permits in India. Here’s what foreign nationals need to know:

• Employment visa: This is the most common visa for foreign workers in India. It’s typically granted to highly skilled professionals and requires a minimum salary threshold to qualify.
• Intra-company transfer visa: Companies can transfer employees from their overseas branches to work in India using this visa. The application process is faster, and the visa can be valid for up to four years.
• Project visa: This visa brings foreign specialists to India to work on specific short-term projects. The visa’s validity typically matches the project’s duration.

EOR payroll and taxes in India

Payroll cycle: Monthly

13th salary: N/A

Minimum wage

India doesn’t have a single national minimum wage. Instead, individual states and zones within those states set their minimum wage. Here are some examples of state minimum wage rates for an unskilled worker as of 2023:

• Delhi: ₹16,792/month
• Maharashtra: ₹13,472/month
• Karnataka: ₹12,385/month
• Tamil Nadu: ₹9,538/month
• Uttar Pradesh: ₹8,927/month

EOR employment contracts

• Company name and address
• Employee name and contact information
• Date of offer
• Job details
• Reporting manager
• Compensation and benefits
• Pay schedule
• Probation period
• Work location and schedule
• Termination and notice period

Mandatory employee benefits

Here are the main mandatory benefits employees have in India, categorized by their purpose:

• Employees’ Provident Fund (EPF): Both employer and employee contribute 12% of the employee’s basic salary and dearness allowance (if applicable). Most companies in India with over 20 employees must invest a portion of their salary towards retirement.
• Employees’ Pension Scheme (EPS) within EPF: A portion of the EPS contribution (1.75% from employee, 8.33% from employer, capped at a monthly salary of INR 15,000) goes towards a pension benefit.
• Employees’ State Insurance (ESI): Mandatory for companies with over 10 employees and monthly wages exceeding INR 21,000. Employees contribute 1.75% of their wages, while employers contribute 4.75%. It provides medical and other social security benefits.

Non-disclosure agreements

Foreign employers can enforce various non-disclosure agreements (NDAs) on employees in India to protect their confidential information and intellectual property. However, they can’t legally implement non-compete clauses after employees leave the company.

Here are a few types of protections NDAs may offer companies with employees in India:

• Trade secrets, proprietary information, and other confidential data
• Sensitive or confidential information from clients or third parties
• Assigns inventions or discoveries property employees create to the employer

Paid and sick leave

Indian labor laws mandate companies to provide specific paid leave allowances to their employees:

• Earned leave (usually 15-30 days/year)
• Sick leave
• National and festival holidays

Public holidays

The law grants workers 12 public holidays per year. While the nationwide holidays listed below are the standard days off, employees can choose alternative days for regional or religious holidays.

• New Year – 1 January
• Republic Day – 26 January
• Holi – 25 March
• Good Friday – 29 March
• Id-ul-Fitr – 11 April
• Independence Day – 15 August
• Raksha Bandhan – 19 August
• Janmashtami – 26 August
• Gandhi Jayanti – 2 October
• Dusshera – 11 October
• Diwali – 31 October
• Guru Nanak’s Birthday – 15 November
• Christmas – 25 December

Using an EOR to onboard new employees in India

Before the first day:

• The EOR can initiate contact with the new hire, gathering necessary information like their Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN).
• The EOR will ensure the candidate has the required work permits and visas for employment in India.
• The EOR will provide details on the compensation package, including benefits like health insurance and provident fund contributions.
• Assign a mentor to guide the new employee during the initial phase.

The first day:

• The EOR can coordinate introductions to colleagues, managers, and key contacts within the client company.
• The EOR ensures the new hire has the necessary equipment like a laptop, phone, and access codes for systems and applications.
• New hires can use employee self-service portals to complete tasks like accessing pay slips and additional company resources.
• Explain the company’s policies, procedures, and code of conduct.

The first week:

• The EOR can provide or coordinate role-specific training to help the new employee ramp up quickly.
• Explain the company’s data security protocols and policies.
• Encourage participation in team-building activities and social events.

Beyond the first week:

• The EOR can help set up regular check-ins, reviews, and development plans.
• The EOR maintains all employee data and records to comply with Indian labor regulations.
• The EOR’s HR team remains available to support the new employee regarding company policies, benefits, and any questions.

How EORs protect your company’s IP in India

EORs can play a vital role in ensuring compliance with India’s IP laws with the following considerations:

• Introduce intellectual property agreements
• Offer employee training and awareness
• Implement access controls and data security
• Implement physical security measures
• Keep monitoring and enforcing
• Localization and compliance
• Put clear exit procedures in place

How EORs comply with local labor laws in India

Pay provident fund and gratuity

Employers in India must contribute to the Employees’ Provident Fund (EPF) and pay gratuity to eligible employees. Foreign companies must register with the appropriate authorities and ensure timely contribution and payment of these statutory benefits.

Offer equal remuneration and ensure non-discrimination

The Equal Remuneration Act of 1976 prohibits discrimination in remuneration and employment based on gender. Foreign companies must ensure equal pay and opportunities for men and women performing the same or similar work.

Offboarding employees in India

To ensure compliant termination in India, it is crucial to follow these regulations, as failure to do so may result in penalties or legal disputes.

• Notice period and termination process: Indian labor laws, particularly the Industrial Disputes Act of 1947, mandate a specific notice period for termination. This can range from 30 to 90 days, depending on factors like employee category and company size. Follow this to avoid legal action by the employee.
• Severance pay and gratuity: Depending on the reason for termination and employee designation, you might be obligated to provide severance pay or gratuity payments.
• Retrenchment procedures: If you’re planning large-scale layoffs (terminating more than 100 employees in certain sectors), following specific retrenchment procedures mandated by law is essential. These involve government approvals and adherence to specific timelines.
• Discrimination and unfair labor practices: Terminating an employee based on discriminatory factors like religion, caste, or gender is strictly prohibited. Ensure the reason for termination is fair, documented, and aligned with company policy.
• Documentation and record-keeping: Proper documentation is crucial. This includes issuing termination notices, recording employee explanations, and keeping records of final settlements.

Use an EOR to start hiring in India today

When hiring and managing a workforce in India, companies face a landscape as vast and diverse as the nation itself. From navigating complex employment laws that vary across states to understanding deeply rooted cultural traditions, expanding into India requires a strategic workforce partner. Papaya Global is the leading global workforce management platform, providing EOR services anywhere you operate.

We ensure adherence to nuanced labor regulations around minimum wages, leave entitlements, and termination rules specific to each state and territory. Our innovative multi-currency workforce wallet allows you to pay teams accurately in rupees while safeguarding funds from market fluctuations. Global payroll, taxes, statutory contributions—we handle it all with full compliance, everywhere.

Papaya handles payments, payroll security, benefits, employment contracts, taxes, intellectual property safeguards, and more, allowing your business to rapidly build a team in India.

» Talk with a country expert to understand hiring regulations in India

SUBSCRIBE TO OUR BLOG

Your personal data will be processed in accordance with our privacy policy. You may unsubscribe at any point.