India remains a favored hiring destination for companies looking to expand their workforce.
A significant advantage of hiring employees in India is the wages -- they are a fraction of what it would cost to have a similarly qualified worker in the United States. Moreover, India has an abundance of highly-skilled professionals, most of whom speak English.
But before starting to hire in India, you must understand the local regulations, standards, and labor practices. Whether you are looking to build a team or hire one person, this guide is for you. It will tell you how to hire employees in India by setting up your legal entity or partnering with an EOR.
Work hours, overtime pay, and paid time-off in India
According to Indian law, in most industries, employees should work up to 9 hours/day, not exceeding 48 hours/week in total.
For overtime pay 'The Minimum Wages Act of 1948' states that if any employee has a fixed minimum wage for a specific duration, they should get overtime pay for any work done beyond that duration. Overtime pay regulations vary across industries.
Paid time off in India can vary from 12 to 21 days/year. All employees are entitled to sick leave, maternity leave, and other types of leave.
All employees are entitled to public holidays, and since India is a vast country with diverse cultures, these holidays vary from region to region. It's good to know which holidays are observed in the regions you hire.
What are the taxes and social security contributions in India?
India's tax laws can be complex for international employers. The country has introduced a new tax regulation removing seventy tax exemptions and introducing lower tax rates. This new regulation coexists with the older ones, and employees can choose which system they want to use. These systems are progressive, so employees generally fall within a certain bracket depending on their income. Employees who are below a certain slab are not required to pay income tax.
The Indian government's retirement savings scheme is the Employees Provident Fund (EPF). Employees and employers contribute to it; however, employees contribute the bulk of it.
Is there a need for a written employment contract in India?
There are no specific guidelines in Indian law for written employment contracts, although some employment statutes require employment letters.
In most cases, there are written employment contracts or detailed appointment letters, which state the terms that need to be duly accepted and acknowledged by the employee.
Employment contracts in India have the following:
- Name and the address of the employee and employer.
- Job title.
- Nature of the job or its description.
- Work location.
- Probation period if applicable.
- Date of beginning the employment.
- Daily wages and monthly salary details.
- Information of any benefits or concessions the employee is entitled to.
- Type of contract -- permanent or fixed term.
- Notice period for termination of employment.
- Leave entitlement.
All fixed-term contracts are permissible under Indian law. There is no maximum period specified for them, but they should be for a reasonable period. A fixed-term contract is not permitted for a regular job.
Probation period in India
The probation period in India is usually between three to six months. It may end up being extended by the employer if they believe that the employee's performance may improve in the future. However, the probation period cannot exceed one year.
Things to keep in mind while hiring employees in India
To hire employees in India, you must establish a company or partner with an Employer of Record (EOR) or Professional Employment Organization (PEO).
If you decide to set up a company in India, you should start by researching all the regulations that apply to your sector. Establishing a company in India can be tricky, costly, and time-consuming.
Most foreign companies that establish a subsidiary in India choose either a public or private limited liability company structure. To establish your subsidiary and hire employees, you will need the following:
- Digital Signature Certificate (DSC).
- A business name approved by the Registrar of Companies.
- Director Identification Number (DIN).
- Memorandum.
- Articles of Association.
- A certificate to start operations.
- A company seal.
- An incorporation application.
- Permanent Account Number (PAN).
- A medical insurance application.
- Provident Fund Organization filing for the employees.
- Value-Added Tax (VAT) registration.
You may require special permits or other types of permissions depending on your industry or work location. Take time to ensure you have fulfilled all of the requirements before recruiting employees.
The alternative to establishing your company branch in India is working with an EOR.
An EOR allows your company to hire globally without setting up a legal entity. So, by working with an EOR, you can begin expanding your workforce by hiring Indian employees immediately. EORs are also well-versed in employment laws and know how to work out competitive salary packages and benefits. This way, you can avoid establishing a legal entity and handling complex human resource tasks.
Passing the human resource function to the EOR means they are responsible for compliance. Most EORs have local and in-country specialists who know how to be legally compliant in all aspects of workers' employment.
What is the hiring process in India?
Hiring practices in India are similar to those around the world, although there are certain country-specific considerations you should bear in mind. Here are the steps to hire in India:
1. Create and publish job ads
It would help if you started by creating ads that fully describe the position, duties, and required qualifications. Then try to find the best places to post or publish these ads, depending on your industry and hiring location.
In the case of hiring remote employees, you need to focus more on online job platforms and networking sites such as LinkedIn -- LinkedIn has over 50 million Indian professionals and is an effective hiring tool.
Generally, posting jobs online will work well as India has an internet penetration rate of 50 percent. However, if you want to reach professionals who may have limited internet access, you should consider publishing job ads in print newspapers.
2. Review applications
Indian professionals submit a cover letter and their curriculum vitae i.e. CV for job applications. Their CVs often have more personal details than you would come across in other countries, including gender, nationality, age, marital status, and a photo of themselves.
3. Conduct interviews
When hiring remote employees, you can conduct interviews online via video call. Remember to schedule these interviews with the time difference between your country and India in mind.
If you are setting up an office in India, you can conduct an in-person interview. You can consider having a translator at the interview if you are open to hiring employees who are not fluent in your language.
4. Extend job offers
After the interviews, you should present the job offer to the most promising candidates. Once they accept, it's best to draft a formal employment contract that describes the job duties. A well-written contract will ensure that candidates understand what you expect from them.
Don't forget to include the employee's compensation in Indian rupees, along with monthly allowances and other benefits. Also, mention the procedure for termination. Let employees review the contract and then sign the agreement. This is not a legal requirement, but we recommend it to all employers.
5. Onboarding new hires
When onboarding new employees, you should complete the paperwork to establish payroll and add them to your internal systems. During the onboarding process, make the employee aware of your company culture, including the dress code. You may even need to train new employees to get them started in their roles.
Parting thoughts
We at Starkflow, offer a cost-effective service to quickly and legally employ your Indian workers. You don't have to take the risk of hiring contractors or go through the expense of setting up an Indian entity. We will help you in the hiring process, complying with every Indian employment law.
As the employer of record, we ensure every detail is attended to during the hiring process and while setting up payroll. We keep employees happy with their work agreement and ensure a rapid, transparent onboarding. We offer them excellent benefits and a reliable employment contract compliant with local regulations. We ensure that the agreed monthly salary is paid on time and that the employees are always taken care of locally.
If you're looking for more information, feel free to contact us.