Global Payroll and Benefits — 6 min
With more than 1.3 billion people, India is filled with top talent for international employers. If you are looking to hire a remote employee in India, work with Indian contractors, or help one of your existing employees move to India, this guide can help you get started.
At Remote, we help companies of all sizes hire top talent around the world. India’s labor laws, payroll regulations, and benefits requirements vary among different states and union territories. India’s federal government does enforce certain requirements all around the country, however. This guide on hiring employees in India covers all the basics.
Employees in India often start later than employees in the US. A common workday might extend from 10 a.m. to 6 p.m. Some workers choose to work earlier or later, especially to accommodate remote colleagues. Asynchronous working can help alleviate this issue.
When making an employment offer to a person in India, companies often include non-salary components, such as private health insurance costs or other perks. This total is called “cost to company.” Many items in the cost to company that are not included as part of the employee’s basic salary are taken pre-tax, so these perks are highly desired. Employees may negotiate the cost to company as they would negotiate basic salary.
Indian businesses typically reward employees well for loyalty. It is not uncommon for employees to expect large raises of 10% or more after annual reviews, in addition to regular promotions. Job titles are especially important in Indian business and social culture, often even more important than salary.
Employees in India typically receive their pay on a monthly basis.
Like many countries, India has recently revisited the definitions of “employee” and “contractor” to account for changes brought on by the gig economy. In general, however, the usual standards continue to apply.
Contractors in India must be able to work for multiple companies and must not be subject to the control of any company for which they work. Contractors must be free to choose their own hours. Employers should be careful not to cross the line of misclassification in India by providing work equipment or office space to contractors, as such actions could indicate an employee relationship. Any contractor agreement in India should clarify that the arrangement is not one between employer and employee and that the worker is an independent party.
Although not required by law, most employers in India choose to use written contracts to formalize agreements with employees. Remote can help you ensure your employment contracts in India are fully compliant with national and state laws.
Related: How to pay remote employees in India
India uses the Indian Rupee, which has a currency code of INR. Payment amounts may be written using the currency code or with the rupee symbol, ₹. Amounts may also be represented by Rs, as in Rs 1,000.
Businesses with employees in India are required by law to pay their employees in INR. Contractors wishing to receive payments in a currency other than INR must open a foreign currency account, but companies should still aim to pay in local currency when possible.
The tax year in India begins on April 1st and ends on March 21st. Workers in India have until July 31st to file their tax returns unless they receive an extension. In 2020, the government issued a blanket extension to November 30th, but this special deadline will not apply moving forward.
Employers must provide tax documentation (Form 16) by employees no later than June 15th, although employees can also download this form online. Remote can help you ensure your company never misses a tax deadline for employees in India.
Until 2020, most companies in India strictly prohibited work-from-home arrangements for their employees. That changed out of necessity during the COVID-19 pandemic. Today, employers in India have relaxed their stance toward remote work, allowing employees to work from home more frequently.
Employees do not always wish to work from home. Many professionals live in guest accommodations or with multiple family members, which can make it difficult to work remotely. Employers who are accustomed to offering remote work to employees in other parts of the world should help ensure their workers in India have the tools and opportunities necessary to create advantageous working environments.
Related: Benefits to offer employees in India
In 2017, India’s federal government granted more maternity leave to employees who give birth while working. Employers in India today must offer at least 26 weeks of paid maternity leave to employees giving birth who have fewer than two children already. Employees giving birth who already have two or more children are only entitled to 12 weeks of maternity leave.
Indian law allows for 12 weeks of maternity leave for women who adopt children under three months old and women who have children in surrogacy arrangements.
To be eligible for maternity leave, the employee must have worked for the employer for at least 80 days in the last 12 months. Employees may begin taking maternity leave up to eight weeks prior to the due date.
After returning to work, employees must be allowed at least two nursing breaks per day in addition to regular breaks until the child reaches 15 months of age.
In addition to maternity leave, employers with 50 or more employees must provide daycare services or access to free childcare for employees returning from maternity leave. This policy does not apply to employees working from home.
India does not require private companies to offer paternity leave to their employees. Government employees, however, receive 15 days of paternity leave. Private employers are free to offer paternity leave as an additional perk.
Public healthcare availability and quality varies greatly from one state to the next. Because public healthcare in India tends to be underfunded, employers often choose to offer their employees in India either a stipend to purchase a private insurance plan or a direct option to access health insurance through the employer.
Health insurance plans in India tend to be significantly cheaper than plans in the US.
Employees in India are entitled to a minimum of 12 days off for every 240 days worked, but 15 days per year is common. Laws on PTO requirements vary from one state to another, and requirements are based on the local of the company's legal entity, not the location of the employee. Employers should clarify PTO earning rates and rollover policies in all employee contracts in India.
Employers in India may offer unlimited PTO to their employees. If an employer offers unlimited PTO, the employer should track all time taken to ensure compliance with Indian laws.
Employees in India must receive a minimum of 12 leave days per year for sick leave and personal reasons. Employees may use this leave to care for sick family members or as bereavement leave. If an employee needs to take more than three consecutive sick days, the employer may require a written confirmation of the illness from a medical professional.
India only has a few national public holidays, with most states observing several of their own. States have different rules requiring overtime pay and paid time off for public holidays. Generally, employers should expect to provide employees with at least 10 paid public holidays per year to allocate as they see fit.
Employers may choose to cover certain expenses for employees in India, such as internet access or transportation. These stipends tend to be either fully or partially taxable but are sometimes not considered part of the employee’s base salary for purposes of calculating social contributions. Employees may be partially exempt from taxes for stipends paid to offset transportation costs, rent, and medical costs.
Employers often provide employees in India with setup money to purchase work equipment. Sometimes, it may be easier to purchase equipment and ship it to the employee directly, depending on individual circumstances.
Some states and regions in India enforce special protections for women in the workplace. Employers with remote workers may still be required to provide special protections depending on local laws.
Maharashtra, for example, has several unique protections in place for female employees. These protections include enhanced protections against sexual harassment, guidelines for workplace lighting, requirements for female security staff, extra security for women working night shifts, and others.
In 2018, the Supreme Court of India removed the parts of the country’s constitution that outlawed same-sex relationships. These decisions also granted protections to employees based on their sexual orientation. Today, employees who experience discrimination based on their orientation may file suit against their employers. These protections extend to gender identity as well.
Employers benefit from these decisions as well. With same-sex relationships now decriminalized in India, employers who hire LGBTQ+ workers and employers who actively seek to promote LGBTQ+ rights are no longer subject to penalties.
While India has made important strides in LGBTQ+ rights, legal issues persist. Many employees find it difficult to extend their health coverage granted by their employers to their same-sex partners, for example. At work, employees could be subject to social pressures and bullying for their gender identity and sexual orientation, despite new legal protections. Employers should be prepared to take swift action to protect all employees.
For employees who receive less than Rs 15,000 per month in salary, employers are required to set up an Employees Provident Fund account, or EPF. Employees who make above Rs 15,000 may apply to participate in the EPF with special permission.
International employees may be required to participate regardless of income in some circumstances. In cases of split salary or split payroll, companies must consider all employee income (inside the country and otherwise) in calculating percentages for contributions.
All employers with more than 20 employees must offer an EPF. Some businesses below the 20-person threshold may be required to offer an EPF if they meet certain criteria. Businesses not required by law to offer an EPF may do so voluntarily, if they desire.
In an EPF, the employee and employer contribute an equal amount of money into the fund, which the employee receives as a lump sum payment upon reaching retirement. The contribution rate for employees at companies with more than 20 employees is 12% of income. For employees at workplaces with fewer than 20 employees, contributions are limited to 10%.
Calculations for EPF contributions consider three factors to determine income: salary, dearness allowance, and retaining allowance. Salary refers to the employee’s regular salary. Dearness allowance is a cost of living adjustment given to public sector employees and people collecting pensions. Retaining allowance is an allowance paid to certain types of workers who are unable to work when their places of employment are not open.
Part of the employer contributions to the EPF actually go toward funding the Employees’ Pension Scheme, or EPS. While the entire 12% share from the employee goes toward the EPF, only 3.67% of the employer’s contribution does the same. The remaining 8.33% of the employer’s contribution goes toward the EPS. EPS contributions max out at Rs 1,250 per month for employees earning Rs 15,000 or more monthly.
Employees cannot contribute additional income of their own toward the EPS: it is a fixed cost applied only to employers.
In addition to the EPF and EPS, employers contribute 0.5% of employee salary to the Employees’ Deposit Linked Insurance Scheme, or EDLI. The employee does not contribute to this scheme.
Employers who fail to make sufficient contributions toward the EPF and EPS are subject to fines and penalties. Companies found in violation of the law may be subject to penalties including all past due amounts plus interest. The Indian government may levy additional fines ranging from 5-25% of the total amount unpaid. In certain cases, employers may be subject to prosecution and even imprisonment if the avoidance of contributions is deemed to be deliberate fraud.
India does not have at-will employment like the US. In India, employees being terminated are entitled to a minimum of 30 days’ notice or 30 days’ pay in lieu of notice, if terminated without cause.
Employees may fire employees for cause, which can include low performance, workplace misconduct, or other non-protected reasons. Employees fired for cause may not be entitled to notice or pay if the misconduct falls into a category recognized by the Indian government.
Employees in India are not always entitled to severance pay when let go, especially for workers with higher salaries. Some workers making lower wages may qualify for guaranteed severance pay.
Employees are entitled to payouts of unused PTO if they quit or are terminated. Employers offering unlimited PTO plans must pay employees for unused leave as if the employee were earning leave at the minimum required rate. Employers are not required to pay out sick or personal leave (often called “casual leave”), but many choose to do so as a courtesy.
Employees with more than five years of service are entitled to an additional severance payment called a gratuity. The gratuity is equal to 15/26 of the employee’s salary (about 57.7%) for every year the employee has worked for the company. Gratuity is capped at Rs 1,000,000.
The national government in India does not regulate probationary periods at the beginning of employment. Employers commonly set probationary periods of around three months at the beginning of new contracts. During the probationary period, the employer may terminate the employee without severance pay or notice.
With laws that vary from region to region and a host of unfamiliar payroll practices, hiring in India can pose a steep challenge for employers. Remote helps businesses of all sizes hire employees in India easily and quickly with our global employment solutions. One relationship to Remote takes care of payroll, benefits, taxes, and local compliance for all your employees in India. Contact us today at [email protected] to learn more about our global employment, employer of record, and contractor payments solutions in India.
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