Global Payroll and Benefits — 6 min
Our guide on hiring remote workers in India breaks down the basics of Indian labor laws, but paying international workers is always a challenge.
In India, special laws regarding taxable components of salary, social contribution requirements for employees and employers, and other payroll factors can make it difficult for foreign employers to stay compliant. That’s why we put together this helpful guide to help companies pay remote workers in India.
To pay your employees in India, you have a few options.
The first option is to open your own local legal entity in India. Doing so allows you to employ workers legally in the country under the name of your own entity. This option is usually reserved for enterprise businesses looking to hire large, permanent teams in a country. Not only is it time consuming and expensive to open an entity, but you must also find and set up your own payroll providers and vendors for all your employee benefits. You are also responsible for staying compliant with the labor laws of India’s national government and the laws of the state in which you operate.
Most foreign businesses hiring in India choose to work with an employer of record or another global employment solution, such as Remote. A global employment provider can hire and pay your workers in India on your behalf, so you do not have to open your own legal entity. Because Remote owns our own legal entity in India, we can offer the most comprehensive and secure global employment solution for employers hiring workers in India. Remote’s global employment solution in India includes payroll processing, benefits administration, tax filing, and all matters of legal compliance.
You may be able to pay workers in India as contractors in certain scenarios. Do not default to contractor payments to avoid hiring full-time employees, however. Laws in India do not favor employers attempting to skirt the rules by treating employees as contractors while not providing benefits. Choose this option for short-term projects or scenarios in which the contractor runs a legitimate self-employment business. Remote offers contractor payment services in India.
Businesses must pay their employees in India in Indian rupees, or INR. Contractors may receive other types of currency if they open foreign currency accounts. In most cases, businesses should pay in the local currency to avoid complications.
Currency amounts in India are written differently than currency amounts in many other countries. Rather than a comma after every three digits, INR amounts place a comma every two digits after the first three. So, one million rupees would be represented as 10,00,000.00 instead of 1,000,000.00.
India recently introduced a new tax regime with reduced income tax rates. However, this new system removes tax exemptions, so it's not the best option for everyone. Employees who wish to retain exemptions in their salaries may choose to continue to use the old tax regime.
Tax rates are more lenient for employees over 60 years of age and employees over 80 years of age.
Not everything included in employee compensation in India is taxable. Some allowances are fully taxable, others partially taxable, and others are completely tax-exempt.
India also recognizes a few completely tax-exempt allowances. However, these allowances are limited to specific government employees, judicial employees, and employees of certain international organizations, so businesses do not need to worry about non-taxable allowances in India.
Reasonable per diem allowances are not considered taxable income in India. Employees are not required to spend the full amount of the per diem allowance and may keep any extra as tax-free income. Companies cannot, however, attempt to pay employees “under the table” by providing unreasonably large per diem allowances.
Yes. Reimbursements give employees money back for expenses they initially covered on their own. Allowances are predetermined amounts given to employees for specific uses. Reimbursements and allowances are taxed differently depending on how the employee is expected to spend the money.
Employers must make a minimum of three payroll deductions in India: Employees’ Provident Fund, Employees’ Pension Scheme, and Employees’ Deposit Linked Insurance Scheme.
The EPF is a retirement investment scheme run by the Indian government. Employees at companies with more than 20 employees contribute 12% of their eligible salary to the EPF. Employers match the 12%, but employer contributions and employee contributions are distributed differently
Employees who receive less than INR 15,000 per month in salary must contribute to the EPF. Employees who make more may participate by request. For employees employed in multiple countries with split payroll, the total income in both countries is used to calculate eligibility.
Income for purposes of calculating EPF contributions includes basic income, dearness allowance, and retaining allowance.
Employers with more than 20 employees must participate in EPF contributions. Some employers in certain industries, especially industrial and manufacturing industries, may be required to participate as well.
Employees do not contribute to the EPS, but employers do. Employers must contribute 8.33% of the employee’s salary to the EPS (only 3.67% of the employer match goes toward the EPF). This brings the total of employee contributions and employer contributions to a matching 12% (when eligible) toward both EPF and EPS. Employees, however, cannot contribute to the EPS.
Contributions to the ESP are capped at INR 1,250 per month for workers making up to INR 15,000 per month.
The EDLI provides life insurance for private sector employees in India. Employers must contribute 0.5% of the employee’s basic salary to the EDLI. Employees are not required to contribute.
Payouts for EDLI claims are capped for employees earning above INR 15,000 per month.
Employers may opt out of the EDLI in favor of a different life insurance plan, but the benefits of the alternative plan cannot be less than the benefits of the EDLI.
The minimum wage in India varies by state and industry. Individual states may set lower or higher wages at their discretion. There is a national minimum wage of INR 176 per day for certain industries (about $3), but this minimum does not apply in most circumstances.
Salaries for remote workers in India are generally competitive with salaries in other areas of the world.
Employees who work more hours than are stipulated in their employment contracts may be entitled to overtime pay. Overtime rates are not clearly defined and can vary depending on the type of work the employee does, how many hours the employee usually works, and where the employee lives. Remote can help you determine whether your remote employees in India are eligible for overtime pay.
Employers in certain industries in India are required to pay their employees a percentage of their annual salary as an annual bonus. 13th month payments are due within eight months of the end of the financial year. Not all industries observe the 13th month bonus.
Businesses can pay contractors directly in India. Payments must be made in INR, unless the contractor opens a foreign currency account. However, in most cases, companies choose to pay in INR.
Companies can generally treat contractors in India the same way they would treat contractors anywhere else. However, India does enforce limitations on how companies work with contractors. Breaking these rules can lead to fines and penalties. Workers in India who have been paid as contractors but believe they should be employees may file a complaint through formal channels, forcing the company to defend itself in India’s courts.
If you plan to work with someone in India for a long period of time, it is safer to hire that person as a full-time employee, provided the worker wants to be an employee. Remote can help you convert contractors to employees in India.
If maintaining the contractor relationship makes sense, Remote can manage contractor payments as well. Just be sure to avoid the usual stumbling blocks: don’t tell the contractor when or how to work, and don’t provide resources or equipment that could indicate an employment relationship.
India’s thriving and diverse talent pool can be a treasure trove for businesses looking to hire some of the best workers in the world. Navigating Indian labor laws and paying employees in India while remaining compliant can be challenging, though, even for companies with workers in multiple countries.
Remote’s global employment and global contractor solutions make it easy. With Remote’s simple solutions, you can hire, onboard, and pay your remote workers in India easily and quickly, whether they’re employees, contractors, or a mix of the two. Contact us today at [email protected] to learn more about our global employment and global contractor payment solutions for India.
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