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How to hire employees in India

How to Hire Employees in India

  • By Travis Kliever
  • Updated May 25, 2023
  • Fact checked by Charlotte Evans

Summary
How to Hire Employees in India
What are the legal requirements for hiring employees in India?
How much does it cost to hire employees in India?
What are the key ways to hire employees in India, such as PEO and EOR solutions?
What are the steps businesses need to take to hire employees in India?
Hire employees in India — your next steps
FAQs

Key points

  • When hiring in India it is crucial to understand India labor laws: Familiarize yourself with employment and tax regulations, which can vary by state.
  • Advertise the job: Post the job on Indian job websites, newspapers, or through local recruitment agencies.
  • Interview and select: Conduct interviews and choose the best candidate.
  • Prepare an employment contract: Prepare a contract that complies with Indian labor laws, and onboard the employee.

When it comes to scaling a global workforce, one country that stands out as a prime destination is India. With its vast pool of highly skilled and cost-effective talent, India offers a multitude of advantages for international companies looking to hire employees. From its thriving tech ecosystem to its robust educational infrastructure, India presents a unique opportunity to unlock potential and foster growth.

In this article, we explain how global companies can hire employees in India, facilitating innovation, enhancing productivity, and achieving a competitive edge in the global marketplace.

What are the legal requirements for hiring employees in India?

When hiring employees in India, there are several legal requirements that employers must adhere to. Here are some of the key legal requirements:

  1. Employment Contract: It is important to have a written employment contract with each employee. The contract should outline the terms and conditions of employment, including job role, responsibilities, compensation, benefits, working hours, leave entitlements, and termination procedures.
  2. Minimum Wages: Employers must comply with the minimum wage requirements set by the respective state or central government. Minimum wages can vary across states and are periodically revised. It is important to stay updated with the current minimum wage rates and ensure that employees are paid at least the prescribed minimum wage.
  3. Provident Fund: The Employees’ Provident Fund (EPF) is a mandatory social security scheme in India. Employers with 20 or more employees are required to register with the EPF Organization and contribute a percentage of the employee’s salary (12% of basic wages plus dearness allowance) towards the EPF. The employee also contributes an equal amount.
  4. Employee State Insurance (ESI): The Employees’ State Insurance Act provides health insurance and medical benefits to employees. Employers with 10 or more employees (20 or more in some states) are required to register with the Employees’ State Insurance Corporation (ESIC) and contribute a percentage of the employee’s salary (1.75% of gross wages) towards the ESI. The employee’s contribution is 0.75% of gross wages.
  5. Gratuity: The Payment of Gratuity Act mandates employers to provide gratuity, a retirement benefit, to employees who have completed at least five years of continuous service. Gratuity is payable upon retirement, resignation, or death of an employee. The amount of gratuity is based on the employee’s last drawn salary and years of service.
  6. Statutory Leave: Employers must provide certain types of statutory leave to employees, including annual leave, sick leave, and public holidays. The number of days and eligibility criteria for each type of leave may vary depending on the state where your business operates.
  7. Labor Law Compliance: Employers must comply with various labor laws, depending on their state of operations, including the Industrial Disputes Act, the Payment of Bonus Act, the Payment of Wages Act, and the Shops and Establishments Act of the respective state. These laws govern aspects such as working hours, overtime, employment of women and children, termination procedures, and dispute resolution.
  8. Tax Deductions: Employers are responsible for deducting income tax at source (TDS) from employee salaries based on the applicable tax slabs and depositing it with the government. Employers must also issue Form 16, which summarizes the TDS deductions, to employees annually.
  9. Employment Visa (for foreign nationals): If you plan to hire foreign nationals, ensure they have the necessary work visas and permits to legally work in India. Familiarize yourself with the visa regulations and requirements, and ensure that all necessary documentation is in place.

It is crucial to consult with legal and HR professionals or seek guidance from experts well-versed in Indian employment laws to ensure compliance with all relevant legal requirements.

How much does it cost to hire employees in India?

The cost of hiring employees in India can vary depending on several factors, including the industry, job role, location, qualifications, and experience of the employees. Here are some cost considerations to keep in mind:

  1. Salary: The salary of employees is typically the most significant cost when hiring in India. Salaries can vary widely based on the job role and the level of experience and qualifications required. Different industries and locations within India may also have different salary ranges. It is important to research industry standards and market rates to determine appropriate salary levels for the positions you are hiring for.
  2. Employee Benefits: In addition to the salary, employers in India are required to provide certain employee benefits, such as provident fund contributions, employee state insurance, gratuity, and medical insurance. These benefits are often a percentage of the employee’s salary and can add to the overall cost of hiring.
  3. Taxes and Social Security Contributions: Employers in India are responsible for deducting income tax at source from employee salaries and making contributions to social security schemes such as the Employees’ Provident Fund (EPF) and the Employees’ State Insurance (ESI) scheme. The exact amounts will depend on the employee’s salary and the applicable rates.
  4. Recruitment Costs: There may be expenses associated with the recruitment process, such as advertising job openings, conducting interviews, and using recruitment agencies or platforms. The cost of recruitment can vary based on the methods and resources utilized.
  5. Training and Onboarding: Depending on the nature of the job, you may need to invest in training and onboarding programs for new employees. This can include orientation, skill development, and job-specific training. The cost of training can vary based on the complexity and duration of the training programs.
  6. Administrative and Compliance Costs: Employers must comply with various administrative and compliance requirements, such as maintaining employee records, filing tax returns, and submitting reports to government authorities. These activities may involve additional costs, such as hiring accountants or payroll service providers.

It’s important to note that the cost of hiring employees in India can vary significantly depending on your specific requirements and the prevailing market conditions. It is recommended to consult with HR professionals or industry experts to get a more accurate understanding of the cost implications in your specific case.

What are the key ways to hire employees in India, such as PEO and EOR solutions?

When hiring employees in India, there are various ways to engage and hire employees. Three popular solutions are direct hiring,  PEO (Professional Employer Organization) and EOR (Employer of Record). Here’s an overview of these solutions and their key features:

1. Direct Hiring

You can open a subsidiary or register a branch in India, an then hire employees through that subsidiary or branch. This has the benefit of giving you a full business presence in India, but it is the most expensive and time-consuming of the hiring options. 

2. Professional Employer Organization (PEO)

A PEO is a company or organization that provides comprehensive HR and employment-related services to businesses. When you engage a PEO, they become the co-employer for your employees. Here’s how it works:

  1. Employment: The PEO hires employees on your behalf, handling employment contracts, onboarding, and payroll.
  2. HR Administration: The PEO takes care of HR-related tasks, including benefits administration, employee records, compliance with labor laws, and statutory obligations.
  3. Risk Mitigation: PEOs can help manage compliance risks by ensuring adherence to local labor laws, regulations, and employment practices.
  4. Employee Benefits: PEOs often offer employee benefits such as health insurance, retirement plans, and other perks to the employees they hire.

3. Employer of Record (EOR):

An Employer of Record is a service provider that becomes the legal employer of your employees, taking care of all employment-related responsibilities. Here’s how it typically works:

  1. Legal Employment: The EOR becomes the legal employer of the employees, handling employment contracts, compliance, and payroll.
  2. Compliance and Administration: The EOR ensures compliance with local labor laws, tax regulations, and statutory requirements. They manage employee records, benefits administration, and other HR functions.

Both PEO and EOR solutions provide a range of services to simplify the process of hiring and managing employees in India. They can help streamline HR processes, ensure compliance, and provide support in navigating local labor laws. It’s important to evaluate different providers, consider their expertise, reputation, cost structure, and the specific needs of your business before choosing the most suitable solution. Consulting with professionals experienced in international employment and HR services can be valuable in making an informed decision.

What are the steps businesses need to take to hire employees in India?

To hire employees in India, businesses need to follow a series of steps to ensure a smooth and legally compliant hiring process. Here are the key steps involved:

  1. Determine Job Requirements: Clearly define the job role, responsibilities, required qualifications, and experience for the position you intend to hire for. This will help attract suitable candidates.
  2. Job Advertising: Advertise the job opening through various channels, such as job portals, social media platforms, your company website, or recruitment agencies. Provide a detailed job description and specify any essential qualifications or skills.
  3. Candidate Screening: Review the received applications and resumes to shortlist candidates who meet the required criteria. Conduct initial screenings, such as telephonic interviews or online assessments, to further evaluate candidates’ suitability.
  4. In-person Interviews: Schedule face-to-face interviews with the shortlisted candidates. Prepare a set of relevant questions to assess their skills, qualifications, experience, and cultural fit with your organization.
  5. Document Verification: Verify the authenticity of the candidates’ educational qualifications, work experience, and any other credentials they have claimed. This can involve contacting educational institutions, previous employers, or using background verification services.
  6. Employment Offer: Once you have identified the most suitable candidate, extend a formal employment offer. Ensure that the offer includes details of the job position, compensation, benefits, starting date, and any other relevant terms and conditions.
  7. Employment Contract: Prepare a written employment contract that clearly outlines the terms and conditions of employment. Include information such as job responsibilities, compensation, benefits, working hours, leave policies, termination procedures, and any other relevant clauses. Seek legal advice to ensure compliance with Indian employment laws.
  8. Onboarding: Once the candidate has accepted the offer and signed the employment contract, initiate the onboarding process. Provide necessary documents, such as offer letters, joining forms, and employee handbooks. Familiarize the new employee with company policies, procedures, and workplace culture. As part of the onboarding, employees should be registered with the authorities for compulsory employment contributions and taxes. 

It’s important to note that specific requirements and processes may vary depending on the industry, location, and size of your business. Consulting with legal and HR professionals experienced in Indian employment laws can help ensure compliance throughout the hiring process.

Hire employees in India — your next steps

Hiring employees in India means having a details understanding of employment regulations, market conditions, and specific cultural factors that impact on employment in India. To streamline hiring in India, many companies will benefit from a India PEO or India EOR solution.

Check out our India PEO and India EOR guides to find out who might be the best provider for you. 

FAQs

Yes, it is mandatory for employers in India to provide certain employee benefits. The most common benefits include the Employees' Provident Fund (EPF) and the Employees' State Insurance (ESI). The EPF is a social security scheme that requires employers to contribute a percentage of the employee's salary towards a retirement fund, and the ESI provides health insurance and medical benefits. The specific applicability of these benefits depends on factors such as the number of employees and the type of industry.

In India, the standard working hours are typically 8 hours per day and 48 hours per week. However, certain industries and states may have specific regulations regarding working hours. For example, some states may allow extended working hours under certain conditions, while others may have limitations on overtime work. It is important to consult the respective state's Shops and Establishments Act to understand the specific regulations applicable to your business location.

The process for terminating an employee's contract in India should follow the procedures outlined in the Industrial Disputes Act, 1947. The act provides guidelines for termination, including the requirement for prior notice or payment in lieu of notice. The notice period depends on the length of the employee's service and is typically 30 days. In case of misconduct or willful breach of employment terms, immediate termination without notice may be possible. It is advisable to consult legal experts to ensure compliance with the relevant laws and regulations during the termination process.