Employer of Record in India

Businesses can only operate smoothly in India if they comply with local labor laws including drafting compliant employment contract agreements and meeting taxation and payroll obligations. Learn more about the employment laws and regulations in India below, to avoid any compliance issues.

Employment Contract Requirements

In India, though written employment contracts are not mandatory, the Industrial Employment Act of 1946 requires documentation of specific formalities. Fixed-term contracts are allowed for short-term roles, but consecutive short-term contracts are not permitted. Employment agreements must include the following:

• Job duties and responsibilities
• Compensation details, written in Indian Rupees (including benefits, bonus pay and options for retirement savings plans)
• Working hours, holidays and leave entitlements
• Terms of employment (where applicable and provisions for termination)
• Dispute resolution clauses concerning key employees

Onboarding Process

We can help you get a new employee started in India quickly, with a minimum onboarding time of just 1-2 working days. The timeline starts once the employee submits all required information onto the Playroll platform and completes any necessary local authority registrations. For non-nationals, the Right to Work assessment (if applicable) may add up to three extra days. Additional time may be needed for follow-ups on this assessment. Please note, payroll cut-off dates can impact the actual start date. Playroll's payroll cut-off date is the 10th of each month unless otherwise specified.

India's labor laws, including the Factories Act, 1948, and the Occupational Safety, Health, and Working Conditions Code, 2020, establish clear guidelines for working hours and overtime to protect employee welfare. Standard working hours are capped at 9 hours per day and 48 hours per week, with any additional hours classified as overtime, which must be compensated at twice the regular wage rate.

Specific provisions exist for different industries and employee categories, such as managerial roles and certain sectors like healthcare and transportation. Employers are responsible for ensuring compliance with these regulations, including providing adequate rest periods and adhering to rules regarding night shifts and weekend work. Non-compliance can result in substantial penalties, including fines and imprisonment. Understanding and implementing these laws is vital for maintaining a lawful and productive work environment in India.

The minimum wage for employees in India is typically ₹178 per day, amounting to ₹5,340 per month. This serves as a baseline, and actual minimum wages are often higher, depending on regional economic conditions and specific job requirements.

For example, in Delhi, the minimum wage for unskilled workers was set at ₹17,494 per month as of October 1, 2023, with higher wages for semi-skilled and skilled workers. Minimum wages are periodically reviewed and adjusted by state governments to account for inflation and the cost of living.

Employers must stay informed about the latest wage rates and state-specific labor laws to ensure compliance. Additionally, India is transitioning towards a living wage system by 2025, with assistance from the International Labour Organization (ILO). This shift aims to provide workers with an income sufficient to cover essential living expenses, including housing, food, and healthcare. Employers should monitor these regulatory changes closely to align with evolving labor laws and fair wage practices.

Employers in India must navigate several key payroll taxes, including Tax Deducted at Source (TDS) on salaries, Employees' Provident Fund (EPF) contributions, and, in certain states, professional tax. TDS requires employers to deduct income tax from employees' salaries based on applicable income slabs and remit it to the government.

The EPF mandates both employer and employee to contribute 12% of the employee's basic salary and dearness allowance towards retirement savings. Professional tax, where applicable, is a state-level tax deducted from employees' salaries, with rates varying by state. To ensure compliance with these obligations and streamline payroll processes, employers can utilize payroll management software, which helps consolidate payroll data and adhere to India's regulatory requirements.

In India, work permits and visas are essential for employers hiring foreign nationals. The process involves submitting applications, providing supporting documentation, and meeting specific eligibility criteria. The primary visa types include the Employment Visa for skilled foreign workers, the Business Visa for business-related activities, the Project Visa for government-related projects, and the Intern Visa for internships. Employers play a crucial role in sponsoring and supporting these applications to ensure compliance with Indian labor laws and avoid penalties.

To obtain a work visa, applicants must provide documents such as a valid passport, employment contract, and proof of qualifications. Processing times vary, with Employment Visas taking up to 5 months. Employers must also assist foreign workers with post-arrival registration at the Foreign Regional Registration Offices (FRRO). Understanding these requirements helps ensure a smooth hiring process and compliance with Indian regulations.

In India, leave entitlements are governed by both central and state laws, leading to variations across regions and industries. Under the Factories Act of 1948, adult workers are entitled to one day of leave for every 20 days worked, totaling approximately 15 days of annual leave per year. These leaves are exclusive of public holidays, which are provided separately. Sick leave provisions typically range from 5 to 12 days per year, depending on state regulations, and often require a medical certificate for extended absences.

The Maternity Benefit Act grants female employees 26 weeks of paid maternity leave for the first two children, with reduced entitlements for subsequent children. Employers must ensure compliance with these regulations and clearly communicate leave policies to employees to foster a fair and supportive work environment.

Employers in India are required to provide mandatory benefits such as the Employees' Provident Fund, Employees' State Insurance, gratuity, and maternity leave to ensure the financial and social security of their employees. To attract and retain top talent, many employers also offer supplemental benefits like private health insurance, additional retirement plans, performance-based incentives, and initiatives promoting work-life balance. Understanding and implementing these benefits, while adhering to legal requirements, is crucial for employers operating in India.

In India, employment termination is governed by a robust legal framework designed to protect employees while allowing employers to manage workforce needs. Employers must adhere to notice period requirements, which vary depending on whether the employee is classified as a 'workman' under the Industrial Disputes Act, 1947. Workmen are generally entitled to a notice period ranging from 30 to 90 days, while non-workmen follow the terms of their employment contracts. In cases of gross misconduct, termination can occur without notice, provided a fair inquiry is conducted. Severance pay, or retrenchment compensation, is mandatory for workmen with at least one year of continuous service, calculated at 15 days’ average pay for each completed year of employment. Non-workmen may receive severance based on their contract or company policy.

The termination process includes reviewing the employment contract, conducting inquiries if needed, issuing proper notice, settling final dues, and providing necessary documentation such as termination letters and tax forms. Employees have legal protections against unfair dismissal, and those terminated without valid reason or due process may challenge their dismissal in labor courts. Employers handling redundancies must follow specific legal procedures, including prior notice, severance pay, and, in some cases, government approvals. Adhering to these legal obligations ensures compliance and minimizes risks of disputes.