India is one of the world’s fastest-growing major economies, with a population of over 1.4 billion and a large, highly skilled, English-speaking workforce. The country is projected to become the world’s third-largest economy by 2028, with GDP reaching $5.2 trillion, driven by strong growth in technology, engineering, financial services, and manufacturing. For international businesses, India offers an exceptional talent pool at competitive costs.

However, hiring in India is not straightforward. Labour laws are layered across central and state levels, vary significantly by industry and location, and are updated frequently. Navigating EPF, ESI, gratuity, professional tax, and state-specific Shops and Establishments requirements demands local expertise. This is why many international companies choose to hire through an Employer of Record rather than establishing a local entity.

How to Hire Employees in India

Hiring directly in India takes planning, just like anywhere else. The traditional route would be to set up a legal business there. Most foreign companies register as a Private Limited Company, though Limited Liability Partnerships (LLPs) and branch offices are also options. The setup process involves:

  • Getting a Director Identification Number (DIN) for company directors
  • Securing a Digital Signature Certificate (DSC) for online paperwork
  • Registering for Goods and Services Tax (GST) if required by revenue thresholds
  • Opening a corporate bank account in India

India has no single national law mandating background checks, but industries such as banking, finance, and insurance enforce strict screening requirements. Employers must obtain written consent from candidates before conducting any checks and comply with India’s data privacy obligations under the SPDI Rules, 2011. Common checks include identity verification, education, employment history, and criminal records.

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Using an Employer of Record in India

Creating a legal entity supports long-term plans and large-scale operations, but is also time-consuming and expensive. For businesses that want to enter the Indian market quickly, test the waters, or hire a small team, an Employer of Record (EOR) is a better choice. 

An Employer of Record is a third-party company that officially employs workers on behalf of another business in a specific country, such as India. While your company directs the employees’ daily work and oversees performance, the EOR handles all the formal employment tasks, including:

  • Running payroll
  • Withholding and paying taxes
  • Managing employee benefits
  • Following HR and labor laws
  • Preparing contracts and handling onboarding and offboarding

With an EOR in India, your business can hire legally without setting up a local legal entity, saving time and resources.

Employment and Labor Laws in India

A well-structured employment contract is important for building a clear and legally sound working relationship in India.

While Indian labor laws don’t require written contracts for every employee, having one is strongly recommended and often required under certain state-specific laws,  like in various Shops and Establishments Acts.

A written agreement helps prevent misunderstandings and protects employers and employees by clearly spelling out the terms and conditions of employment.

Labour Code Reforms

India is in the process of consolidating 29 existing central labour laws into 4 new Labour Codes, enacted between 2019 and 2020 but not yet notified as effective at the central level. States are expected to finalise their implementation rules through 2025-2026, after which the Codes will come into force.

The four Codes and their key implications for employers are:

  • Code on Wages, 2019: Introduces a universal minimum wage and expands the definition of wages, affecting how EPF, gratuity, and bonus calculations are computed.
  • Industrial Relations Code, 2020: Introduces fixed-term employment provisions and raises the retrenchment approval threshold from 100 to 300 employees.
  • Code on Social Security, 2020: Extends social security coverage to gig workers, platform workers, and the unorganised sector.
  • Occupational Safety, Health and Working Conditions Code, 2020: Standardises working conditions across industries and may permit daily shifts of up to 12 hours within a 48-hour week.

Employers hiring in India should monitor state-level notifications closely, as the Codes will significantly alter payroll structures, employment contract terms, and compliance obligations once implemented.

Employment Contract Requirements

To stay compliant and avoid disputes, your employment contract should cover the following details:

  • Full legal names and addresses of both the employer and employee
  • Job title and description
  • Salary and benefits
  • Working hours
  • Leave policy
  • Probation period, if applicable
  • Termination terms 
  • Retirement age if your organization has a retirement policy

India’s legal terrain includes localized rules and frequent updates, especially under new labor codes. Avoid generic global templates for Indian contracts, as they may miss some details.

Working Hours, Overtime, and Rest Periods

The standard working week in India is 48 hours, with a maximum of 9 hours per day, as established under the Factories Act, 1948. Employees are entitled to one mandatory rest day per week. Any work beyond the statutory limits must be compensated as overtime at twice the ordinary rate of wages.

Managerial, supervisory, and white-collar employees are generally exempt from statutory overtime provisions. For these roles, any overtime entitlement is determined by the employment contract or internal company policy rather than by law.

The Occupational Safety, Health and Working Conditions (OSH) Code, 2020 has been passed but is not yet in effect. Once implemented, it is expected to standardise working conditions across sectors and may permit daily shifts of up to 12 hours, allowing compressed workweeks provided the total does not exceed 48 hours per week.

Public Holidays

India observes three mandatory national holidays that apply universally across all states and establishments:

  • Republic Day (26 January)
  • Independence Day (15 August)
  • Gandhi Jayanti (2 October)

In addition, the Central Government declares approximately 14 to 17 gazetted holidays annually, covering major religious and cultural observances including Diwali, Holi, Eid al-Fitr, Eid al-Adha, Christmas, and Good Friday, among others. The total number of public holidays typically ranges from 15 to 20 days per year depending on the state, as each state supplements the national list with its own festivals and regional observances.

Many employers also offer a list of restricted or optional holidays, from which employees may select a set number of additional days off based on personal or religious preference.

Pension System

The National Pension System (NPS), introduced in 2004, is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It is open to all Indian citizens aged 18 to 70.

Probation Period

Probation periods in India are not specifically regulated by central legislation and are instead governed by the employment contract and, where applicable, the relevant state Shops and Establishments Act. In practice, probation periods typically range from 3 to 6 months, with some roles in senior or specialised positions extending up to 12 months.

During probation, shorter notice periods of 15 to 30 days commonly apply, as specified in the employment contract, compared to the standard notice period for confirmed employees. Probation periods may be extended by mutual written agreement if the employer requires additional time to assess performance. Upon successful completion, employment is confirmed and full statutory protections apply.

Employers should ensure probation terms are clearly documented in the employment contract and aligned with any applicable state Shops and Establishments Act provisions.

How an Employer of Record Helps You Hire in India

Setting up a Private Limited Company or LLP in India can take weeks or even months due to regulatory steps, tax registrations, and legal approvals. With RemotePeople’s EOR, you can skip that process, allowing you to hire and start operating within days. 

India has complicated labor regulations at both national and state levels, including the Payment of Wages Act (1936), Payment of Bonus Act (1965), and Contract Labour Act (1970).

An EOR stays updated on these laws and handles compliance for you, helping you avoid legal trouble, fines, and reputational damage. Your internal teams can stay focused on strategy and growth, not paperwork.

Payroll and Employment Taxes in India

Fiscal Year

In India, the fiscal year is from April 1 to March 31 of the following year. Businesses and individuals use these 12 months for financial accounting and tax reporting.

Payroll Cycle

The standard payroll cycle in India is monthly, with salaries typically disbursed on or before the last working day of each month. Under the Payment of Wages Act, 1936, wages must be paid within seven days after the end of the wage period if the establishment has fewer than 1,000 employees, and within ten days if it has more.

Minimum Wage

Minimum wages in India are governed by the Minimum Wages Act, 1948, which ensures fair compensation for employees working in scheduled industries. The newer Code on Wages, 2019 aims to simplify and expand this system by extending minimum wage coverage across all sectors and introducing a national floor wage as a baseline across all regions.

Minimum wage rates are not uniform and vary based on the state or union territory, industry or sector, type of occupation, geographic location within a state (urban vs. rural), and the employee’s skill classification — unskilled, semi-skilled, skilled, or highly skilled. Both central and state governments are responsible for setting and revising rates, typically twice per year in April and October, based on the Consumer Price Index (CPI).

Category Rate
Central Government Floor Wage₹178 per day
Central Government — Unskilled₹783 per day
Central Government — Highly Skilled₹1,035 per day
Delhi — Unskilled (effective April 2025)₹18,456 per month
Delhi — Skilled (effective April 2025)₹22,411 per month

Employers must pay at least the minimum wage applicable to each employee’s role, skill level, and location. Non-compliance carries significant penalties — up to ₹50,000 for a first offence and up to ₹1 lakh and/or 3 months imprisonment for repeat offences under the Code on Wages, 2019.

Individual Income Tax Contributions

Personal income tax in India is collected through the Tax Deducted at Source (TDS) system, administered by the Income Tax Department under the Central Board of Direct Taxes (CBDT). Employers are required to deduct TDS from employee salaries where estimated annual income exceeds the basic exemption limit.

India offers two personal income tax regimes, and employees may choose their preferred regime at the start of each financial year. The new regime is the default from FY 2025-26 onwards.

New Tax Regime (Default, FY 2025-26)

Under Section 87A, a tax rebate effectively makes income up to ₹12 lakh tax-free for resident individuals under the new regime.

Annual Taxable Income Tax Rate
Up to ₹4 lakhNil
₹4 lakh to ₹8 lakh5%
₹8 lakh to ₹12 lakh10%
₹12 lakh to ₹16 lakh15%
₹16 lakh to ₹20 lakh20%
₹20 lakh to ₹24 lakh25%
Above ₹24 lakh30%

Old Tax Regime (Optional)

The old regime allows employees to claim deductions and exemptions such as HRA, LTA, and Section 80C investments, which can reduce taxable income significantly for those with qualifying expenses.

Annual Taxable Income Tax Rate
Up to ₹2.5 lakhNil
₹2.5 lakh to ₹5 lakh5%
₹5 lakh to ₹10 lakh20%
Above ₹10 lakh30%

Employee and Employer Tax

Employees’ Provident Fund (EPF)

The EPF scheme is mandatory for establishments with 20 or more employees. Employees earning up to ₹15,000 per month in basic wages plus dearness allowance (DA) are compulsorily covered. Both employer and employee contribute 12% of basic wages plus DA, with the employer’s share split as follows:

  • 3.67% credited to the employee’s EPF account
  • 8.33% directed to the Employee Pension Scheme (EPS), capped at ₹1,250 per month

Employers must also contribute 0.5% toward the Employees’ Deposit Linked Insurance (EDLI) scheme plus applicable EPF administrative charges. The ₹15,000 statutory wage ceiling is currently under Supreme Court review for a potential increase to ₹21,000 to ₹25,000.

Employees’ State Insurance (ESI)

The ESI scheme provides health and social security coverage for employees earning up to ₹21,000 per month (₹25,000 for employees with disabilities), in establishments with 10 or more workers.

Scheme Employee Contribution Employer Contribution
EPF12% of Basic + DA12% of Basic + DA (3.67% EPF + 8.33% EPS)
ESI0.75% of gross wages3.25% of gross wages
EDLINil0.5% of Basic + DA
Bonus (Payment of Bonus Act)N/A8.33% to 20% of annual wages (employees earning up to ₹21,000/month, 30+ days worked)
Professional TaxVaries by state (max ₹2,500/year)Varies by state

Professional Tax

Professional Tax (PT) is a state-level tax levied on employment income, applicable in several states including Maharashtra, Karnataka, West Bengal, Andhra Pradesh, and Tamil Nadu, among others. It is constitutionally capped at a maximum of ₹2,500 per annum per Article 276 of the Constitution. PT is deductible from taxable income under Section 16(iii) of the Income Tax Act, partially offsetting its cost for the employee.

Rates and thresholds vary by state. Two of the most common are:

  • Maharashtra: ₹200 per month (₹300 in March) for male employees earning above ₹10,000 per month
  • Karnataka: ₹200 per month (₹300 in February) for employees earning above ₹25,000 per month

Employers operating across multiple states must ensure they apply the correct PT rate for each state where employees are based and remit contributions to the respective state authority on time.

Bonus Payments

In India, there is no statutory requirement for employers to provide a 13th-month salary. However, under the Payment of Bonus Act, 1965, certain employees are entitled to an annual bonus. Employees earning a monthly salary of up to ₹21,000 Indian Rupee (INR) and who have completed at least 30 days of work in a financial year are eligible. 

The bonus amount ranges from 8.33% to 20% of the employee’s annual salary, depending on the employer’s allocable surplus. This bonus must be paid within eight months from the close of the accounting year.

Work Permits and Visas in India

Foreign hires must secure an Employment Visa before arrival in India. This visa is granted to highly skilled professionals in senior, technical, or managerial roles earning over USD 25,000 (INR 16.25 lakh) annually. It excludes routine or clerical jobs and is usually issued from the applicant’s home country.

Foreign nationals staying over 180 days must register with the Foreigners Regional Registration Office (FRRO) within 14 days of arrival. This can be done online via the e-FRRO portal.

Time Off and Leave in India

Annual Leave Entitlement

Under the Factories Act, 1948, employees are entitled to 1 day of earned leave for every 20 days worked, amounting to approximately 15 days per year based on 300 working days. Unused earned leave can be carried forward up to a maximum of 30 days. Under state Shops and Establishments Acts, annual leave entitlements typically range from 15 to 21 days per year, with carry-forward rules varying by state.

Employers operating across multiple states should verify the specific leave entitlements applicable under each state’s Shops and Establishments Act, as requirements differ significantly across India.

Maternity Leave

Maternity leave in India is governed by the Maternity Benefit (Amendment) Act, 2017 and applies to all establishments with 10 or more employees. To qualify, an employee must have completed at least 80 days of service in the 12 months preceding the expected date of delivery. Maternity benefit is paid at 100% of the employee’s average daily wage.

Circumstance Entitlement
First and second child (up to 8 weeks pre-delivery)26 weeks
Third child onwards12 weeks
Adoptive or commissioning mothers (child under 3 months)12 weeks
Miscarriage or medical termination6 weeks

Employers with 50 or more employees are required to provide a crèche facility within a prescribed distance from the workplace, and employees are entitled to visit the crèche up to four times per day.

Paternity Leave

There is no statutory paternity leave at the federal level in India. In practice, many private sector employers voluntarily offer between 7 and 15 days of paid paternity leave as a workplace benefit.

Other Leaves

In addition to annual earned leave, employees in India are typically entitled to sick leave of 7 to 12 days per year and casual leave of 6 to 12 days per year, with exact entitlements varying by state and employer policy. A medical certificate may be required for extended sick leave. Casual leave is intended for personal emergencies and generally cannot be carried forward or encashed at the end of the year.

Using an Employer of Record to Administer Benefits in India

An Employer of Record manages different leave entitlements and public holidays across Indian states by handling leave accruals, tracking attendance, and ensuring your company follows all relevant federal and state laws. This helps treat employees fairly and protects your business from penalties and legal problems due to non-compliance.

Terminations and Severance in India

Valid Grounds for Termination

Employers must have fair and valid reasons for terminating an employee. The rules and steps depend on the type and whether the employee qualifies as a “workman” under the Industrial Disputes Act, 1947. Grounds for termination include: 

  • Misconduct
  • Retrenchment
  • Resignation
  • Layoff

Many protections under labor law, especially those around retrenchment and severance, apply only to “workmen.” Employees in supervisory or managerial roles (“non-workmen”) are typically governed by their employment contracts. Misclassifying employees can lead to serious legal problems.

Notice Periods

Notice period requirements in India vary depending on the employee’s classification and applicable state legislation.

For employees classified as workmen under the Industrial Disputes Act, 1947, a minimum of 30 days’ written notice or pay in lieu is required for retrenchment, applicable after completing one year of continuous service. For employees with fewer than one year of service, no statutory notice period applies.

For non-workmen (managerial, supervisory, and executive roles), notice periods are governed by the employment contract and typically range from 30 to 90 days. Payment in lieu of notice is permitted in all cases.

State-level Shops and Establishments Acts may impose additional requirements. For example, Delhi and Maharashtra both require 30 days’ notice after 3 months of service for employees covered under their respective Acts. Employers operating across multiple states should verify the applicable requirements for each location.

Gratuity

Under the Payment of Gratuity Act, 1972, employees who complete a minimum of 5 years of continuous service are entitled to a gratuity payment upon resignation, retirement, or death. The scheme applies to all establishments with 10 or more employees.

Gratuity is calculated using the following formula: (Last drawn salary × 15 × years of service) ÷ 26

The maximum gratuity payable is ₹25 lakh, increased from ₹20 lakh in 2024. For the purpose of this calculation, salary includes basic pay and dearness allowance. In the event of death or disablement, the 5-year minimum service requirement is waived and gratuity is paid in full to the employee or their nominee.

Retrenchment Compensation

Under the Industrial Disputes Act, 1947, workmen who are retrenched after completing one year of continuous service are entitled to retrenchment compensation in addition to any applicable notice pay.

Calculation Formula: (Last drawn salary × 15) ÷ 30 × years of service

Service exceeding six months in a given year is rounded up to a full year for the purposes of calculation. One month’s notice or pay in lieu is also required at the time of retrenchment. Retrenchment compensation does not apply in cases of resignation or dismissal for misconduct.

It should be noted that the Industrial Relations Code, 2020, once brought into effect, would allow establishments with up to 300 employees to carry out retrenchment without prior government approval, a significant change from the current threshold of 100 employees. The Code has been passed but has not yet been notified for implementation.

Expand into India Easily with Remote People’s Employer of Record in India

Partnering with an Employer of Record allows your business to enter the Indian market seamlessly, without the complexity of setting up a local entity. An EOR in India handles payroll, compliance, and HR responsibilities, ensuring you meet all regulatory requirements while focusing on core growth strategies.

Whether you’re testing the market, expanding your team, or looking to access India’s rich talent pool, an EOR simplifies the process and minimizes risk.

Frequently Asked Questions

No. You can hire in India without setting up a local entity by using an Employer of Record. An EOR legally employs workers on your behalf, handling payroll, taxes, benefits, and compliance while you manage day-to-day work.

No, and this is one of the more complex aspects of hiring in India. Labor regulations exist at both the central and state levels, meaning rules around leave, working conditions, professional tax, and notice periods can differ significantly depending on where your employees are based.

While not universally mandated at the federal level, written contracts are strongly recommended and often required under state-specific Shops and Establishments Acts. Generic global templates are not advisable, as they may miss state-level requirements or updates under India's evolving labor codes.

No. There is no statutory paternity leave at the federal level. Many private employers voluntarily offer between 7 and 15 days as a workplace benefit, but it is not a legal obligation.

Currently, establishments with more than 100 employees require prior government approval for retrenchment. The Industrial Relations Code, 2020, once implemented, would raise this threshold to 300 employees, but the Code has been passed and is not yet in effect.