Employer of record in India

What is an employer of record in India?

An employer of record (EOR) in India is a strategic partner that serves as the legal employer of your employees living in India. An EOR assumes all employment duties and liabilities on your behalf, managing payroll, benefits, taxes, and compliance. Partnering with an EOR allows you to hire employees in India without the burden of setting up a local entity in India or navigating intricate labor laws.

Employment Guide to Hiring in India

Explore the topics below to learn everything you need to know about hiring employees in India while following local labor laws.

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Hiring in India

Employment Agreements in India

When employing an individual in India, entering into a written employment contract is not mandatory. According to India’s Industrial Employment Act 1946, some statutes require the employee to disclose prescribed particulars in writing. Where an employment contract is written, the following is included:

• The employee’s position and duties

• Compensation, including benefits such as bonus pay and retirement savings plan options

• Working hours, holidays, and leave entitlements

• Term of employment (where applicable) and termination provisions

• Dispute resolution provisions in relation to key employees

Probationary periods in India

India’s Industrial Employment Act of 1946 provides a probationary period of up to three months. Probationary periods are not required but are considered common practice. Certain states have the probationary concept indirectly built into their local laws, which range from three to six months.

Average working hours in India

Working hours are capped at 48 hours a week with 9 hours of work per day.

How an employer of record helps you hire in India

An employer of record (EOR) allows you to hire in India without the headache of setting up a legal entity in India or navigating complex India labor laws. Because most companies don’t have the resources or extensive knowledge to compliantly hire in international markets, an EOR helps you engage top talent from anywhere and support them based on their local needs.

As an industry-leading EOR in India, People and Payments is a trusted partner in hiring in India. By acting as the legal employer, we hire your new team members through local, compliant employment contracts—and you get back the time and flexibility to focus on your growing business.

Payroll and Wages in India

Payroll Cycles in India

The payroll cycle in India is generally monthly, with wages paid on or after the 28 of each month.

Wages in India

Under India labor law, there is no nationally applicable minimum wage in India that applies to all employees. In India, the central and state governments can set minimum wages at varying rates for different types of employment. As a result, the minimum wage differs across the states of India and by various industries, sectors, and occupations. India uses a complex method of setting minimum wages that defines nearly 2,000 different types of jobs and over 400 categories of employment, with a minimum daily wage for each kind of job.

For example, in the state of Karnataka for the year 2021, the minimum monthly wage for a computer operator or a data entry operator was 15,744.47 rupees ($201.85), while a manager had a rate of 18,146.20 rupees ($232.64).

The federal government has set the recommended minimum wage in India to 176 rupees ($2.26) per day and advised state governments to implement the same.

Bonus Payments in India

India’s Payment of Bonus Act 1965 provides a minimum bonus of 8.33% (or 100 rupees, whichever is higher) and a maximum bonus of 20% of wages during the accounting year.

How an EOR helps you run payroll in India

An employer of record (EOR) in India helps you compliantly manage your global team payroll, ensuring consistent and accurate pay and tax withholdings for employees living in India. Think of an EOR as your international HR team that understands the complex labor laws and payroll regulations of different markets.

Partnering with a trusted EOR partner like People and Payments for global payroll administration in India offers numerous benefits, like access to a centralized platform for payroll data and reporting, secure data privacy and protection, and time and cost savings.

Overtime in India

Under India labor law, overtime is payable when an employee exceeds the working hour limits regulated by their employment contract. Under India’s Minimum Wages Act 1984, overtime wages are double the amount of ordinary wages, although individual states in India have certain rights to modify these limits on a regional basis.

Tax due dates in India

In India, the due date for filing an income tax return varies based on the taxpayer’s category.

Tax thresholds in India

Residents and resident companies are taxed on global income, while non-residents and non-resident companies are taxed only on income generated in India. Once non-residents stay in India for 182 days or more during the relevant tax year, they are considered residents.

India established a Goods and Services Tax (GST) in 2017, implementing a tax structure to eliminate double taxation, which cascaded from the manufacturing level to consumers. The tax rate is a sliding scale from 0% to 28%, depending on the goods and services.

For the financial year 2021 to 2022, the following income tax rates apply for employees under 60 years of age (this is measured in lakh, where 1 lakh is equivalent to 100,000 rupees):

Income of 0 lakh up to 2.5 lakh: 0%
Income of 2.5 lakh up to 5 lakh: 5%
Income of 5 lakh up to 10 lakh: 20%
Income above 10 lakh: 30%

Employer contributions include up to 12% for the Employees’ Provident Fund (pension fund), 3.25% for health insurance, 0.50% for the Employees’ Provident Fund Administration Fee, and a fixed amount for Employee Deposit Linked Insurance.

Health insurance in India

The Employees’ State Insurance Act 1948 provides subsidized healthcare insurance for employees who earn monthly wages of up to 21,000 rupees. This law applies to factories and establishments with 10 or more employees. Employees contribute 0.75%, and employers contribute 3.25% of the employee’s earnings.

Pension in India

The typical retirement age in India is between 58 and 60 years of age, which is governed by the Employees’ Provident Fund Act 1952 and the Industrial Employment Act 1946. The Employees’ Provident Fund Act 1952 applies to establishments that employ more than 20 employees and employees who earn up to 15,000 rupees per month. The employer and employee must make contributions to various funds (pension and deposit-linked insurance) for the employee. These employer and employee contributions equate to 12% of the total employee’s earnings.

How an EOR helps you calculate taxes in India

Payroll taxes are taxes imposed on employers and employees. They vary between countries, making compliance a hurdle for businesses that may not have the expertise or resources to navigate payroll taxes in India.

As an employer of record (EOR) with a tenured global footprint, People and Payments is knowledgeable in handling all aspects of payroll and taxes in India for you, including calculating and filing payroll taxes, withholding and remitting taxes, and issuing tax forms in India.

Taxes in India

Leave Entitlements in India

Annual leave in India

Employees in India earn a minimum of 15 days’ leave a year; however, laws vary between states. Employees can also benefit from 10 additional days of casual leave, where an employee can opt not to come to work that day without applying for leave in advance.

Parental leave in India

The Maternity Benefit Act 1961 provides salary-paid leave to pregnant women during the maternity period and protection against dismissal during their leave. This applies to eligible female employees who have completed 80 working days with the same employer in the 12 months immediately preceding the expected due date.

In 2016, the Maternity Benefit Act 1961 was amended to include:

• An increase in paid time off for eligible female employees from 12 weeks to 26 weeks if a female employee has fewer than two children. She is entitled to 12 weeks’ leave if she has two or more children.

• The introduction of the concepts of a “commissioning mother” and an “adopting mother.” Such mothers are entitled to 12 weeks’ leave.

• The option to work from home once the leave period has ended is based on an employer’s agreement.

• Requiring an establishment with 50 or more employees to organize childcare for female employees’ children.
  

A female employee is also entitled to an additional six weeks of paid maternity leave in the event of a miscarriage or medical termination of the pregnancy.

Furthermore, a woman suffering from an illness arising from pregnancy, delivery, premature birth, miscarriage, or medical termination of pregnancy is entitled to an additional month of paid maternity leave. A medical bonus of 3,500 rupees ($44.84) is provided to these employees, who are entitled to certain prescribed nursing breaks.

There is no law mandating paid paternity leave in India for private-sector businesses. However, India’s federal and most state governments allow married male employees to take two weeks of paid leave within six months of the child’s birth.

Sick leave in India

State laws regarding sick leave vary, but most states offer around 10 days of paid sick leave. Any unpaid time off provided to an employee is purely at the employer’s discretion.

Regional and national holidays in India

Public holidays in India vary from state to state. However, most states prescribe about 10 days of public holidays per year, with paid time off provided to allow employees to vote. Of the 10 public holidays, four to five of these are mandatory national holidays, while the remainder are chosen by employers from a larger list provided by the state. Public holiday entitlement is generally covered by the employment contract.

Regional and national holidays in India include:

• Lohri (January 13)

• Republic Day (January 26)

• Maha Shivaratri/Shivaratri

• Dolyatra

• Holi

• Good Friday

• Ambedkar Jayanti (April 14)

• Rama Navami

• Mahavir Jayanti

• Ramzan Id/Eid-ul-Fitar

• Buddha Purnima/Vesak

• Bakr Id/Eid ul-Adha

• Muharram/Ashura

• Independence Day (August 15)

• Janmashtami

• Mahatma Gandhi Jayanti (October 2)

• Dussehra

• Milad un-Nabi/Id-e-Milad

• Diwali/Deepavali

• Guru Nanak Jayanti

• Christmas (December 25)

How an EOR helps you manage leave and PTO in India

An employer of record (EOR) supports companies by managing annual leave, paid time off (PTO), and even local holidays all over the world—including India. When it comes to handling a company's annual leave requirements, an EOR ensures compliance with local labor laws in India at every step.

Some EOR partners, like People and Payments, provide a platform that helps you oversee employee time off in India. By outsourcing leave and time-off management to People and Payments, you can ensure accurate tracking, compliance, and seamless administration, freeing up valuable time and resources for other business priorities.

Employment Benefits in India

Federal benefits in India

Mandatory employee benefits in India are covered under five key statutes.

• Employees’ State Insurance Act 1948: medical insurance, disability insurance, and unemployment benefits

• Employees’ Provident Fund Act 1952: pension fund

• Maternity Benefit Act 1961: paid parental leave

• Payment of Gratuity Act 1972: employee separation and retirement benefits

• Employees’ Compensation Act 1923: employee death, injury, partial disability, and occupational disease insurance

Supplemental benefits in India

Supplemental benefits are add-ons to statutory benefits that Indian employers commonly provide to employees. These include:

• Medical insurance

• Accident insurance

• Retirement funds

Additional medical coverage is the most common supplemental benefit Indian employers provide to management-level employees. Many employer-sponsored medical insurance plans offer coverage for maternity care, cancer treatments, and fertility treatments. Supplemental medical plans often extend to include dependents and partners.

Employers also commonly offer life and AD&D (accidental death and dismemberment) coverage as a supplemental benefit. Supplemental life and AD&D coverage provide employees peace of mind by covering their families in uncertain situations.

Some employers in India offer transportation allowance, meal vouchers, and even mobile or internet reimbursements.

How an EOR helps you administer benefits in India

As the legal employer for your employees living in India, an employer of record (EOR) administers statutory benefits and ensures they are enrolled and contributing to the appropriate government benefits. Additionally, an EOR partner manages the administration of supplemental benefits, including ensuring employees in India receive tailored, expert-vetted, and competitive supplemental benefits packages.

People and Payments makes understanding foreign statutory and supplemental benefits easy and offers your workforce competitive benefits packages tailored specifically to India and beyond.

Terminations in India

Notice periods in India

As defined in India’s Industrial Disputes Act 1947, all employers must give a 30-to-90-day notice period to employees whose primary roles are not supervisory, administrative, or managerial. Certain sectors require government approval before termination; most only require government notification.

Severance pay in India

Severance includes 15 days’ pay due to employees for each year worked.

How an EOR helps you process terminations in India

An employer of record (EOR) is responsible for processing terminations in the event you need to terminate an employee in India. This may include adhering to local labor laws and regulations regarding termination procedures, including notice periods, severance pay, and any other statutory requirements.

As an EOR with expertise in terminations, People and Payments helps businesses minimize the risk of legal disputes or liabilities in India.