Hire in India — without an entity
Horizons’ India PEO and India Employer of Record solutions manage your company’s payroll, employee taxes and compliance responsibilities in India. This enables you to do business in India almost immediately — saving money and time — without the need to establish a separate subsidiary company.
Our India PEO simplifies hiring employees in India
Horizons enables your business to expand its operations into India – without setting up a legal subsidiary.
Horizons provides compliance solutions to ensure your business in India operates in line with Indian labor laws and tax regulations. Businesses benefit from hiring in, investing in, or job outsourcing to, India in a range of industries, from customer service, to accounting services, to software development.
We also process monthly payroll, and, as an India Employer of Record, absorb all local employer liabilities. Partnering with our India PEO is the quickest and most cost-effective way to enter the Indian market.
India Employment Laws and Regulations
🇮🇳 Regional presence in India
From our regional base in Uttar Pradesh — India’s most populous state — we directly co-ordinate and manage all recruitment and hiring in India.
We ensure that your team in India is managed in full compliance with national and state laws.
Floor 19, C-001/A2, Sector 16B, Noida
201301, Uttar Pradesh – India
+91 1171 279 214
📝 Employment contracts in India
While not a strict legal requirement, it is highly recommended that employees be hired under written employment contracts in India. This clearly establishes the legal rights and responsibilities of employer and employee, as well as reducing the probability of an employment dispute.
If there is no written employment contract in place, there is also a risk that a court would read implied terms into the contract which favor the employee over the employer.
Employment contracts should state the employee’s base salary, as well as any allowances, additional compensation and severance payments. The contract should also state all employee responsibilities, and how contract termination and renewal are to proceed. All references to monetary value should be made in Indian rupees (INR).
While not compulsory, it is common for employees in India to expect a salary increase of 10%-15% per year. Stepwise pay increases should be clearly established in the terms of the written employment contract.
Probationary periods are also common in India. Three months is a typical length, which is also the maximum initial probationary period. However, employers can choose to extend this period for up to three more months. During a probationary period, 15 days written notice is required for employees or employers to end employment.
When you engage Horizons’ India PEO solution, we ensure that all employment contracts are Indian labor law compliant.
⏰ Work hours in India
The standard Indian work week is 40 hours, and the average work day is eight hours.
Maximum daily and weekly working hours under Indian labor law, depend on the industry in question. For example, for those employed in factories, the Factories Act 1948 specifies that hours in excess of 9 hours in a day or 48 hours in a week need to be paid twice their ordinary rate.
For those employed in mines, the Mines Act 1952 specifies that workers should work more than 10 hours in a day or 50 hours in a week, including overtime.
📅 Holidays in India
Employees in India are entitled to a number of public holidays (also known as ‘statutory holidays’, depending on the state in question. There are three national public holidays that apply across the country: This covers Republic Day, Independence Day and Mahatma Gandhi Jayanti. Other paid holidays vary by state, local custom, industry/sector and religion, and overall, amount to 10-20 days per year. For example, central government employees are entitled to 17 public holidays in 2022 (14 specific mandated days, and three that can be chosen from a list).
🏦 India's tax and contribution system
Employers in India are required to contribute to the Employee Provident Fund (EPF) which is a state pension fund, funding the Employee Pension Scheme. Employers are also required to contribute to the Employees’ Deposit Linked Insurance Scheme (a life insurance scheme).
Employers contribute 3.67% of an employee’s salary to this EPF. Employees contribute 12% of their salary to this fund. Additionally, employers contribute 9.94% to other social insurances. This rate is calculated through the employee’s base salary, excluding all allowances.
Income tax is applied to an employee’s salary, according to the following structure:
- Income up to INR 2,50,000 – No tax
- Income greater than INR 2,50,000 to INR 5,00,000 – 5%
- Income greater than INR 5,00,000 to INR 7,50,000 – 10%
- Income greater than INR 7,50,000 to INR 10,00,000 – 15%
- Income greater than INR 10,00,000 to INR 12,500,000 – 20%
- Income greater than INR 12,50,000 to INR 15,00,000 – 25%
- Income greater than INR 15,00,000 – 30%
In addition to employee income tax, other taxes that any business expanding into India needs to take into account includes:
- Corporate income tax. This usually comes out at an effective rate of around 25 percent. It is payable by resident companies on their global earnings, and by non-resident companies on their earnings in India.
- Goods & Services Tax (GST). This is a consumption tax on the supply of goods and services. Depending on the good/service, it is taxed at 0%, 5%, 12%, 18% and 28% respectively.
🏥 Health insurance
In India, health insurance is a hybrid of public and private insurance. Some employees may request a health insurance allowance as part of their compensation.
🏖 Vacation leave
Statutory minimum paid vacation leave in India is 18 days per year, with an additional 7 days of unpaid ‘casual leave’, making a total of 25 days.
😷 Sick leave
Paid sick leave depends on the state in question, but is usually around 10 days paid leave per year. It is quite common for employers to offer unpaid leave for long-term medical issues, but this is not required by law.
There is an additional ten days leave available every year as ‘casual’ leave. This is unpaid leave which the employee can take at their discretion.
👶 Maternity and paternity leave
Female employees are entitled to 26 week’s maternity leave in India. Leave can be taken up to eight weeks before an expected delivery date, while the remaining leave can be taken after childbirth. Female employees are also entitled to a medical bonus of 3,500 Indian rupees.
Note, paid maternity leave is only owed to women who work for organizations of 10 or more employees. Note also, that for the second or subsequent employee, the mother is eligible for only 12 weeks of maternity leave.
If a woman is is classified as a factory-level employee, maternity leave is paid for by the government’s social funds. Otherwise, the employer is responsible for payment of all maternity leave.
Although India does not mandate paternity leave, some employers may offer it as a benefit.
An India Employer of Record ensures that employees receive all the paid and unpaid leave that they are entitled to under the law.
🧾 Negotiation of employment contracts in India
It is common in India for many elements of the employment relationship to be negotiated in advance between the potential employer and employee.
As with all business negotiation, this means taking into certain features of Indian business culture. First, Indian companies are often hierarchical in nature. This may mean that negotiations take longer than they would in other countries due to the need to get sign-off at multiple levels of the organization. This is especially true if a business relationship is not already in place.
Second, Indians themselves may be more likely to communicate indirectly than individuals from other countries. For example, they may be disinclined to say “no”. Instead, they may be more likely to use terms such as “possibly” or “perhaps.”
Job titles are also important to people in India. Culturally, higher titles command higher respect: The premium placed on job titles in India should be considered when negotiating any employment contracts within the country.
Benefits and allowances in India are crucial for potential employees seeking to maximize their take-home pay. These allowances and benefits are pre-tax and may contribute up to 60% of the total compensation package. One way of thinking about it is that what might be thought of as “gross pay” in other countries is tantamount to “base pay” in India.
The total amount paid by a business for employee compensation, allowances and benefits, is often referred to as the ‘cost to company’ or ‘CTC’, in India.
Typical allowances include:
This allowance helps pay for the rent of a home in India. This amount is region-dependent and is higher in builtup metropolitan areas. It is typically paid out on a monthly basis and is partially tax-exempt, depending on certain conditions. It amounts to an exemption of 40 percent of salary or 50 percent of salary in Mumbai, Calcutta, Delhi or Madras.
This type of allowance is designed for occasional vacations. This allowance is usually paid out on an annual basis or every other year.
A vehicle allowance is provided to maintain a vehicle. This allowance is typically paid out on a monthly basis and is taxable. It is usually only provided to top executives or sales and marketing team members.
This allowance consists of INR 100 per child, per month, for one or two children.
This allowance provides up to INR 300 per child, per month, for one or two children.
Employees may negotiate this allowance to pay for their landline or cell phone. It is usually taxable.
This allowance can be used to pay funds that do not fit into any other category.
In addition to these allowances, some Indian workers may receive incentives and bonuses that are based on performance. These allowances are taxable.
Many foreign companies prefer to offer a gross amount of compensation and elect for their PEO to structure a compensation package in the most tax-efficient manner. This is due to the components of a compensation package being affected by whether they are taxed or tax-free.
An India PEO and Employer of Record can ensure that all staff receive benefits which are compliant and market competitive.
💰 Termination and severance
In India, employers must provide written notice before terminating an employment contract. 30 days is the typical period of notice. However, employers can elect to pay employees in lieu of a notice period.
Employees are entitled to 15 days’ wages for each year’s company service. This is unless they were terminated due to:
- Disciplinary action
- Continued ill health
- Expiration or non-renewal of a fixed-term employment contract
- Retirement or superannuation
If an employee has served for five or more continuous years, they may be entitled to a gratuity payment. This payment is equal to an employee’s last drawn salary x 15/26 x No. of year’s service.
By partnering with our India PEO, Horizons’ team of local experts can provide assistance for drafting strong employment contracts that are compliant with local regulations.
💳 India compensation and benefits
India compensation laws
In India, the minimum wage varies between states and industries. For example, the agriculture industry has a separate minimum wage that is set by state governments.
Employers are required to provide employees with payslips (sometimes called ‘pay stubs), and in most circumstances, payment is deposited into an employee’s bank account.
Employees in India are typically paid on the 1st of each month. The Wages Act stipulates that businesses with less than 1,000 employees should administer wages before the 7th of every month. For businesses with more than 1,000 employees, wages should be administered before the 10th of every month.
Due to salary inflation, many employees in India expect wage growth of between 10% – 15% per year. While India’s compensation laws do not mandate this wage growth, employees are unlikely to stay with a business if they do not receive this pay rise.
Minimum Wage Country Comparison Chart
(Per month in USD)
Guaranteed benefits in India
To maintain a successful benefit management strategy, employers in India should be mindful of guaranteed benefits. As an example, health insurance in India is typically a combination of public and private insurance. While employees are entitled to public health benefits, they may also request a private supplementary plan as part of their benefits.
Employees receive paid time off that includes 10 paid public holidays. Three of these days are set nationally, while the rest will vary between states, local customs, and religions. The statutory minimum for paid vacation is 15 days.
Female employees in India are eligible for 26 week’s maternity leave.
An India PEO ensures that all employees in India receive the benefits they are entitled to under the law.
India benefit management
Businesses seeking to expand into India need to budget for supplemental benefits. These benefits can influence an employee to accept a position and to remain with an employer. Supplementary benefits in India can include :
- Special allowance
- Medical allowance
- Telephone/mobile phone allowance
- Leave travel allowance of concession (LTA/LTC)
- House rent allowance (HRA)
- Conveyance allowance
- Vehicle allowance
It is increasingly common for employees in some industries in India (such as IT) to be part of an employer-provided Employee Stock Options Plan. Management of such a plan can also be facilitated by an India PEO.
Horizons’ India PEO solutions include a benefits management service which will source the most competitive benefits for your employees.
Benefits and compensation restrictions
For businesses expanding into India, the emphasis on variable allowances and benefits in negotiating an overall compensation package can be daunting. Employers are generally prohibited from hiring and paying employees without first establishing a subsidiary in India. To establish such a subsidiary, and to ensure that hiring is compliant with local rules for allowances and benefits, could take months, causing significant business delays.
With Horizons’ India PEO and Employer or Record solution, businesses can begin operating in India in as little as 48 hours. Horizons acts as the legal employer of your workforce in India, meaning there is no need to establish a subsidiary there for the purposes of employing staff. And as the only global PEO with an in-house recruitment team, we can help you source, hire, and onboard top local and international talent.