Expand your business into India - without an entity
New Horizons provides global employment solutions for businesses wanting to hire employees and distribute payroll in India. Through our India PEO and Employer of Record we manage your company’s payroll, benefits, and expenses in India. Additionally, we oversee HR duties, as well as employment and tax compliance.
New Horizons will act as your employees’ Employer of Record, which means you can begin doing business in India without a local entity. This not only allows your business to go to market faster, but also has the potential to save your business thousands in expansion costs.
As the only India Employer of Record & PEO with an in-house recruitment team, New Horizons will source, hire, and onboard your Indian workforce. We hire employees in accordance with Indian labor regulations and coordinate all expense claims and benefits payments. Although we act as your employees’ Employer of Record, you still maintain full autonomy and control over all employees.
Our India PEO simplifies your expansion
New Horizons enables your business to expand its operations into India – without setting up a legal subsidiary.
New Horizons ensures day-to-day guidance to help your business navigate Indian labor laws and regulations. We also provide mandatory monthly payroll requirements, and absorb all local employment liabilities. Partnering with our India PEO is the quickest and most cost-effective way to enter the Indian market.
Employment & Labor Laws in India
Employment contracts in India
While not mandatory, it is highly recommended that employers draft written employment contracts when hiring staff in India. This will clearly establish the legal rights and responsibilities of both employers and employees. Employment contracts should contain terms around base salary, allowances, compensation, employee responsibilities, and termination protocols. All references to salary should be made in Indian rupees (INR).
Many employees in India expect a salary increase of approximately 10% – 15% per year. These terms should be written into all employment contracts.
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 day’s written notice is required for employees or employers to end employment.
When your business partners with New Horizons’ India PEO, we ensure that all employment contracts maintain compliance with Indian labor regulations.
Work hours in India
The typical work week in India is 40 hours, with the average work day being eight hours. Work hours should not exceed 50 hours per week or nine hours per day. Indian workers are entitled to at least 10.5 hours between work days.
Holidays in India
Employees in India are entitled to 10 paid public holidays. However, these holidays vary by state, local custom, and religion. The government does not dictate which holidays an employee must be paid. Rather, it is the employer’s decision as to which 10 days an employee is paid holiday leave.
India's tax system
Employers in India are required to contribute to the Employee Provident Fund (EPF), the Employees’ Deposit Linked Insurance Scheme, and the Employee Pension Scheme for government employees.
The Employee Provident Fund is a savings program that helps provide retirement benefits and a pension to employees. Employers contribute 3.67% of an employee’s salary to this fund. 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 2,50,000 to INR 5,00,000 – 5%
- Income greater than INR 5,00,000 to INR 10,00,000 – 20%
- Income greater than INR 10,00,000 – 30%
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.
Statutory minimum paid vacation leave in India is 21 days, although some executives may request additional leave.
Employers in India are required to provide at least six day’s paid sick leave per year. Some employers offer unpaid leave for long-term medical issues, but this is not required by law.
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.
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.
Negotiation of allowances in India
When negotiating allowances in India, it is important to have a fundamental understanding of the typical Indian negotiation strategy. Indian companies are hierarchical in nature, so negotiations may be slower than other countries, especially if a business relationship is not already in place. Indian natives may be more likely to communicate indirectly, so they may not say “no”. Instead, they are likely to use terms such as “possibly” or “perhaps.”
Job titles are also important to people in India. Culturally, higher titles command higher respect. This should be considered when negotiating any employment contracts.
Indians may negotiate a variety of allowances to maximize their take-home pay. These allowances are pre-tax and may contribute up to 60% of the total compensation package.
Typical allowances include:
This allowance helps pay for the rent of a home in India. It is typically paid out on a monthly basis and may be tax-free, depending on certain conditions.
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.
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 day’s 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 employees: last drawn salary x 15/26 x No. of year’s service.
By partnering with our India PEO, New 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. As an example, India’s agriculture industry has a separate minimum wage that is set by state governments.
Employers must provide employees with payslips and in most circumstances, payment is deposited into an employee’s bank account. Employers in India will typically pay employees 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 11 public holidays. These days 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.
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
New Horizons will assist your business by providing cost-effective India compensation outsourcing solutions. We streamline your global payroll and help you to source the most competitive benefits for your employees.
Benefits and compensation restrictions
For expanding businesses, one of the major restrictions to benefits and compensation involves setting up a local entity. Employers are generally prohibited from hiring and paying employees without first establishing a subsidiary in India. This process can take months to complete, which causes significant business delays.
With New Horizons’ India PEO, businesses can begin operating in India in as little as 48 hours. New Horizons acts as your employees’ India Employer of Record, which means there’s no need to establish a subsidiary in India. 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.