Hire Staff in India without Establishing a Local Entity.
As a growing economic superpower, India is an attractive location to expand businesses. It has the world’s second largest population and a ready workforce. However, there are complex labor laws and red tape that prevent foreign businesses from expanding here. Using a PEO like New Horizons Global Partners allows you to leverage the talent in India without having to worry about the bureaucratic complexities.
Many startups, growing businesses and even larger firms use PEOs throughout the world to take advantage of powerful economic markets while minimizing their liability in these foreign jurisdictions. Comprehensive PEO services allow you to delegate administrative functions like HR and recruiting to a trusted partner.
Your PEO can also handle your payroll and tax compliance matters. You focus on managing the business activities of your staff while we handle tedious administrative tasks for you. We deal with complex Indian statutory compliance matters like those described below while you focus on growing your business.
Employment Contracts in India
Written employment contracts are a form of best practice in the country and are highly recommended to clearly establish the legal rights and responsibilities of employers and employees. The contract should contain clear terms regarding the base salary, allowances and the total amount of compensation, which should be stated in Indian rupees.
Many Indians expect an increase of approximately 10% to 15% per year. This information can be written into the contract.
Working with New Horizons will give you access to our employment contracts, which have been approved by local employment and labor organizations.
Typical Work Hours in India
The typical work week in India is 40 hours. The average work day is 8 hours. Work hours should not exceed 50 hours per work or 9 hours per day. Indian workers are entitled to at least 10.5 hours between work days.
Holidays in India
Employees in India are paid for 10 public holidays. However, these holidays vary by state, local custom and religion. The government does not dictate which days the employee must be paid for a holiday but instead allows employers to designate the 10 days.
India Vacation Leave
Statutory minimum paid vacation leave in India is 21 days, but some executives may request more.
India Sick Leave
Employers in India are required to provide at least six days of sick leave per year. Some employers offer unpaid leave for long-term medical issues, but this is not required by law.
India Maternity Leave
Expectant mothers are entitled to 26 weeks of maternity leave. They can begin taking maternity leave up to eight weeks before the expected delivery date and the remainder can be used after childbirth. They are also entitled to a medical bonus of 3,500 Indian rupees. If the employee is classified at the factory leave, this leave is paid by the government’s social funds. Otherwise, the employer is responsible for payment of the maternity leave.
India does not mandate paternity leave. However, some employers offer it as a benefit.
Negotiation of Allowances in India
When negotiating allowances in India, it is important to have a fundamental understanding about 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” and may instead use terms such as “possibly” or “perhaps.”
Job titles are also important to people in India. Greater titles command greater respect in the culture in many cases, so keep this in mind when negotiating contracts in India.
Indians may negotiate for a variety of allowances in order to maximize the amount of their take-home pay. These allowances are pretax, and many allowances may make up 60% of the total compensation package.
Typical allowances include:
- House rent allowance – This allowance helps pay for the rent on a home in India. It is typically paid out on a monthly basis and may be tax-free, depending on certain conditions.
- Leave travel allowance – This type of allowance allows for occasional vacations. This allowance is usually paid out on an annual basis or every other year.
- Vehicle allowance – 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 or marketing team members.
- Children education allowance – This allowance consists of 100 per child per month for one or two children.
- Children hostel allowance – This allowance provides up to 300 per child for month for one or two children.
- Phone allowance – Employees may negotiate for this allowance to pay for their landline or cell phone. It is usually taxable.
- Special allowance – This catchall category may provide an additional taxable, monthly allowance.
In addition to these allowances, some Indian workers may receive incentives and bonuses that are paid out based on performance. They are taxable.
Because the various components of a compensation package can be complex and can be affected by whether they are taxed or tax-free, many foreign companies prefer to provide a gross amount of compensation and let their PEO decide on how to structure the compensation package in an attractive and tax-efficient manner.
Health Insurance Benefits in India
Health insurance in India is a hybrid of public and private insurance. Some applicants may request a health insurance allowance as part of their compensation package.
Other Work Benefits in India
Some employers offer supplementary insurance as an additional work benefit in India.
India’s Tax System
India’s tax system requires employers in India to contribute to the Employee Provident Fund, 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 the employee’s salary to this fund while employees contribute 12%. Additionally, employers contribute another 9.94% to other social insurances. This rate is calculated on the employee’s base salary, excluding all allowances.
Income tax is imposed on the 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%
India provides probationary periods. Three months is typical, which is the maximum initial probationary period. However, the employer can extend this period for up to three more months.
During the probationary period, there is a 15-day notice that the employer or employee must give in writing if they desire to end the employment relationship.
Termination and Severance Rules in India
India imposes a written notice requirement before termination. 30 days is typical. However, an employer may opt to pay the employee for this period instead of providing notice.
Workers are entitled to 15 days’ wages for each year that they have completed service unless they were terminated due to:
- Disciplinary action
- Continued ill health
- Expiration or non-renewal of a term employment contract
- Retirement or superannuation
Additionally, if the employee has served for five or more continuous years, they may be entitled to a gratuity payment that is equal to their last drawn salary multiplied by 15/26 and the number of years of service.
Benefits of Using a PEO in India
As you can see from the information above, labor laws in India are complex. A PEO in India can implement best practices based on years of experience in the market and an intuitive understanding of market conditions. Some of the key benefits of using a PEO such as New Horizons include:
- Implementation of best practices – Experts in taxation, HR, payroll and benefits can manage the administration of your workforce and use their specialized knowledge to structure your employment contracts and management responsibilities. Our PEO services will allow to remain in compliant at all times and to be made aware of the ever-changing Indian labor laws and regulations.
- Affordable option – Using a PEO is often much cheaper than using outsourced employees, which is often five times greater. Additionally, using a PEO allows you to expand your business to India without investing in expensive real estate or the incorporation process.
- Access to better benefits – Because PEOs manage thousands of employees around the world, they often have greater purchase power and can offer insurance and other benefits at lower costs to employers. This allows you the advantage of benefit plans that are typically reserved for larger companies to make your business a more attractive option for candidates.
- Advice on legal matters – If you need advice on how to handle a disciplinary issue, the consequences of an early termination or other legal issues that may arise within the employment relationship, our experts can explain the rules and statutory framework to you.
- Greater attention to your business – By delegating administrative tasks to a trusted expert, you can devote more of your time to establishing or growing your business in India instead of worrying about the administrative functions.
- Greater protection from liability – Using a PEO can help you insulate yourself from liability.
- Faster entry in market – Your new employees can begin work faster, which may allow you a faster entry into the Indian market.
The PEO services that you receive are structured around the needs and objectives of your business. Services may include:
Contact New Horizons
Using New Horizons’ PEO services will allow you to find the right candidate for your open positions and expedite the hiring process. Additionally, you will have the peace of mind knowing that you have a dedicated team of employment experts who will assist you throughout the process. Our experts can handle your HR matters through the implementation of best practices and take the necessary steps to ensure that you are in compliance with local and national laws at all times.
To discuss how New Horizons can provide a seamless option for your business to begin your business expansion in India, contact us today.