Employing in India
Employment laws in India are a comprehensive set of regulations designed to protect the rights of workers and ensure fair treatment in the workplace. Key legislation includes the Factories Act, 1948, which governs working conditions in factories, and the Employee State Insurance (ESI) Act, 1948, which provides social security and health insurance to employees. The Minimum Wages Act, 1948 ensures that workers receive fair compensation, while the Industrial Disputes Act, 1947 addresses issues related to employment termination and industrial disputes.
Recent reforms have consolidated numerous labor laws into four codes: the Code on Wages, 2019, the Code on Social Security, 2020, the Industrial Relations Code, 2020, and the Occupational Safety, Health, and Working Conditions Code, 2020, aiming to streamline compliance and enhance worker protections. State-specific laws further regulate aspects like working hours, leave, and dispute resolution, making it essential for businesses to navigate both federal and state-level requirements.
Onboarding time
Minimum Wage
Employer costs
Employee costs
Onboarding time
Team APAC can onboard your talents within an average of 72 hours.
Minimum Wage
There is no statutory minimum wage in the private sector not covered by the Factories Act.
Employer costs
- Provident Fund – 12%
- Provident Fund Admin Charges – 0.5%
- Deposit Linked Insurance – INR 75
- Employee State Insurance – 3.25%/monthly (applicable to employees earning less than INR 21,000/month)
Employee costs
- Provident Fund – 12%
Payroll
The payroll process in India involves a systematic approach to calculating and disbursing employee salaries while ensuring compliance with statutory regulations. It begins with pre-payroll activities such as onboarding employees, defining payroll policies, and gathering employee data like PAN, bank details, and tax declarations. The process is typically managed monthly, with salaries disbursed at the end of the month or early the following month.
Payroll cycle
The payroll cycle in India typically operates on a monthly basis, with salaries disbursed at the end of the month or early the following month. Post-payroll activities involve generating payslips, ensuring compliance by filing necessary reports and remitting deductions to government authorities.
Compliance requirements
Employers must register with the Income Tax Department. The registration process involves entering basic details such as PAN, mobile number, and email ID, followed by PAN authentication and OTP verification for secure access.
Payroll calculations
The actual payroll processing includes calculating gross salary by adding components like basic pay, allowances, and bonuses, followed by deducting statutory contributions such as Provident Fund (PF), Employee State Insurance (ESI), and Income Tax (TDS).
Additional payments
13th Salary
13th month salary is neither mandatory nor a standard practice in India.
Bonuses
Bonuses are linked to the Payment of Bonus Act, 1965, and are performance-based. Employees earning up to INR 21,000 per month and working for at least 30 days in an accounting year are eligible for a bonus. The minimum bonus payable ranges from 8.33-20% of the employee’s salary.
Commissions
Commissions are often offered in addition to a base salary and are used to incentivize employees to meet or exceed specific sales targets. This structure is prevalent in industries like retail, insurance, real estate, and financial services.
Other allowances
Some of the additional allowances given to employees in India include transportation and child care allowance. While some allowances, such as transport and conveyance, are exempt up to certain limits under the old tax regime, most are fully taxable under the new tax regime unless they are reimbursements for actual expenses incurred during official duties.
Taxes
The income tax system in India is governed by the Income Tax Act, 1961 and is administered by the Central Board of Direct Taxes under the Ministry of Finance. It operates on a progressive tax structure, where tax rates increase with higher income brackets.
Employee Income Tax
Individuals are taxed based on their resident status and the source of their income, with different tax slabs for various income ranges. In 2021, a new tax regime was introduced as the default option, offering lower tax rates but limiting exemptions and deductions, while the old regime remains optional for those who prefer to retain access to tax benefits like deductions under Section 80C, HRA, and others.
Individuals can choose between two tax regimes: the old regime and the new regime.
Income Tax
- 0% 0 INR – 300,000 INR
- 5% 300,001 INR – 700,000 INR
- 10% 700,001 INR – 1,000,000 INR
- 15% 1,000,001 INR – 1,200,000 INR
- 20% 1,200,001 INR – 1,500,000 INR
- 30% 1,500,001 INR and over
Old Tax Regime
- 0% 0 INR – 250,000 INR
- 5% 250,001 INR – 500,000 INR
- 20% 500,001 INR – 1,000,000 INR
- 30% 1,000,001 INR and over
Employment eligibility
India has its own visa regulations that enable employees to live and work in the country. Work visas are generally valid for up to 2 years and renewable by the Foreigners Regional Registration Office (FRRO) up to a total period of 5 years from the date of issuance of the initial employment visa, on a year-to-year basis.
Visa
There are specific requirements for issuing visas and work permits to international team members. The main type of visa is simply called an employment visa. Employment visas are only available to employees of organizations registered in India. As a result, employees cannot begin the process of obtaining a permit until they have an employment contract. In addition, your company must have a legal entity registered in India, or partner with an employer of record, to process the visa.
Visa types
- Employment Visa (E Visa)
- Business Visa (B Visa)
- Project Visa
- Entry Visa (X Visa)
- Intern Visa
- Research Visa
Compliance documents types
- Valid passport containing 2 or more blank pages
- 2 passport-sized color photographs (5×5 centimeters)
- A copy of the passport’s first pages
- An employment contract, written in English and containing the duration and employment conditions
- A copy of the company’s registration certificate
- A visa application form
- An extra work visa application form
- Tax liability details
- A resume in English
- Copies of diplomas and any supporting documents related to professional competencies, such as a CV or letters of recommendation
- Undergo facial biometrics and fingerprints
Background check
In India, work visa-related background checks typically involve verifying the candidate’s identity, employment history, educational qualifications, and criminal record to ensure compliance with legal and immigration requirements. Employers must obtain written consent from the candidate before initiating these checks, which may include validating government-issued IDs like Aadhaar or passport, confirming past employment details, and ensuring educational credentials are authentic. Criminal record checks are often conducted through local police or online databases, especially for roles requiring security clearance. These checks help employers align with the Information Technology Act, 2000, and the Personal Data Protection Bill, 2019, ensuring responsible handling of personal data and adherence to privacy laws.
We can help you! Contact us!
Ready to Hire in India?
Benefits
Employee benefits in India encompass a mix of statutory and supplementary perks designed to ensure employee welfare and attract top talent. Statutory benefits include the Employees’ Provident Fund (EPF), Employees’ State Insurance (ESI), paid maternity leave, and various leave entitlements. Employers often supplement these with private medical insurance, life insurance, and flexible benefits like transportation stipends and meal subsidies. Additionally, benefits such as the Employees’ Pension Scheme (EPS) and Dearness Allowance help combat inflation and provide financial security. These comprehensive packages aim to support employees’ long-term health, stability, and satisfaction while fostering a productive workforce.
Private health insurance
Private health insurance in India is designed to cover healthcare costs not fully covered by the country’s public healthcare system. It provides additional benefits and flexibility in healthcare choices.
Team APAC providers
- SafetyWings
- Henner
- IMG/ ALC Global
Mandatory benefits
Statutory benefits include the Employees’ Provident Fund (EPF) for retirement savings, Employees’ State Insurance (ESI) for healthcare, gratuity after five years of service, paid maternity leave of 26 weeks, and various leave entitlements such as sick, casual, and earned leave.
Mandatory benefits in India
- Employees’ Provident Fund (EPF)
- Employees’ State Insurance (ESI)
- Paid leaves (maternity, sick, and casual)
Working hours
The workweek is generally defined as 40 hours and five days in length unless otherwise negotiated and included in the employment agreement. The standard workweek is from Monday to Friday. Meal or rest breaks of half an hour to an hour are required for employees working a continuous period of five hours. Employees must have 12 hours free between shifts and one rest day per week.
Working hours per day
The standard workday is 8 hours.
Working hours per week
The standard workweek is 40 hours.
Overtime pay
Private sector employees, excluding those in factory positions, are not bound by any requirements as to overtime.
In the case of factory workers, overtime pay is compulsory. When it comes to extra hours worked, it’s customary in the industry to reward employees with either proportional paid time off or extra compensation equivalent to their standard wage. If there is overtime rendered on a public holiday, employees are paid at 150% of their regular hourly rate.
Leave
Mandatory benefits include annual leave, paid public holidays, and sick leave. Statutory leave entitlements include public holidays and other forms of leave as outlined in the Employment Relations Act 2000. paid maternity leave of 26 weeks, and various leave entitlements such as sick, casual, and earned leave.
Annual leave
Full-time workers in India are entitled to 15 days of holiday leave per year.
Sick leave
Casual (personal) and sick leave is generally governed by the state-specific Shops and Establishments Act. Not all states separately define casual and sick leave, and the number of days of such leave to which employees are entitled varies from seven to 12 depending on the state in which the workplace is located.
Parental leave
There is no legal entitlement to parental leave.
Maternity leave
Employers with 10 or more employees must provide 26 weeks’ paid leave during an employee’s first two pregnancies and 12 weeks’ paid leave for adoptive and surrogacy-commissioning mothers. Female employees who have worked for a given employer for at least 80 days in the 12 months immediately preceding the date of expected delivery are eligible for the benefits, provided they give the employer written notice seven weeks before the expected date of delivery. The 26-week leave entitlement applies only to the first and second pregnancy. For the third child and after, only 12 weeks are available. Adoptive mothers are entitled to paid leave only if the adopted child is less than three months old.
Paternity leave
There is no legal entitlement to paternity leave.
Other types of leave
Long service leave
There is no legal entitlement to long service leave.
Bereavement leave
While there is no legal entitlement to paid bereavement leave, an employer cannot refuse employees time off under these circumstances. The employer can offer bereavement leave as a separate benefit or as an option under casual or annual leave.
Family & domestic violence leave
There is no legal entitlement to family and domestic leave.
Termination
In India, the termination process is governed by laws such as the Industrial Disputes Act, 1947, and state-specific Shops and Establishments Acts. Employers must provide a written termination letter stating the reason for termination, the date, and other relevant details.
Termination process
In India, employment terminations cannot be executed “at will” and must adhere to legal compliance. Employers must follow fair procedures, including disciplinary processes for misconduct. Legal compliance is essential to avoid disputes, and in cases of mass layoffs, government approval may be necessary.
Termination reasons
Termination can occur due to performance issues, misconduct, redundancy, or breach of contract or layoff.
Notice period
A notice period of 30 to 90 days is standard, depending on the employee’s role and industry, and severance pay is often required, especially in cases of redundancy or termination without cause.
Severance Pay
Employees with at least one year of service are entitled to a severance payment equal to 15 days’ wages for each completed year of service.
Employees who have completed five years of service and work for an employer with 10 or more employees also are entitled to a gratuity payment. Gratuity payments are equal to 15 days’ wages multiplied by the number of years of service (with part of a year in excess of six months counted as one year).
Probation period
Probation periods are not mandatory and there is no statutory requirement for employers to provide probation period. The common probation period for India in the Employment Agreement is 3 to 6 months with the option to extend an additional 3 months at the employer’s discretion.
Probation Period days
- 90-180 days Minimum probation period
- 270 days Maximum probation period, subject to employer’s discretion
Ready to hire in India?
