Employer of Record India

The decision to expand your business in India can be extremely rewarding. The world’s most populous nation boasts a highly educated workforce in specialty areas and skilled fields like information technology, customer-related services, and more. 

For companies seeking to grow their brands internationally, this has created an exceptionally high demand for workers in India. This page discusses the different aspects of hiring, paying, and managing employees as an employer of record in India.

India at a Glance

• Population size: 1.43 billion
• Currency: Indian Rupee (INR)
• Capital city: New Delhi
• Languages spoken: Hindi and English (21 other recognized languages)
• GDP: USD 3.73 trillion (nominal)

How To Hire Employees In India

There are three main paths to hiring employees in India:

1. Setting up a subsidiary to hire directly, which means you are not using any employer of record services in India.
2. Hiring via “professional employer organizations” (PEO).
3. Working through an “employer of record” (EOR) in India.

Direct Hiring Via Subsidiary

To establish a subsidiary in India, employers must file with the Ministry of Corporate Affairs and submit the following documents:

• Application for Reservation of Name (Form INC-1)
• Director Identification Number (DIN) and Digital Signature Certificate (DSC)
• Memorandum of Association (MoA)
• Articles of Association (AoA)
• Form INC-22 (address registration)
• Form DIR-12 (appointment of directors)

Incorporating a subsidiary in India typically takes 2 to 6 weeks, after which you can begin operations directly.

Before hiring, interview candidates to evaluate how well their skills and qualifications match the posted job descriptions. Many organizations use technical and HR panels, for example, to assess aptitude and fit.

Upon selection, candidates must sign a written employment contract in compliance with local labor laws. If you are not using an EOR provider like Skuad, you’ll need to ensure your legal team manages compliance effectively. 

Hiring Via EOR in India

Skuad’s global HR platform simplifies your business management by removing complexities. Our unified and automated system is designed to handle your company’s monthly payroll, onboarding employees, drafting employment contracts, legal and regulatory compliance, and all other daily HR functions for employees in India. 

General Employer Of Record Service Terms

For more details about how hiring would work for your particular company, speak to a Skuad expert now.

Hiring Via PEO

A Professional Employer Organization (PEO) offers HR support in recruitment, payroll, benefits, and employee management but differs from an EOR. With a PEO, employees are legally employed by your company, and you make all HR decisions. While this offers you greater control, it can be time-consuming, especially during expansion.

Onboarding and Agreements

The first step in successful onboarding is drafting an employment agreement that complies with Indian labor laws. Contracts must outline key terms, including working hours, compensation, payment methods, leave entitlements, and termination conditions.

In India, employment contracts are categorized as follows:

• Permanent Contracts
  Full-time agreements detailing long-term employee roles, responsibilities, and benefits.
• Part-Time Contracts
  For employees working limited hours, often without full-time benefits.
• Freelance Agreements
  Contracts for project-based work, specifying deliverables and payment terms.
• Zero-Hour Contracts
  Flexible agreements without fixed working hours, mainly used in industries like hospitality and retail.
• Consultancy Agreements
  For self-employed professionals hired for specific projects or durations.

To enhance the onboarding experience, ensure that you take the following steps to prepare: confirm new hires with HR, send a welcome email, inform existing staff, and prepare necessary tools and equipment.

Working with an EOR like Skuad can simplify this process by ensuring contracts comply with local laws, streamlining payroll, and managing compliance efficiently.

Taxes

The table below contains a detailed overview of payroll taxes in India.

Employer Tax in India

Employee Tax in India

Compliance

Employment laws in India are governed by a combination of central and state-specific laws, including the Labour Code on Wages (2019), and other labor reforms introduced in recent years. These laws, like those in the table below, establish the rules and standards regarding employment policies, wage rates, working hours, statutory employee benefits, and workplace conditions.

Benefits and Compensation 

Under these provisions, every employee in India is entitled to the following benefits,

1. Gratuity:
   
   • At the end of employment, monetary compensation is provided for employees with at least five years of continuous service.
   • Calculated under the Payment of Gratuity Act, 1972, based on last drawn salary and tenure.
2. Insurance:
   
   • Contributions: 4.75% from employers and 1.75% from employees under the ESI Act.
   • Provides health benefits, maternity coverage, and financial aid for accidents or sickness affecting employees and sometimes their families.

3. Provident Fund:
   
   • Under the EPF Act, employers and employees contribute 12% of basic wages, dearness allowance, and retention allowance.
   • Funds are meant for retirement savings, with provisions for withdrawals during emergencies.
4. Bonus:
   
   • Mandatory for establishments with 20 or more employees under the Payment of Bonus Act of 1965.
   • Applicable to employees earning less than INR 21,000 per month.
   • Bonus amount: 8.33% of annual wages or INR 100, whichever is higher.

These benefits are designed to safeguard employees' financial, health, and social security, fostering a secure work environment in India. Employers must comply with these provisions to ensure legal and ethical labor practices.

Independent Contractors vs. Full-Time Employees

India’s education system produces over 2.8 core graduates annually, including 27 lakh postgraduates. Many of these workers specialize in IT and creative fields. Apprenticeships for these workers are governed by the Apprentices Act 1961.

The Labour Code protects two primary employee categories in India through employment contracts: full-time employees and contractor employees.

Whether you're hiring employees or contract workers, partnering with an EOR platform like Skuad simplifies the process, enabling seamless hiring and management to support your business growth. Without the robust tools of a trusted EOR, employee misclassification can lead to complex legal and compliance challenges, as outlined below.

Rise of Remote Work

The popular surge of remote work has expanded the talent pool, enabling companies to hire without geographical constraints. Digital work models are increasingly popular among many businesses.

Employment Contracts

Though not mandatory, clear employee contracts defining wages, roles, and terms are strongly recommended to ensure compliance and minimize disputes. India’s evolving workforce laws and remote hiring trends offer vast opportunities for businesses willing to adapt.

Tests To Determine Employment Status in India

Understanding employment status is crucial for legal and organizational clarity. Below are the key tests used to evaluate this status:

Additional Factors for Court Consideration

IP Protection in India

Intellectual property (IP) refers to any brand, invention, design, or other kind of creation over which a person or business entity has legal rights. In India, some of the most common types of IP include:

• Copyright: Currently, all intellectual property rights are administered by the Department for Industrial Property and Promotion.
• Patents: Matters related to patents are handled according to the provisions of India’s Patents Act of 1970, the 2016 Patent Amendment Rules, and the 2003 Patent Rules.
• Designs: The Designs Act 2000 and the Design Rules 2001 are the primary laws that govern designs.‍
• Trade Marks: Indian trademark laws comprise the Trade Marks Rules of 2002 and 2017 and the 1999 Trade Marks Act.

Visa Types in India

Work Permits

Foreign nationals seeking employment in India must obtain an Employment Visa. The application process involves submitting the following documents:

• Valid Passport: Must be valid for at least six months beyond the intended stay and have at least two blank pages.
• Employment Contract: A detailed contract specifying the terms of employment.
• Proof of Qualifications: Documentation of professional skills and qualifications relevant to the position.

• Visa Application Form: Completed and signed application form.
• Employer's Registration Documents: Proof of the employer's registration in India.
• Passport-sized Photographs: Recent photographs must meet the specified requirements.

It's important to note that Employment Visas are not granted for routine, ordinary, or secretarial/clerical jobs. The visa is typically valid for the duration of the employment contract, up to a maximum of five years, and can be extended in India.

Nationals from certain countries, such as China, Afghanistan, or Pakistan, may face additional scrutiny. Therefore, they are advised to apply well in advance, preferably two months before the intended travel date.

‍Skuad's expertise as an employer of record in India helps you streamline the entire visa process. Partnering with Skuad ensures a hassle-free experience for onboarding and managing your international workforce.

Read more

Learn how we can grow your business across borders.

Consult with us

Payroll

In India, payroll is traditionally processed through cash, cheques, direct deposits, pay cards, or mobile wallets. While this is simple for small teams, managing multiple employees can quickly become complex, requiring strict compliance with tax regulations and additional administrative tasks.

A cost-effective alternative to direct payments is using Employer of Record (EOR) services in India. Skuad’s EOR solutions help you streamline international payments with:

• Payroll in 100+ currencies
• Built-in compliance
• Automated invoicing and payslips
• Expense management
• Real-time reporting

Workers’ Rights

The employment law in India lays down a few obligations and terms of employment that both employees and employers must follow. These include:

When hiring directly, close collaboration with your legal team is essential to ensure full compliance with local labor laws. Alternatively, partnering with an EOR platform like Skuad simplifies the process by automating compliance and streamlining workforce management.

Remote & Hybrid Work

To enable practical remote work in India, companies must address three key factors:

1. Flexible Work Arrangements:
   Develop policies supporting remote work, including clear communication, collaboration, time management, and performance evaluation guidelines.
2. Technology and Infrastructure:
   Ensure access to suitable hardware (laptops, mobile devices), reliable internet, and secure software to maintain productivity outside the office.
3. Data Privacy and Security:
   Implement strong security measures to protect sensitive data and comply with data protection regulations.

Understanding labor laws and creating a remote-ready environment to maximize flexibility and efficiency is vital.

Salary

In India, salary structures typically include various allowances such as house rent allowance (HRA), leave travel allowance (LTA), phone allowance, special allowance, and others tailored to specific job roles. Many of these components are calculated as a percentage of the basic salary.

Employees may also negotiate specific salary allocations, such as contributions to the Provident Fund (PF) or other benefits, depending on their preferences and requirements.

To stay competitive and make fair offers, use Skuad’s Salary Insight Tool. This tool provides up-to-date information on salary trends and comparisons, helping you attract and retain top talent.

Leave Policy

The following are statutory leave requirements for employees in India.

• Annual Leave Accrual Entitlement:
  
  • Leave entitlements for employees in Shops and Commercial Establishments vary by state.
  • The minimum annual leave ranges from 12 to 30 days, depending on the state’s legislation.
  • On average, most states require 15 days of annual leave for every completed year of service.

• Maternity Leave:
  
  • Female employees are entitled to 26 weeks of maternity leave.
• Compensatory Leave:
  
  • Employees who work on a weekly rest day or public holiday are entitled to compensatory leave.
  • This leave can be utilized immediately, deferred later, or converted into an encashable option.

These statutory leave entitlements are essential for compliance with Indian labor laws and to ensure employee well-being.

Background Checks

When hiring employees in India, it is always advisable to run a thorough pre-onboarding background check to safeguard your company’s assets and employees from unnecessary threats. 

The table below lists some of the most common verification checks performed in this country.

Criminal Record Check

When running a criminal record check in India, you must obtain a Police Clearance Certificate (PCC) issued by the local police or authorized government agencies.

This certificate provides critical insights into job applicants' criminal history (if any), enabling you to make well-informed hiring decisions.

Credit History Check

A credit history check involves reviewing an individual's credit report to evaluate how responsibly they manage their finances, reflecting their reliability and trustworthiness.

In India, CIBIL (Credit Information Bureau India Limited) is the primary institution for handling credit reports. Under its policies, credit reports can only be accessed with explicit authorization from the candidate.

Education Verification

An education verification is done to verify the accuracy of a candidate's academic claims, including degrees, diplomas, and certifications.

Employers may contact educational institutions directly or work with a third-party verification service to ensure the candidate possesses the qualifications.

Employment Verification

Employment verification involves confirming a candidate's previous roles, tenure, responsibilities, and reasons for leaving.

This step helps validate their experience and ensures they fit the position well. Employers can connect directly with previous employers or use professional verification agencies for this process.

Termination and Offboarding

For an employer of record, India has a few critical rules to be aware of when letting an employee go:

Cultural Considerations

A crucial aspect of international hiring is evaluating whether the new employee aligns with the organization’s goals and values. Cultural compatibility significantly impacts employee morale, engagement, and productivity.

Below, we list some key elements of workplace culture in India that organizations should consider:

• Respect for authority and hierarchical respect are fundamental aspects of Indian work culture. Employees often demonstrate deference to authority figures, such as managers and senior staff, particularly in formal settings.
• Teamwork, collectivism, and collaboration are highly valued, emphasizing group success over individual achievements. Team-oriented approaches often dominate workplace dynamics.‍
• Communication styles are essential and typically vary from formal to professional. However, start-ups and modern organizations may adopt a more casual and open communication style.

Conclusion

Hiring directly in India can be complex, requiring employers to navigate various labor laws, tax regulations, and compliance requirements. Ensuring adherence to these constantly evolving laws demands significant effort and input from legal and accounting teams.

This is where Employer of Record (EOR) platforms like Skuad become invaluable. By seamlessly managing compliance, payroll, and employment contracts, Skuad enables business owners to focus on sourcing top talent from India without the administrative burden.

‍Contact us today to discover how Skuad can streamline your operations and support your business growth in India.

FAQs

What is an employer of record in India?

An Employer of Record (EOR), like Skuad in India, is a service provider that legally employs individuals on behalf of another company. EOR solutions in India manage HR responsibilities such as payroll, taxes, benefits administration, and compliance with local labor laws, allowing client companies to focus on core business activities without establishing a regional entity.

Is it legal to use an employer of record in India?

Yes, using an Employer of Record is legal in India. It allows companies, especially foreign ones, to hire local employees without establishing a physical presence. This is an efficient solution for businesses expanding into India while avoiding the complexities of setting up a regional entity.

How long do employers keep employee records after termination in India?

In India, employers are required to retain employee records for at least three years after termination. These records, which include personal details, employment history, payroll, and government contributions, ensure compliance with Indian labor laws and are necessary for audits.

What is the difference between an EOR and payroll?

An EOR in India provides end-to-end employment solutions, including hiring, payroll, compliance, and HR management, and acts as the client's legal employer. Payroll services, on the other hand, only handle salary calculations, distributions, and reporting without taking on legal employer responsibilities.

How do you set up an EOR in India?

Setting up an EOR in India involves selecting a reliable service provider, like Skuad, who understands Indian employment laws. The process includes negotiating terms, defining service scope, and ensuring the EOR’s capabilities align with your needs, such as legal compliance, payroll management, and HR services.

What is the difference between an EOR and PEO?

The key difference between EOR and PEO services in India is the legal responsibility. An EOR acts as the legal employer on behalf of the client, managing all HR tasks and ensuring compliance with local laws. A PEO enters into a co-employment relationship where the client retains legal responsibility for employees while the PEO supports HR functions like payroll and benefits management.

What are the benefits of EOR?

An Employer of Record in India offers benefits such as cost savings, streamlined payroll, enhanced compliance, and access to local expertise. For instance, an EOR enables a foreign company to hire employees in India without establishing a regional entity, simplifying operations and ensuring compliance with Indian labor laws.