Hire Contractors in India

Companies rely increasingly on independent contractors in India to fill temporary gaps, handle specialized tasks, or scale their workforce quickly. 

In India, the term "contractor" can be used for both independent contractors and those working for subcontracting companies. There is a clear distinction between a contractor and an employee. 

However, with the new labor codes in India, different types of contractors, including fixed-term, gig, temporary, and platform workers, are subject to similar labor rights and social security benefits as full-time employees, adding to compliance requirements.  

This comprehensive guide unlocks the secrets to successfully hiring independent contractors in India. We will explore the unique features, associated challenges & costs, and a contemporary approach to hiring contractors through AOR solutions.

How to Hire Contractors in India

The following section defines a roadmap to hire Indian contractors directly:  

1. Establish a legal entity to start hiring independent contractors in India. You can choose from various business structures, including Joint venture, Wholly owned subsidiary, LLP, Liaison office, Branch office, or Project office.
2. Hiring through an established legal entity is essential for payroll, taxation, and labor welfare.   
3. Explore various online job boards like Indeed, Naukri, Internshala, Quikrjobs, and professional networking sites like LinkedIn to shortlist the best talents in India.
4. Moreover, you may showcase your company culture, values, and past projects to attract highly skilled talent. 
5. Further, you may offer market-competitive hourly or project rates attractive to top talent in India. 
6. To conclude, draft a well-defined contractor agreement that outlines project scope, deliverables, timelines, payment terms, and termination clauses. 

Alternatively, a simplified way to hire, onboard, and pay independent contractors in India is through contractor management software.

Hiring contractors through Skuad AOR

Contractor management through Skuad's AOR model provides an alternative approach that simplifies the process and reduces risks: 

• Acts as the legal employer in India, handling all employment-related tasks like payroll processing, taxes, and benefits. 
• Streamlines the onboarding process to get your chosen contractor working quickly, minimizing project delays.

• Mitigates your risk of misclassifying workers as employees, potentially leading to hefty fines.

• Helps in drafting non-disclosure agreements and IP transfer agreements during work.

How to Pay Contractors in India

Employers can choose to pay independent contractors in India using a variety of channels.

The table discusses some common methods for paying contractors in India. 

Contractor management software like Skuad handles secure and compliant cross-border payments to your contractors in Indian rupees. However, you make a single payment to Skuad in your home currency.

Hiring Contractors Directly vs Hiring Contractors via Skuad

The table summarizes the commonly followed approach to hiring contractors in India.

The biggest advantage of hiring via Skuad AOR is that it avoids misclassifying employees as independent contractors in India and allows them to avoid legal fines and penalties.

Cost of Hiring Contractors in India

The cost of hiring independent contractors in India can vary depending on the contractor’s skills and experience, project requirements, location, and engagement model. Here's a breakdown of some cost considerations:

Challenges of Hiring Contractors in India

Any business looking to hire contractors in India faces the following challenges:

1) Compliance with the Contract Labour Act in India

• Companies with more than 20 workers (may vary across states) must employ contractors following certain liabilities and responsibilities. It includes a canteen, restrooms, drinking water, and first aid facilities. 
• Additionally, the new labor codes have defined gig and platform workers to extend labor rights, including minimum wage protection, occupational and health benefits, and various welfare schemes under the state and central government. 
• Therefore, companies must take extra precautions to avoid contractor misclassification risks and penalties. 

2) Intense competition to hire contractors in India

• A large talent pool embraces freelance opportunities and focuses on STEM education in India. However, only 49% of Indian youth are employable. 
• The limited availability of qualified candidates due to a skill gap fuels the competition. 
• Even though it results in faster hiring processes, you may give up more leverage for contractors during negotiations and pay higher contractor rates. 

3) Screening and vetting independent contractors in India

• India boasts a massive pool of software engineers, for example. This intense competition can lead some candidates to misrepresent their skills or experience to stand out.
• Overly relying on repetitive interview questions makes it easier for candidates to prepare misleading responses.
• Unfortunately, reports suggest deception might be a common tactic in high-pressure hiring environments like India. 

• Moreover, traditional background checks and reference checks can be time-consuming and ineffective in situations demanding to hire contractors in India on project-basis. 

4) Retention of contractors

• The booming Indian IT industry alone recorded an estimated revenue of $245 billion in FY 2023 and is only expected to grow further. 
• Thus, companies must actively engage them to prevent them from being lured away by better offers.
• Moreover, companies with limited employer branding may find hiring and retaining independent contractors difficult, leading to a transactional relationship and higher turnover.
• It indicates that paying contractors in India and arriving at fair contractor rates might be tricky without a clear understanding of rising middle-class aspirations. 

Fortunately, ready-made AOR (agent of record) solutions like Skuad help you overcome such challenges when hiring contractors. Let’s explore in detail how you can hire an Indian contractor.

How to Convert a Contractor into an Employee in India

Converting a valued contractor into an employee in India is similar to switching from a 1099 contractor to a W2 employee in the US. To help you with the process, here is a step-by-step procedure:

1. Explore Your Options

To start the process of converting your employees into an employee, you can either set up your local business entity or team up with an AOR like Skuad. The latter can simplify a lot of the legal and payroll stuff for you.

2. Get to Know the Local Employment Rules

When you shift a contractor to an employee role in India, you’re stepping into a new world of regulations. This means you’ll need to get familiar with Indian employment laws, such as the Industrial Disputes Act and the Employees' Provident Funds Act. These laws ensure your new employee gets all the benefits and protections they’re entitled to.

3. Craft a Solid Employment Contract

It’s time to draft an employment contract that meets all the requirements. Your contract should clearly state the job role, salary, working hours, and notice periods. In accordance with Indian regulations, remember to include details about benefits like Provident Fund (PF) and Employee State Insurance (ESI).

4. Communicate and Onboard Smoothly

Let your contractor-turned-employee know about their new role and all the perks that come with it. Provide details on their salary, benefits, and any changes in their work routine. Kick off the onboarding process by running a background check, setting them up in your payroll system, and enrolling them in the necessary benefit programs. 

Hire Contractors in India with Skuad

Contractor management via Skuad’s Agent of Record services eliminates the need for a local entity setup, allowing you to focus on finding the best talent and building a successful project. 

You can seamlessly handle contractor hiring, payroll processing, tax withholding and remittance, contract management, benefits administration, and ensuring compliance with Indian regulations. 

Skuad's formidable presence in over 160 other countries makes it even more trustworthy.   

Book your demo today to optimize your hiring process via contractor management software.

FAQs

1. Can I hire a contractor in India?

Yes, you can tap into a large pool of skilled workers to hire a contractor in India. Any contractual relationship is bound by a work contract. The applicability of labor laws varies depending on the type of contractual relationship and company workforce. Consider using an Agent of Record (AOR) service like Skuad to simplify the process for you. 

2. How do you pay an independent contractor in India?

Paying a contractor in India is simple, with several options, such as direct bank transfer or through payment intermediaries like Wise, PayPal, Payoneer, etc. However, any payment platform will attract currency conversion and transaction fees, depending on the platform. 

3. What is the rule of independent contractors in India?

The Contract Labour Act of 1970 and the new Code on Social Security of 2020 define contractors and ensure fundamental labor rights and social security benefits are passed on to them. Hiring contractors via Skuad AOR ensures proper classification and avoids misclassification risks. 

4. How does Skuad help hire and pay independent contractors in India?

Skuad handles everything – verifying qualifications, ensuring contractor classification, managing secure payments in the preferred currency, and handling payroll and taxes – while complying with Indian regulations. This lets you focus on finding the best talent and other core business, leaving the HR admin complexities to Skuad. 

5. How do independent contractors pay taxes in India?

Independent contractors in India are responsible for filing income tax returns annually at a progressive rate (5%-30%). Additionally, they may be subject to Goods and Services Tax (GST) if their annual business turnover exceeds INR 20 lakhs.