Best Way to Hire Employees in India Legally (10 Steps)

Want to hire employees in India but worried about navigating Indian employment laws, setting up a local entity, or accidentally breaking tax regulations? You're not alone.

Most foreign companies hiring in India face the same problem: you need talented Indian employees, but the legal compliance requirements feel overwhelming. Employment contracts, employee provident fund, income tax deductions, labor laws, and statutory benefits create a maze that's expensive to get wrong.

The good news? There's a clear, legal way to hire in India without spending months (and thousands of dollars) setting up your own legal entity.

This guide breaks down exactly how international companies hire employees in India, what legal risks you need to avoid, and the fastest path to building your Indian team while staying fully compliant with local regulations.

What's the best way to hire employees in India?[toc=Hiring Options]

The best way to hire employees in India depends on whether you have a local entity.

If you don't have one (and most foreign companies don't when starting out), using an Employer of Record (EOR) is your fastest and most compliant option.

If you already operate a local legal entity in India, you can hire directly through your own company.

Here's what you need to know about each approach:

Option 1: Hire Through an Employer of Record (No Local Entity Required)

This is the go-to solution for international companies hiring their first employees in India.

An EOR becomes the legal employer on paper while you manage the day-to-day work.

Here's what this looks like:

• Setup time: You can hire employees in India within 1-2 weeks
• Legal compliance: The EOR handles employment contracts, labor laws, tax regulations, and services tax
• Cost: You pay a service fee (typically 8-15% of employee's salary) plus the actual salary and benefits
• What you avoid: Setting up your own legal entity, navigating Indian employment laws, managing employee provident fund, handling income tax deductions, and dealing with ongoing legal compliance

This works well if you're hiring 1-50 employees and want to test the Indian market before making a bigger commitment.

Option 2: Set Up Your Own Legal Entity and Hire Directly

Foreign companies can establish their own subsidiary in India and hire employees directly.

This makes sense when you're scaling beyond 50-100 employees or planning long-term operations.

What this involves:

• Registering a private limited company in India (takes 4-8 weeks minimum)
• Getting a Permanent Account Number (PAN) and tax registrations
• Setting up payroll management systems
• Hiring local HR/legal experts who understand Indian labor laws
• Managing employee provident fund contributions, health insurance, and other statutory benefits
• Handling income tax compliance under the Income Tax Act

Which approach works best?

For most foreign companies hiring in India for the first time, an EOR is the clear winner. You get access to skilled workers without the 6-12 month setup process and ongoing administrative burden of running your own legal entity.

Direct hiring through your own entity makes sense when you're ready to commit to the Indian market long-term and have the resources to manage local regulations, employment laws, and payroll operations.

Either way, you'll need to understand Indian employment laws to make smart hiring decisions.

Your employment contract needs to comply with local labor laws, cover mandatory benefits like provident fund and maternity leave, and clearly define the employment relationship to avoid misclassification risks with independent contractors.

What legal risks should you know before hiring in India?[toc=Legal Considerations]

Hiring in India comes with specific legal risks that can cost you serious money if you mess them up.

Here are the ones that trip up foreign companies most often:

1. Worker Misclassification (This is the Big One)

Many foreign employers start by hiring independent contractors to avoid setting up a local entity.

The problem? Indian labor laws are strict about who qualifies as a contractor versus an employee.

If you treat someone like an employee (set their hours, provide equipment, manage their daily work) but call them a contractor, you're creating a huge liability.

When misclassification gets discovered:

• You'll owe back taxes, employee provident fund contributions, and other statutory benefits
• The worker can claim full employee rights retroactively
• Penalties can reach 3-5 years of back payments plus fines

Real talk: if someone works exclusively for you and follows your directions, they're probably an employee under Indian employment laws, regardless of what your contract says.

2. Statutory Benefit Non-Compliance

Indian employees are entitled to mandatory benefits by law. Missing these isn't optional, it's illegal:

• Employee Provident Fund (EPF): 12% employer contribution + 12% employee contribution for companies with 20+ employees
• Employee State Insurance (ESI): Health insurance for employees earning under ₹21,000/month
• Gratuity: Payment after 5 years of service
• Maternity leave: 26 weeks paid leave under the Maternity Benefit Act
• Paternity leave: Varies by company policy but increasingly expected

Foreign companies often underestimate these costs. Budget an additional 20-25% on top of the employee's salary to cover statutory contributions and benefits.

3. Termination Risks and Wrongful Dismissal

Terminating employees in India is heavily regulated. You can't fire someone without proper cause and documentation.

Here's what catches foreign employers off guard:

• Notice periods are typically 30-90 days (defined in employment agreement)
• You need documented performance issues or misconduct for termination
• Female employees cannot be terminated during maternity leave
• Retrenchment (layoffs) requires government approval for companies with 100+ employees
• Wrongful termination lawsuits can drag on for years

4. Tax Compliance Failures

Getting tax wrong in India creates problems fast:

• You must deduct income tax at source (TDS) from employee salaries
• Missing income tax filing deadlines under the Income Tax Act triggers penalties
• Services tax (GST) applies if you're using third party service providers
• Foreign nationals working in India create additional tax obligations

If you don't have a local entity, you're technically not equipped to handle these tax regulations properly.

This is why most international companies use an EOR for tax compliance.

5. Employment Visa Issues for Foreign Nationals

Planning to bring foreign employees to India?

You'll need proper employment visas, which require:

• A registered legal entity in India
• Proof the role requires specialized skills unavailable locally
• Minimum salary thresholds
• Extensive documentation

Many foreign companies try to have people work on business visas, which is illegal and can result in deportation and company penalties.

6. Contract-Related Risks

Your employment contract needs to comply with local labor laws, not just your home country's standards. Common mistakes:

• Using standardized US/UK contracts that conflict with Indian labor laws
• Missing mandatory clauses about provident fund, gratuity, and notice periods
• Vague job descriptions that create disputes later
• Not clearly defining paid leave, overtime pay, and benefits
• Failing to include local regulations required under state-specific labor laws

7. Data Protection and Background Checks

India has data protection laws that foreign employers often overlook when reviewing resumes and conducting background checks. You need employee consent for verification, and you can't discriminate based on certain personal information.

The Bottom Line

These legal risks aren't meant to scare you away from hiring in India.

They're meant to help you understand why most successful foreign companies either set up their own legal entity with local expertise or partner with an EOR that handles legal compliance for them.

Trying to navigate Indian employment laws without local knowledge or legal structure is where companies get burned. Know your risks upfront, and choose the hiring approach that protects both you and your Indian employees.

Just pick one reliable partner like Wisemonk, who takes care of everything for you!

What's the legal way to hire employees in India?[toc=How to Hire Legally]

The legal way to hire employees in India comes down to following a structured hiring process while ensuring you have the right legal framework in place.

Here's how international companies actually do it:

Step 1: Establish Your Legal Presence

Before you can legally hire anyone, you need a way to employ them. You have two options:

• Set up your own legal entity: Register a private limited company in India (takes 4-8 weeks, costs $3,000-$5,000)
• Use an Employer of Record: Partner with a service like Wisemonk that acts as the legal employer (setup in 1-2 weeks)

Without one of these, you cannot legally hire employees in India. Period. Some foreign companies try hiring independent contractors to skip this step, but as we covered earlier, that creates massive misclassification risks.

Step 2: Create a Clear Job Description

Your job description needs to work for both attracting qualified candidates and legal compliance. Include:

• Specific role responsibilities and required skills
• Salary range (be transparent, Indian job seekers expect this)
• Work location or remote work policy
• Required experience and qualifications
• Benefits overview (health insurance, provident fund, paid leave)

A clear job description protects you legally because it defines the employment relationship from day one and helps avoid disputes about job scope later.

Step 3: Post on the Right Channels

Finding skilled workers in India is easier than you think. Use these recruitment channels:

• Online job portals: Naukri.com, LinkedIn, Indeed India are where most job seekers look first
• Job boards: AngelList (for startups), Instahire (for tech roles)
• Internal hiring: Employee referrals work exceptionally well in India
• Job fairs: Useful for bulk hiring in tech hubs like Bangalore, Pune, Hyderabad

For senior roles or specialized positions, working with local recruitment agencies speeds up the hiring process significantly.

Step 4: Screen and Interview Candidates

The recruitment process in India follows familiar patterns, but with some local considerations:

1. Reviewing resumes: Indian CVs often include personal details (age, marital status, photo). While common locally, you should focus only on qualifications and experience to ensure compliance with fair hiring practices.
2. Initial screening: Phone or video interviews work the same as anywhere. Indian candidates are comfortable with remote interviews.
3. Technical assessments: For tech roles, expect candidates to be well-prepared. India produces excellent developers and skilled workers across IT fields.
4. Cultural fit interviews: Assess communication skills and work style. Remember, you're hiring for a potentially long employment relationship.

Step 5: Conduct Background Checks

Background verification is standard practice when hiring employees in India. Most companies verify:

• Employment history (previous employers, dates, roles)
• Education credentials
• Criminal record checks
• Address verification
• Reference checks

You need candidate consent before running background checks. This typically takes 7-10 days. Many foreign companies use third party service providers who specialize in Indian background verification.

Step 6: Make the Offer and Negotiate

When you've found the right candidate, here's what the offer stage looks like:

• Salary structure: Break down the monthly salary into components (base salary, house rent allowance, special allowances). This matters for tax benefits and is standard in India.
• Benefits package: Clearly outline health insurance, employee provident fund contributions, paid leave (casual leave, sick leave, earned leave), maternity benefit coverage, and any additional perks.
• Notice period: Standard is 30-90 days. Senior roles often require 90 days.

Indian candidates often negotiate, especially on salary and joining date. Build in some flexibility.

Step 7: Create a Legally Compliant Employment Contract

This is where many foreign employers stumble. Your employment agreement must comply with Indian employment laws, not just mirror your home country contracts.

Your contract must include:

• Job title, responsibilities, and reporting structure
• Salary breakdown and payment schedule
• Mandatory benefits (provident fund, gratuity, health insurance)
• Notice period for both parties
• Termination conditions and severance
• Non-compete and confidentiality clauses (keep these reasonable, Indian courts don't enforce overly restrictive non-competes)
• Probation period (typically 3-6 months)
• Leave entitlements as per local labor laws

If you're using an EOR, they provide compliant employment contracts.

If you have your own legal entity, get local legal review before using your standard templates.

Step 8: Complete Pre-Joining Formalities

Before the employee's first day, you need to collect:

• Permanent Account Number (PAN) for income tax deduction
• Bank account details for salary payments
• Aadhaar number (for EPF and ESI registration)
• Previous employer documents (if applicable, for tax calculations)
• Form 16 from previous employer (for income tax continuity)

These documents are essential for payroll management and tax regulations compliance.

Step 9: Register for Statutory Compliance

If you have your own legal entity, you must register the employee for:

• Employee Provident Fund (EPF): Mandatory if you have 20+ employees or if the employee's basic salary is below ₹15,000
• Employee State Insurance (ESI): Required if employee earns under ₹21,000/month
• Professional Tax: Varies by state Income tax
• TDS: Must deduct and deposit monthly

If you're working with an EOR, they handle all statutory registrations and ensure compliance with tax regulations.

Step 10: Onboard and Pay Correctly

Once hired, you need to:

• Process monthly salary by the last working day (this is standard expectation)
• Deduct and deposit income tax, EPF, ESI contributions
• Provide salary slips showing all deductions
• File quarterly and annual returns with the Indian government
• Maintain employee records as required by local regulations

The Reality Check

Following this legal hiring process isn't just about ticking boxes. It's about protecting your company from legal risks and building trust with your Indian employees.

Most successful foreign companies hiring in India either invest in building local HR expertise to manage this process or partner with an EOR that handles the legal and compliance heavy lifting while they focus on managing the actual work.

Get Started with Wisemonk EOR[toc=Wisemonk EOR]

If you're ready to hire employees in India without the complexity of setting up your own legal entity, Wisemonk handles everything for you.

We act as the legal employer, manage all compliance with Indian labor laws, process payroll and tax regulations, and ensure your team gets their statutory benefits on time. You focus on growing your business while we handle the legal and administrative work.

Here's what you get:

• Fast onboarding: Onboard your first employee in India within 1-2 days
• Full compliance: We manage employment contracts, employee provident fund, income tax, health insurance, and all local regulations
• Transparent pricing: No hidden fees, clear breakdown of costs
• Local expertise: Our team understands Indian employment laws inside out

Wisemonk currently supports 300+ international companies, manage over $20M in payroll, and help 2,000+ employees across India get paid compliantly.

Want to hire in India the right way? Book a call now and we'll show you exactly how it works.