Feb 12, 2024

Employer of Record in India: Everything you need to know

Learn about hiring challenges, employment laws, taxation, and benefits, along with the advantages of Employer of Record in India.

Employer of Record in India: Everything you need to know

How to hire an employee in India through Employer of Record

Introduction

Navigating India's talent market is challenging for businesses due to its complex mix of taxes, laws, culture, and regulations. Despite this, India offers a wealth of skilled professionals, particularly in cities like Bengaluru and Mumbai. 

However, tapping into this talent pool isn't easy. Indian tax rules, employment laws, cultural differences, and strict regulations create significant hurdles for companies looking to set up or grow in the country. 

To simplify hiring and ensure compliance with local laws, many enterprises turn to Employer of Record (EOR) in India as a strategic solution.

Hiring in India

India presents an excellent opportunity to global companies to hire some of best software development engineers (SDEs), data scientists, digital marketing specialists, business development representatives and more.

Why do global companies want to hire in India:

  1. Large Talent Pool: India has a vast and diverse talent pool across various industries and skill sets, providing companies with ample options for recruitment.
  1. Cost-Effective Labor: Labor costs in India are comparatively lower than many Western countries, making it an attractive destination for companies looking to reduce operational expenses. Check out our salary guide for tech professionals in India.
  1. Skilled Professionals: India is renowned for producing skilled professionals, particularly in sectors such as technology, engineering, and healthcare, offering companies access to high-quality talent.
  1. English Proficiency: English is widely spoken and understood in India, making communication easier for companies with English-speaking clientele or operations. This is markedly different from other developing countries where English is not the primary medium of instruction in schools.

What are the challenges of hiring in India:

  1. Complex Regulatory Environment: India's regulatory landscape can be intricate and challenging, with numerous labor laws, tax regulations, and compliance requirements varying across states.
  1. Cultural Differences: Understanding and adapting to India's cultural nuances and work practices can pose challenges for foreign companies, impacting team dynamics and communication.
  1. Attrition Rates: High attrition rates are common in certain industries in India, leading to increased recruitment and training costs for companies.
  1. Infrastructure Challenges: While major cities like Bengaluru and Mumbai have modern infrastructure, other areas may need help with transportation, connectivity, and access to amenities, impacting employee satisfaction and productivity.
  1. Talent Competition: With the increasing demand for skilled professionals, especially in sectors like technology and finance, there is fierce competition among employers to attract and retain top talent, leading to salary inflation and talent wars.

Laws and Regulations in India

Employment Laws in India:

Employment laws in India are comprehensive and multifaceted, covering various aspects of the employer-employee relationship and workplace dynamics.

Employment Laws in India
Title What the Law Governs
Industrial Disputes Act, 1947 This law serves as the cornerstone of employment law in India, addressing issues related to industrial disputes, layoffs, and retrenchment. It provides mechanisms for dispute resolution, including conciliation, arbitration, and adjudication, aimed at maintaining industrial peace and fostering harmonious labor relations.
Shops and Establishments Act Operating at the state level, the Shops and Establishments Act lays down regulations governing working hours, leave entitlements, and conditions of employment for establishments operating within its jurisdiction. It aims to ensure the welfare and safety of workers while promoting orderly business practices.
Minimum Wages Act, 1948 This law ensures the payment of minimum wages to employees across various industries. It sets wage rates based on factors such as skill level, locality, and nature of work, aiming to prevent exploitation and promote social justice.
Equal Remuneration Act, 1976 It prohibits discrimination in wages based on gender, ensuring that men and women receive equal pay for work of equal value. It promotes gender equality in the workplace and seeks to eliminate disparities in remuneration based on gender bias.
Payment of Gratuity Act, 1972 This law mandates the payment of gratuity to employees who have completed five years of continuous service with an employer. This statutory benefit provides financial security and recognition for long-term service, contributing to employee welfare and loyalty.
Maternity Benefit Act, 1961 It provides maternity benefits to female employees, including maternity leave, medical benefits, and additional privileges. It aims to protect the health and well-being of pregnant and nursing mothers in the workforce, promoting gender inclusivity and work-life balance.
Employees Provident Funds & Miscellaneous Provision Act, 1952 Under this act, establishments meeting certain criteria are obligated to contribute to the Employees' Provident Fund (EPF), serving as a retirement savings scheme for employees. Both employers and employees make monthly contributions to the EPF, managed by the Employees' Provident Fund Organization (EPFO).

Employment Regulations in India:

Minimum Wages: States in India set their own minimum hourly and daily wages depending on the skill level of the employees. They are broadly classified into unskilled, semi-skilled, and skilled workers. Companies have to adhere to the minimum wage regulations depending on the state they operate in.

Standard Work Hours: Generally, standard working hours are 8 hours/day with a total of 40 working hours in a week. But as per Shops and Establishments Act which is enacted at the state level, the working hours for the week can be up to 48 hours depending on the state.

Overtime Pay: For factory workers, a maximum of 9 working hours is governed by the Factories Act, of 1948. Generally, any hours over and above the standard hours are paid at 1.5x to 2x the hourly rate.

Leaves: While leave policies vary from state to state, usually employees get about 1 day of leave for every 20 working days. For a company following 40-hour work weeks, that is around 12 days of leave in a year.

Holidays in India: There are three mandatory holidays in India - Republic Day - the 26th of January, Independence Day - the 15th of August, and Gandhi Jayanti - the 2nd of October. On top of these, there are many other national and regional holidays celebrated in the country. Usually, for remote teams in India, global companies establish a list of optional holidays from which employees can opt for a total of 10-12 days.

Navigating the Employment Laws can be challenging, talk to our expert to learn more.

Payroll and Taxation in India

The Income Tax Act, 1961, serves as the primary legislation governing income tax in India. This comprehensive law outlines the rules and regulations concerning the assessment, levy, and collection of income tax from individuals, businesses, and other entities.

The country changed its tax structure in 2020 offering individuals the option to choose between old and new tax regimes.

Income Tax Calculation

Income Tax Calculation as per Old Regime

Income Range Tax Calculated
Upto INR 2,50,000 0%
INR 2,50,001 - 5,00,000 5%
INR 5,00,001 - 10,00,000 INR 12,500 + 20%
INR 10,00,001 and above INR 1,12,500 + 30%

Salient points of the Old Tax Regime:

  • Under the old tax regime, taxpayers can avail of a wide range of deductions and exemptions such as the standard deduction, house rent allowance, deductions under Section 80C for investments, etc.
  • The tax rates under this regime are progressive, with slabs ranging from 5% to 30%, depending on the individual's income level.
Income Tax Calculation

Income Tax Calculation as per New Regime (Introduced in Budget 2020)

Income Range Tax Calculated
Upto INR 3,00,000 0%
INR 3,00,001 - 6,00,000 5%
INR 6,00,001 - 9,00,000 10%
INR 9,00,001 - 12,00,000 15%
INR 12,00,001 - 15,00,000 20%
INR 15,00,001 and above 30%

Salient points of the New Tax Regime:

  • The new tax regime offers reduced tax rates but comes with a catch – the taxpayer has to forgo most deductions and exemptions available under the old regime.
  • Tax rates under this structure range from 5% to 30%, but the slabs are adjusted so that many individuals might fall into lower tax brackets than they would under the old regime.
  • The idea is to simplify the tax system by eliminating the myriad of exemptions and deductions while offering lower rates.

Employment Benefits in India

Employee benefits play a pivotal role in shaping the modern workplace landscape in India. Beyond just salaries, these perks and provisions are instrumental in attracting and retaining top talent, fostering employee satisfaction, and ultimately driving organizational success.

The contribution to employee benefits has added costs to the employer over and above the salaries. These are regulated by the Employees' Provident Fund (EPF) Act, Employees' State Insurance (ESI) Act and Payment of Gratuity Act.

Cost of employment in India:

Employment Benefits
Employment Benefit Description and Key Points Employer Contribution Mandatory?
Employees’ Provident Fund (EPF) Statutory provision that aims to ensure retirement savings for employees across various industries 3.67% For total employees 20 and above
Employees’ Pension Scheme (EPS) A portion of the employee's salary is contributed towards their pension fund, which accrues over their years of service 8.33% Same as EPF
Employees’ State Insurance (ESI) Provides comprehensive healthcare coverage, including outpatient and inpatient medical treatment, maternity benefits for pregnant women, and cash benefits during periods of temporary or permanent disablement 3.25% For total employees 10 and above
Gratuity Gratuity is a statutory benefit payable to employees who have completed at least five years of continuous service 1 day of wages for every 15 days of service For total employees 10 and above

Note: Both EPF and EPS are contributions under the EPF Act and are governed by the Employees’ Provident Fund Organisation (EPFO). Total contributions are 12% (3.67% in EPF and 8.33% in EPS).

We can help in navigating these complexities, talk to our expert.

Health insurance for employees in India:

In a country where access to quality healthcare can be challenging for many, providing comprehensive health insurance coverage demonstrates an employer's commitment to the welfare of its workforce. Health insurance in India typically covers a range of medical expenses, including hospitalization, surgeries, diagnostic tests, medications, and specialist consultations.

Moreover, it often extends coverage to dependents, such as spouses and children, offering a sense of security to employees and their families. By offering health insurance, employers not only mitigate potential financial risks associated with medical emergencies but also contribute to a healthier and more productive workforce. Additionally, group health insurance plans negotiated by employers can often provide more cost-effective coverage compared to individual plans, further enhancing the value proposition for employees.

An employer of record in India can help you design the health insurance policies for your remote teams in the country.

Establishing a Professional Employment Organization (PEO) in India vs Employer of Record (EOR)

Employer Solutions Comparison
Aspect Employer of Record (EOR) Professional Employer Organization (PEO)
Cost and Time -Quicker setup, can start hiring and operating in days instead of months

-Longer setup time, involving legal agreements and coordination
-No setup fees. Fees are tied to services rendered

-Initial set up fees needed to establish the entity and ongoing fees for compliance and reporting
Compliance -Manages full legal compliance for employment-related matters

-Provides HR support and assists with compliance
-Assumes legal liability for employment-related claims

-Shares legal liability for employment-related claims
Employee Benefits and Taxation -Manages payroll, tax withholding, and filings on behalf of the client

-May handle payroll and tax filings
-Administers benefits, ensuring compliance and providing options

-May offer access to pooled benefits and retirement plans
Scalability -Provides scalability for remote teams or entering new markets -Offers scalability, especially for businesses expanding rapidly

Employer of Record (EOR) in India offer several advantages over Professional Employer Organizations (PEOs), particularly in terms of assuming full employer responsibilities, managing legal compliance, and providing scalability for businesses entering new markets or managing remote teams. EORs streamline administrative tasks, reduce setup time, and offer cost-effective solutions for businesses seeking efficient and compliant entry into new markets or expansion of their workforce.

How does an Employer of Record in India work

Employer of Record (EOR) services function as a comprehensive solution for businesses seeking to expand their workforce into new markets or manage remote teams efficiently. The operations of an EOR involve assuming the legal and administrative responsibilities of employing workers on behalf of the client company.

Legal Relationship:

Firstly, the EOR establishes a legal relationship with the workers, becoming their official employer for all legal and tax purposes. This includes handling payroll processing, tax withholding, and compliance with local employment laws and regulations. By acting as the employer of record, the EOR ensures that all employment-related matters, from onboarding to termination, are managed as per the applicable legal requirements. The EOR will conduct background checks while onboarding employees and ensure proper employment contracts and NDAs.

HR administration:

Moreover, EORs administer employee benefits and manage HR functions on behalf of the client company. This includes providing access to health insurance, retirement plans, and other benefits, as well as handling employee inquiries, performance management, and disciplinary actions. By centralizing these functions, EORs alleviate the administrative burden on the client company, allowing them to focus on their core business operations.

Coordination:

Additionally, EORs facilitate seamless communication and coordination between the client company and its remote workforce. They serve as a single point of contact for both parties, ensuring that all contractual obligations and employment terms are communicated and adhered to. This includes managing contracts, agreements, and amendments, as well as providing support for any employment-related issues or disputes that may arise.

How to get started on Employer of Record in India

Once you've selected an EOR operating in India, we will initiate the onboarding process by gathering the following details from your new hires:

  • Full name (matching the account for salary deposits).
  • Date of birth and employment start date.
  • Contact details, including their mailing address in India.
  • Bank account particulars.
  • Amount to be paid in Indian Rupees (INR), inclusive of any bonuses.
  • Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN).
  • Employee Provident Fund (EPF) account number.

We will discuss and finalize the terms of the employment with you. Subsequently, we will dispatch an employment agreement delineating essential employment terms to the new hires. We can automate the localization and distribution of these agreements. Each Indian employee will receive a legally compliant contract encompassing statutory provisions for probationary periods, working hours, minimum wage, benefits, as well as termination policies such as severance pay and notice periods.

Talk to our expert to know how to get started.

Frequently asked questions:

Is employer of record legal in India?

Yes. Employer of record is 100% legal in India. As an established employer of record in India, we at Wisemonk take care of all compliance and ensure all processes are above board.

What is the cost of EOR in India?

We offer competitive EOR rates. These are based on the salary ranges of the employees. Typically, in the range of $200-$300/month/employee.

What are employer costs to hire in India?

Employment Benefit Contributions
Employment Benefit Employer Contribution
Employees’ Provident Fund (EPF) 3.67%
Employees’ Pension Scheme (EPS) 8.33%
Employees’ State Insurance (ESI) 3.25%
Gratuity 1 day of wages for every 15 days of service

Does an EOR help with Indian tax filings?

An Employer of Record (EOR) like Wisemonk can automatically compute and submit your taxes in India. Wisemonk is duly authorized by the Income Tax Department as a payroll provider. We can undertake the distribution and submission of forms on behalf of your company, detailing taxable income, Tax Deducted at Source (TDS) payments, and social security contributions.

How does EOR handle data privacy and sensitive information?

We ensure data privacy and protect sensitive information by following strict data security guidelines. To ensure compliance with GDPR laws and Indian data protection laws, we do not share any personal information with third parties unless specified by the employer or employees. We also establish Data Protection and Privacy Agreements with you to ensure compliance.

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