How to hire an employee in India through Employer of Record
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:
- Large Talent Pool: India has a vast and diverse talent pool across various industries and skill sets, providing companies with ample options for recruitment.
- 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.
- 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.
- 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:
- Complex Regulatory Environment: India's regulatory landscape can be intricate and challenging, with numerous labor laws, tax regulations, and compliance requirements varying across states.
- Cultural Differences: Understanding and adapting to India's cultural nuances and work practices can pose challenges for foreign companies, impacting team dynamics and communication.
- Attrition Rates: High attrition rates are common in certain industries in India, leading to increased recruitment and training costs for companies.
- 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.
- 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 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.
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.
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:
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 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.
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.
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.
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?
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.