Hire, Pay & Manage Employees in India

Thinking about hiring employees in India? You’re not alone, many global companies find the process daunting with all the unique legal, cultural, and compliance details to consider. That’s why we’ve put together this guide to make things easier. We’ll walk you through every step of hiring in India, from understanding employment laws and tax rules to mastering onboarding and building your team the right way. Whether you’re just starting out or looking to grow your presence, this guide will help you navigate the hiring process in India with confidence and clarity.

What are the different hiring models for global employers in India?[toc=Hiring Models]

When expanding into India, foreign companies can choose from four primary options for hiring employees: using an Employer of Record (EOR), establishing a local entity, engaging independent contractors, or partnering with a staffing agency.

Each option comes with its own set of advantages and challenges, and the best choice depends on factors like your budget, timeline, and the level of control you require over your operations. Understanding India’s labor laws and compliance requirements is crucial to ensuring you make the right decision for your business.

Option 1. Use an Employer of Record (EOR)

An Employer of Record (EOR) is a third-party service that allows you to hire employees in India without the need to set up a local entity. The EOR becomes the legal employer and takes care of all compliance, including payroll, taxes, and benefits, while you manage the employees’ day-to-day work.

Pros:

• Quick setup: EORs allow you to hire employees within days without the need for a local entity.
• Full compliance: EORs ensure adherence to local labor laws, including contracts, benefits, and tax obligations.

Cons:

• Less control: You’ll have limited involvement in the logistics of employment, such as payroll management and benefits administration.
• Ongoing service fees: EOR services come with a recurring cost that adds to your operational expenses.

Option 2. Establish a Local Entity

Setting up a local entity, such as a subsidiary or branch office, allows you to directly employ workers in India. This option provides complete control over your operations, payroll, and employment policies.

Pros:

• Full control: You manage your team directly, making it easier to implement company policies and culture.
• Cost-effective for large teams: This option may be more affordable in the long term, especially for large-scale operations.

Cons:

• Complex setup: Establishing a local entity is time-consuming and involves navigating India's corporate, tax, and labor laws.
• High initial costs: The process involves legal fees, office setup, and other administrative costs, making it the most expensive option.

Option 3. Engage Independent Contractors

Hiring independent contractors is a flexible and cost-effective way to bring on talent for short-term projects or specific expertise. You can hire contractors directly without setting up a local entity or dealing with employment-related benefits.

Pros:

• Flexibility: Contractors are ideal for short-term or project-based work, and you have no obligation to provide statutory benefits.
• Lower costs: Contractors typically come at a lower cost than full-time employees, especially if you only need them for specialized skills.

Cons:

• Misclassification risk: Misclassifying contractors as independent can lead to penalties, especially if you exert too much control over their work.
• Limited legal protections: Contractors do not enjoy the same statutory benefits and protections as full-time employees, which could lead to disputes.

Option 4. Partner with a Staffing Agency in India

A staffing agency can help you source, hire, and manage employees in India without the need for a local entity. The agency takes care of the recruitment process, and you manage the employees’ work while the agency handles HR logistics.

Pros:

• Quick access to talent: Staffing agencies have a large pool of candidates and can fill roles rapidly.
• Reduced administrative burden: Agencies handle recruitment, payroll, and compliance, freeing you from the operational load.

Cons:

• Less control: You may have less influence over the recruitment process and ongoing management of the employees.
• Hidden costs: Staffing agencies may charge high fees, especially for specialized or senior roles.

These options each offer distinct advantages, depending on your specific hiring needs and long-term strategy in India. Next, let’s explore when each option makes the most sense, depending on your business goals and needs.

When Does Each Option Make the Most Sense?

Choosing the right hiring model for your business in India depends on your goals regarding speed, control, and long-term market commitment. Here’s when each option makes the most sense:

• When to Use an EOR? Ideal for companies looking to quickly and compliantly hire virtual employees without the administrative burden of setting up a legal entity. It's perfect for testing the market or building a global team of remote employees, as the employer avoids the complex local employment laws.
• When to Establish a Legal Entity? A major long-term commitment best suited for businesses with a permanent, large-scale strategy. While the hiring process is lengthy and upfront costs are high, it offers maximum control and helps you fully integrate your Indian employees.
• When to Hire Independent Contractors? The most flexible and cost-effective option for short-term projects or specialized tasks. However, it's critical to understand the key differences to avoid misclassifying an employee and facing legal issues under Indian laws.
• When to Use Staffing Agencies? Staffing is best suited for companies needing a flexible workforce for operational, customer support, or back-office roles. It’s also effective for managing short-term surges in workload or pilot projects where full-time employment may not be justified.

How to legally hire employees in India? Step-by-Step [toc=Steps to Hire]

Hiring employees in India involves a series of steps that ensure you meet legal requirements, recruit top talent, and onboard efficiently. Whether you choose to hire through an Employer of Record (EOR), establish a local entity, or use independent contractors, following a clear process is key.

Here's a breakdown of the step-by-step approach to hire employees in India, ensuring compliance with local labor laws and a smooth onboarding process:

1. Define the Job Role

Create a clear and detailed job description specifying the role, required skills, and qualifications.

2. Source and Recruit Candidates

Use a variety of platforms to find talent:

• Indian job portals: Popular sites like Naukri.com, TimesJobs, Shine.com, and Freshersworld are key for sourcing candidates.
• Professional networks: LinkedIn is effective for sourcing senior or specialized talent.
• Referral programs: Employee referrals help find vetted candidates quickly and cost-effectively.
• Recruitment agencies: Engage local or international agencies to target specific talent pools.

3. Screen and Shortlist Applications

Review resumes and conduct initial screenings to assess qualifications and fit for the role.

4. Conduct Interviews and Assessments

Organize multiple rounds of interviews, including technical or practical tests, to evaluate the candidate's skills and suitability for the position.

5. Perform Background Checks

Conduct standard background checks through local verification partners. Always ensure to obtain consent from the candidate first.

6. Extend a Job Offer

Send a formal job offer with details on compensation, benefits, working hours, and probation period.

7. Set Up Payroll and Benefits

Set up a compliant payroll system to manage salaries, tax withholdings, and statutory contributions like EPF and ESI.

8. Onboard and Integrate

Integrate the new hires into your company with a comprehensive onboarding process that includes an orientation program and necessary paperwork.

By following a structured, compliant process for hiring employees in India, you not only ensure legal adherence but also set the foundation for a successful, long-term workforce. With years of experience helping global companies expand into India, Wisemonk supports your hiring journey with expertise in compliance, payroll, and seamless team integration.

What are the key Indian employment and labor laws?[toc=Employment & Labor Laws]

India's labor laws are complex, with a mix of federal and state-specific regulations that businesses must navigate. With over 29 central laws and more than 200 state laws, understanding the legal framework is essential for compliance when hiring employees in India.

The four key labor codes that are currently in effect or being implemented aim to simplify and consolidate existing laws include:

• The Code on Wages, 2019: This code consolidates laws on minimum wages, timely payment, bonuses, and equal pay. It introduces a national floor wage while allowing states to set higher minimum wages based on local conditions.
• The Industrial Relations Code, 2020: This code simplifies rules related to trade unions, working conditions, and industrial disputes. It also increases the threshold for requiring government permission for layoffs, from 100 to 300 employees.
• The Code on Social Security, 2020: Expands the scope of social security coverage to include gig workers, platform workers, and workers in the unorganized sector, ensuring better social protection for a broader range of workers.
• The Occupational Safety, Health and Working Conditions Code, 2020: This code amends laws regarding workplace safety, health, and working hours, particularly for establishments with 10 or more workers. It emphasizes the responsibility of employers to ensure a safe and hygienic working environment.

Key employment regulations in India

Understanding key employment regulations in India is crucial for foreign companies to ensure compliance and avoid legal challenges. These regulations cover employment contracts, working hours, leave policies, statutory benefits, and more, and are essential to maintaining a compliant and efficient workforce in India.

• Employment Contracts: While not always legally required, having a detailed written contract is a standard practice and highly recommended. The employment contract should outline job roles, compensation, working hours, benefits, and termination conditions to avoid future disputes.
• Working Hours: The standard working hours in India are capped at 48 hours per week, with daily limits often set at 9 hours. Overtime must be compensated at double the standard wage rate for hours worked beyond the regular working hours.
• Leave Policies & Public Holidays: Employees are entitled to various types of leave, including earned leave (typically 15 days per year), sick leave, and casual leave. Maternity leave is also mandated, with a duration of 26 weeks for the first two children and 12 weeks for subsequent children.
  To learn more about the leave policies in India, refer to our article on Understanding Leave Policy Laws and Holidays in India
• Statutory Benefits: In India, employers must contribute to key social security schemes. The Employees' Provident Fund (EPF) is mandatory for companies with 20+ employees, while the Employees' State Insurance (ESI) covers employees earning up to ₹21,000 per month in companies with 10+ employees. Employees are also entitled to gratuity after five years of continuous service.
  Read more: Employee Benefits in India: 2025 Complete Guide
• Supplementary Benefits: In addition to the mandatory benefits, many employers offer supplementary benefits such as performance bonuses, health insurance, and additional paid leave. These benefits can vary based on company policy and industry standards.

To learn more about employment laws in India, refer to our article on "Employment Laws in India: What Employers Must Know in 2025"

How to pay employees in India?[toc=How to pay]

Paying employees in India involves understanding salary structures, mandatory deductions, and setting up an efficient payroll process. To ensure full compliance with Indian labor laws, companies need to navigate a multi-step process, whether they manage payroll in-house or outsource it to a service provider.

Employee salaries structures in India

In India, employee salaries are typically structured around the Cost to Company (CTC), which represents the total cost incurred by the employer. The salary structure includes both fixed and variable components, alongside allowances and non-cash benefits.

• Fixed Pay: Includes basic salary, which forms the foundation for other benefits, and allowances such as House Rent Allowance (HRA), Conveyance Allowance, and Leave Travel Allowance (LTA).
• Variable Pay: This includes performance-based components like bonuses and commissions.
• Benefits: Non-cash benefits, such as employer contributions to the Employees’ Provident Fund (EPF), health insurance, etc.
• Gross Salary: The total of basic salary, allowances, and bonuses.
• Net Salary: The take-home pay after deductions.

Try our fully loaded cost calculator now and take the first step towards building your world-class team in India: Salary Calculator India: Simplify Your Take-Home Pay Calculation

Key mandatory deductions

In India, several deductions must be made from an employee’s salary, and employers are responsible for withholding and depositing these amounts with the government.

• Employees’ Provident Fund (EPF): Mandatory for businesses with 20 or more employees, with both the employer and employee contributing 12% of the basic salary.
• Employees' State Insurance (ESI): A social security scheme applicable to employees earning up to ₹21,000 per month. Employers contribute 3.25%, while employees contribute 0.75%.
• Tax Deducted at Source (TDS): Income tax withheld based on the employee's tax bracket.
• Professional Tax (PT): Varies by state, with a maximum deduction of ₹2,500 annually.

Set up payroll in India

Setting up payroll in India requires a few essential steps, whether you’re managing it yourself or outsourcing it.

Here's how to get started:

• Establish Legal Presence: Register a local entity or partner with an EOR.
• Tax Registration: Obtain a Permanent Account Number (PAN) and a Tax Deduction and Collection Account Number (TAN).
• Social Security Registration: Register with the EPF and ESIC.
• Gather Employee Information: Collect PAN, bank details, Aadhaar number, and investment declarations.
• Define Payroll Policies: Set up pay cycles, attendance rules, and bonus structures.
• Calculate Salary and Deductions: Compute salaries, applying mandatory and voluntary deductions.
• Disburse Salary: Pay employees via bank transfer and provide payslips.
• File Statutory Filings: Submit deductions for EPF, ESI, TDS, and PT with government departments.

Need help paying employees in India? Check out our Payroll in India: What Global Employers Need to Know for a step-by-step walkthrough on compliance, payroll setup, and tax regulations.

For companies operating internationally, outsourcing payroll to an EOR or payroll provider can simplify the process, ensuring compliance with all regulations while reducing administrative burden.

What are the compliance risks in India?[toc=Compliance Risks in India]

When hiring employees in India, compliance is non-negotiable. India has a complex web of central and state labor laws that govern employment, payroll, benefits, and termination. For global businesses expanding into India, understanding and managing these compliance risks is essential to avoid legal disputes, financial penalties, and reputational damage.

From our experience helping international companies hire employees in India compliantly, here are the key compliance risks you should watch out for:

1. Misclassification of Workers

One of the most common risks is misclassifying independent contractors as full-time employees.
If a contractor works under your supervision, receives fixed pay, and follows your schedule, Indian authorities may classify them as an employee, triggering liability for unpaid taxes, social security contributions, and even severance pay.

How to avoid it: Use clearly defined fixed-term contracts and ensure each agreement states the scope of work, payment structure, and intellectual property ownership.

2. Non-Compliance with Labor Laws

India has 40+ central and state labor laws, including the Shops and Establishments Act, Industrial Disputes Act, and Payment of Wages Act. These regulate minimum wages, working hours, overtime pay, and paid leave. Failing to follow these can result in fines or even suspension of business operations.

How to avoid it: Stay updated on local labor laws in each state where your employees are located and ensure your policies comply with them.

3. Tax and Payroll Errors

Incorrect tax withholdings, late income tax deposits, or missed social security contributions (EPF/ESI) can lead to audits and penalties from the Indian government.

How to avoid it: Automate payroll processing through a compliant system or partner with an Employer of Record (EOR) to ensure all tax deductions and filings are handled accurately.

4. Data Privacy and Employee Information

Indian employers must safeguard employee data in compliance with the Digital Personal Data Protection Act (DPDP), 2023. This includes storing data securely, obtaining employee consent, and limiting access to authorized personnel.

How to avoid it: Adopt transparent data management policies and use secure HR software that meets Indian and global privacy standards.

5. Termination and Severance Risks

Improper termination or not following due process under the Industrial Disputes Act (1947) can result in legal claims or reinstatement orders. Employees are entitled to notice periods, severance pay, and sometimes government approval for large layoffs.‍

How to avoid it: Document performance issues clearly, follow the employment contract terms, and issue written termination notices as required by law.

6. Intellectual Property and Confidentiality

For global companies outsourcing work to India, protecting intellectual property ownership is critical. Without clear clauses in employment agreements, employees or contractors may retain rights over their work.

How to avoid it: Include detailed IP transfer and confidentiality clauses in every employment contract or services agreement.

7. Foreign Entity Compliance and Permanent Establishment (PE) Risk

If a foreign company directly manages employees or generates revenue through Indian staff without a local entity, it could be deemed to have a Permanent Establishment under Indian tax law, leading to corporate tax liabilities in India.

How to avoid it: Hire through an EOR or set up a Private Limited Company to stay compliant and avoid triggering PE status.

Complying with Indian employment laws may seem complicated, but with proper guidance, it becomes manageable. Global businesses that proactively address payroll, tax, and labor compliance not only stay legally protected but also build strong, trustworthy relationships with their Indian workforce.

What is the work culture like in India?[toc=Work Culture in India]

India’s work culture combines professionalism, strong teamwork, and adaptability. For global businesses hiring employees in India, understanding local work ethics, labor expectations, and employment norms is key to building productive, long-term teams.

From our experience helping global companies hire and manage employees in India, here’s what defines the culture and how international employers can align with it effectively:

1. Hierarchy and Respect for Authority: Indian workplaces are hierarchical, with decisions often coming from senior leaders who are highly respected.
2. Relationship Building: Trust and personal connections matter deeply, and relationships often extend beyond the workplace.
3. Teamwork and Collectivism: Employees prioritize group success over individual achievements, emphasizing collaboration and harmony.
4. Communication Style: Communication tends to be polite and indirect, avoiding confrontation to maintain respect and harmony.
5. Work-Life Integration: The lines between work and personal life are often blurred, with employees staying late or participating in team activities outside work hours.
6. Adaptability and Flexibility: Indian professionals are highly adaptable, thriving in dynamic environments and adjusting quickly to changes.

For a deeper dive into this topic, check out our article: Work Culture in India: All You Need to Know.

How to terminate employees legally in India?[toc=Layoffs & Termination Laws]

Laying off or terminating employees in India requires strict compliance with Indian labor laws. Whether the reason is redundancy, poor performance, or restructuring, global businesses must follow due process to ensure fairness and avoid legal disputes.

Based on our experience supporting global companies with workforce management in India, we’ve developed a step-by-step approach to legally conducting employee layoffs in India:

Step 1: Understand the Legal Framework

Before initiating any termination, you need to be familiar with the key Indian laws that apply:

• Shops and Establishments Act: Governs notice periods and valid grounds for dismissal such as redundancy or misconduct.
• Industrial Disputes Act (1947): Regulates layoffs and retrenchments, especially for companies with more than 100 employees.
• Payment of Wages Act (1936): Requires final dues, including wages, bonuses, and accrued leave, to be paid within two working days of termination.
• Employment Contract: Defines the notice period, severance pay, and grounds for termination specific to each employee.

Step 2: Identify the Type of Termination

Understanding the reason and category of termination helps ensure compliance with the correct procedure.

Step 3: Define Notice Periods and Compensation

Notice periods and severance obligations differ based on job role and the employment agreement.

For retrenchment cases under the Industrial Disputes Act, employees are entitled to 15 days’ average pay for each completed year of service.

Step 4: Follow the Termination Process Carefully

1. Provide Written Notice: Issue a formal termination letter stating the reason, effective date, and duration of the notice period.
2. Conduct Internal Inquiry (if required): For cases of misconduct or performance issues, carry out a fair and documented inquiry as per Indian employment laws.
3. Settle Final Dues Promptly: Within two working days, pay all pending wages, bonuses, leave encashments, and severance under the Payment of Wages Act.
4. Recover Company Property: Ensure laptops, ID cards, and other company-issued equipment are collected before the employee’s exit.
5. Maintain Documentation: Keep records of all correspondence, inquiry reports, and settlement receipts to protect against legal claims under Indian labor laws.

Step 5: Special Considerations for Foreign Employers

• Employer of Record (EOR): If you hire through an EOR, the EOR handles all termination compliance, settlements, and government notifications on your behalf.
• Government Notification: Collective layoffs or retrenchments involving 100 or more employees require prior government approval.
• Permanent Establishment Risk: Ensure terminations are executed through your Indian entity or EOR to avoid triggering tax liabilities under Indian law.

Step 6: Best Practices to Avoid Legal Risks

• Include detailed termination clauses in every employment contract.
• Keep written records of performance reviews and warnings.
• Apply consistent exit policies for all employees.
• Conduct exit interviews to ensure smooth closure and gather feedback.
• Work with a local HR or legal expert to stay updated on labor law changes.

For a deeper breakdown of termination laws, notice period rules, and severance compliance, explore our Complete Guide to Employee Termination in India.

Why choose Wisemonk to hire employees in India?[toc=Why Choose Wisemonk]

Wisemonk is a specialized Employer of Record (EOR) in India, built for global companies looking to hire, pay, and manage employees in India without the complexities of setting up a local entity. We provide end-to-end workforce solutions tailored to India’s regulatory landscape, ensuring seamless compliance, payroll, and dedicated HR support for your offshore teams.

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Here’s how Wisemonk supports your hiring needs:

• Talent Acquisition: We help you find top talent in India quickly and efficiently.
• Payroll Management: From salary calculations to timely payments, we handle it all.
• Tax Optimization: We ensure compliance with Indian tax laws while optimizing deductions.
• Employee Benefits: We manage health insurance, provident fund, and other statutory benefits.
• Onboarding & Offboarding: Seamless processes for welcoming and transitioning employees.
• Background Checks: Thorough pre-employment screenings to ensure you hire the right people.
• Equipment Procurement: We handle device sourcing, setup, and delivery for remote employees.
• Compliance Support: Full adherence to Indian labor laws and regulations to avoid penalties.
• Offshore Team Setup: Need a GCC or offshore team? We provide end-to-end support, including company registration.

Beyond these core services, we provide advanced support in contractor management, company registration, and work permit & visa assistance. Our services is designed to streamline every aspect of hiring and managing employees in India, so you can focus on growing your business while we handle the complexities.

Ready to build your high-performing team in India? Reach out to us today!

FAQs

Can a U.S. company employ someone in India?

Yes, a U.S. company can legally employ workers in India. You can either set up a local legal entity (such as a Private Limited Company) or hire through an Employer of Record (EOR). The EOR serves as the legal employer in India, managing employment contracts, payroll, income tax, and statutory benefits like provident fund and employee state insurance. This allows you to hire compliantly without establishing your own entity.

What are the mandatory employee benefits in India?

Under Indian labor laws, employers must provide certain mandatory benefits, including:

• Provident Fund (PF): 12% employer and 12% employee contribution for retirement savings.
• Employee State Insurance (ESI): Health coverage for employees earning under ₹21,000 per month.
• Gratuity: Paid after five years of continuous service.
• Paid Leave: Typically 12–15 days annually, varying by state.
• Maternity Leave: 26 weeks for eligible female employees.
• Bonus and Overtime Pay: As per the Payment of Bonus Act and Shops & Establishments Act.
  Many global employers also offer health insurance, performance bonuses, and flexible work options to attract top talent.

Providing these mandatory benefits not only ensures compliance but also builds trust with your workforce. For more details on employee benefits in India, check out our article: Employee Benefits in India: A Complete Guide.

What is the cost per hire in India?

The average cost per hire in India ranges between ₹40,000 and ₹1,00,000 ($480–$1,200) depending on the job level, location, and sourcing method. Recruitment agency fees typically add 8–15% of the employee’s annual salary. Partnering with an EOR or local HR partner can reduce these costs and simplify compliance, background checks, and onboarding.

Is it possible to work remotely from India?

Yes. Remote work is widely practiced across India, especially in IT, marketing, finance, and customer support. Foreign companies can hire Indian remote workers through an Employer of Record (EOR), ensuring compliant salary payments in INR, proper tax withholdings, and benefits administration under Indian employment laws.

Has hiring slowed down in India in 2025?

No, hiring in India remains strong in 2025. According to the TeamLease Employment Outlook Report 2025, overall hiring intent among Indian employers grew by 7–9% year-over-year, led by technology, finance, and healthcare sectors. While global firms may slow hiring in some markets, U.S. and European companies continue to expand in India due to its skilled, English-speaking workforce.

Why do American companies hire Indian workers?

American companies hire Indian employees for their technical expertise, scalability, and cost efficiency. India offers one of the largest English-speaking talent pools in the world, strong digital infrastructure, and favorable employment laws for global collaboration. By hiring through an EOR or local entity, U.S. employers can build compliant, high-performing teams across functions such as software development, finance, and customer success.

Wisemonk simplifies global hiring with end-to-end EOR, HR, payroll, and compliance solutions.

What is included in an Employee Onboarding Checklist in India when using an Employer of Record (EOR)?

When using an Employer of Record (EOR) in India, the onboarding checklist typically includes key steps such as verifying the employee’s documentation (e.g., PAN, Aadhaar, and bank details), setting up payroll and benefits, introducing company policies, completing compliance formalities, and ensuring the employee understands local labor laws. To streamline the process and ensure full compliance, an EOR manages these tasks for you.

For more details on onboarding and EOR services in India, check out Wisemonk’s Employee Onboarding Checklist For Hiring in India 2025 blog.