Legal Requirements for Hiring Employees in India (2026)

TL;DR

Hiring employees in India necessitates strict adherence to central and state labor laws. This includes having mandatory written employment contracts, registering for statutory benefits like Provident Fund (PF) and Employees' State Insurance (ESI), and following regulations for working hours, leave, and termination.

Foreign companies typically need to set up a legal entity or engage an Employer of Record (EOR) to manage compliance, payroll, and taxes.

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What Are the Legal Requirements for Hiring Employees in India?[toc=Legal Requirements for Hiring]

If you're a US, UK, or European company planning to hire employees in India, the legal landscape can feel overwhelming at first.

India doesn't have a single, unified employment law. Instead, it operates on a layered system of central (federal) and state labor laws that govern everything from employment contracts and minimum wages to social security contributions and termination procedures.

But here's the good news: India recently consolidated 29 older labor statutes into four new labor codes, effective November 21, 2025. These codes are designed to simplify compliance for both domestic and international employers.

The final Central Rules under these codes are expected to be fully notified by April 1, 2026, with state-level implementation timelines varying.

Let's break down the key legal requirements you need to know.

1. The Four New Labor Codes

India's employment laws now sit under four unified labor codes:

The Code on Wages, 2019: Covers minimum wages, payment timelines, bonus eligibility, and equal pay. It introduces a national floor wage, which means every state must set minimum wages at or above this floor. All workers, including those in unorganized sectors, are now entitled to minimum wages.
The Code on Social Security, 2020: Governs statutory benefits like the Employees' Provident Fund (EPF), Employee State Insurance (ESI), gratuity, and maternity benefits. Notably, this code now formally covers gig and platform workers too.
The Industrial Relations Code, 2020: Deals with trade unions, industrial disputes, standing orders, and conditions for retrenchment and layoffs. It increases the threshold for government approval on layoffs to establishments with 300 or more workers.
The Occupational Safety, Health and Working Conditions Code, 2020: Covers workplace safety, working hours, overtime, and conditions for contract workers. It also permits women to work night shifts across all establishments with their consent and required safety measures.

2. Employment Contracts

While there's no single central law mandating a written employment contract in the private sector, several state-specific Shops and Establishments Acts (like in Karnataka and Delhi) require written appointment letters. And under the new labor codes, issuing appointment letters to all workers is now mandatory to ensure transparency and job security.

Your employment contracts should clearly cover: job role and responsibilities, compensation structure (basic salary, allowances, deductions), working hours and leave entitlements, notice period (typically 30 to 90 days), termination conditions, and confidentiality or non-compete clauses.

3. Statutory Benefits and Social Security Contributions

This is where many foreign employers trip up. Indian employment laws require employers to make several mandatory contributions on behalf of their employees:

Employees' Provident Fund (EPF): Mandatory for establishments with 20 or more employees. Both employer and employee contribute 12% of basic salary plus dearness allowance. The employer's 12% is split: 8.33% goes to the Employees' Pension Scheme (EPS) and 3.67% to the EPF savings account.
Employee State Insurance (ESI): Applies to establishments with 10 or more employees (20 in some states) where an employee earns up to INR 21,000 per month. The employer contributes 3.25% and the employee contributes 0.75% of wages.
Professional Tax: A state-level tax deducted from the employee's salary, usually capped at INR 200 per month (varies by state).
Gratuity: Payable to employees who have completed five years of continuous service, calculated at 15 days' wages for each completed year of service. Under the new labor codes, the five-year requirement is waived in cases of death, disablement, or expiry of a fixed-term contract.

4. Minimum Wages

India's minimum wages are not uniform across the country. They vary by state, industry, and skill level. The national floor-level minimum wage is currently around INR 178 per day. Each state sets its own minimum wage rates above this floor, and these are revised periodically. As an international employer, you need to comply with the minimum wages applicable in the state where your employee works.

Read more: Minimum Wage in India

5. Working Hours and Leave

Under Indian labor laws, the standard working hours are 8 hours per day or 48 hours per week. Overtime is payable at twice the ordinary rate of wages. Leave entitlements typically include:

12 to 21 days of earned/annual leave per year (varies by state)
Sick leave and casual leave (state-dependent, usually 7 to 12 days)
26 weeks of paid maternity leave under the Maternity Benefit Act (for up to two children)
Public/national holidays (varies, usually 10 to 15 per year)

There's no central law mandating paternity leave in the private sector, though some employers offer it as part of their benefits package.

Read more here: Work Culture in India

6. Tax Obligations

Employers in India are responsible for deducting income tax at source (TDS) from employee salaries. You'll need a Tax Deduction Account Number (TAN) for this purpose. Tax filing follows the Indian financial year (April 1 to March 31), and employers must deposit TDS with the government by the 7th of the following month.

Goods and Services Tax (GST) may also apply depending on the nature of your business operations in India.

7. Workplace Safety and Anti-Discrimination

The new Occupational Safety, Health and Working Conditions Code requires employers to maintain safe working environments, provide free annual health checkups for workers above 40, and follow specific safety protocols. Employers with even one employee in hazardous processes must provide these benefits.

On the anti-discrimination front, Indian law prohibits workplace discrimination based on gender, disability, and HIV status. The Prevention of Sexual Harassment (POSH) Act, 2013 requires every employer to establish an Internal Complaints Committee (ICC) for handling sexual harassment complaints. Non-compliance can result in fines up to INR 50,000 for a first offense and higher penalties plus license cancellation for repeat offenses.

8. Termination Procedures

Terminating employees in India requires careful compliance with local labor laws. Key requirements include:

Providing adequate notice (typically 30 to 90 days, as specified in the employment contract)
Payment of severance pay, including gratuity for eligible employees
Following due process under the Industrial Relations Code, especially for "workmen" who have enhanced protections
Proper documentation of the termination reason and process

For establishments with 300 or more workers, prior government approval may be required for retrenchment, layoff, or closure under the new Industrial Relations Code.

How Can Foreign Companies Hire in India Without a Legal Entity?

You don't need to set up a branch office or local entity to hire employees in India. Foreign employers have three main options:

Set up a legal entity (Private Limited Company): Full control but expensive (INR 5,00,000 to INR 15,00,000 setup) and time-consuming (4 to 6 months).
Hire independent contractors: Fastest option, but carries significant misclassification risk. Indian law assumes workers are employees unless proven otherwise.
Use an Employer of Record (EOR): The EOR becomes the legal employer in India, handling employment contracts, payroll processing, tax filing, statutory benefits, and compliance. You retain day-to-day control of the employee's work. Setup takes 2 to 3 weeks, and costs typically range from $99 to $299 per employee per month.

For most international employers hiring a small to mid-sized team, the EOR route offers the best balance of speed, compliance, and cost efficiency while avoiding the complexity of navigating Indian employment laws independently.

Get Started With Wisemonk EOR[toc=Choose Wisemonk EOR]

Hiring employees in India shouldn't mean spending months setting up a legal entity or losing sleep over compliance risks.

Wisemonk handles the heavy lifting for you, from employment contracts and payroll processing to EPF, ESI, tax filing, and every other statutory requirement we just covered.

We're already supporting 300+ global companies with compliant hiring in India, managing 2,000+ employees and over $20M in payroll.

Whether you're hiring your first developer in Bangalore or building a full team across multiple states, we make it seamless.

Here's what you get with Wisemonk EOR:

Compliant hiring in 2 to 3 weeks without setting up a local entity
Full payroll management with accurate PF, ESI, TDS, and professional tax deductions
End-to-end benefits administration including medical insurance, maternity leave, and gratuity
Dedicated HR support for your Indian employees from day one
Transparent pricing starting at $99/month per employee with no hidden fees or FX markups

Stop worrying about Indian labor laws and start building your team. Talk to our experts today and get your first hire onboarded within weeks!

Frequently asked questions

Do foreign employers need an employment visa to hire Indian workers remotely?

No. If you're hiring Indian employees who will work from India for your foreign company, they don't need an employment visa since they're working in their own country. Employment visas are only required for foreign nationals coming to India for work, with a minimum salary threshold of $25,000 per year and sponsorship from a registered Indian entity.

Can hiring employees in India create a Permanent Establishment (PE) risk for my company?

Yes, it can. If your company has a fixed place of business, a dependent agent, or employees performing core business functions in India, tax authorities may classify it as a Permanent Establishment, making your foreign company liable for Indian corporate tax. Using an Employer of Record helps mitigate this risk because the EOR acts as the legal employer, keeping your company's operational footprint separate.

Are non-compete clauses enforceable in Indian employment contracts?

Under Section 27 of the Indian Contract Act, any agreement that restrains a person from exercising a lawful profession or trade is void. This means post-employment non-compete clauses are generally unenforceable in India. However, non-solicitation and confidentiality clauses during and after employment are typically upheld by Indian courts if they're reasonable in scope.

Can foreign companies pay Indian employees in a currency other than INR?

While it's technically possible to agree on a foreign currency salary, Indian labor laws require that statutory contributions like EPF, ESI, and professional tax are calculated and deposited in Indian Rupees (INR). Most Indian employees also prefer INR payments to avoid currency exchange fluctuations. Working with a local payroll partner or EOR ensures salary disbursement and statutory compliance happen seamlessly in INR.

What background checks are legally allowed when hiring employees in India?

Employers in India can conduct identity verification, educational qualification checks, previous employment verification, criminal record checks, and address verification. However, India's Digital Personal Data Protection Act, 2023 requires you to obtain the candidate's consent before collecting or processing personal data. Sensitive data like health records or biometric information requires additional safeguards and explicit consent.

How does the probation period work for Indian employees?

Indian labor laws don't prescribe a universal probation period, but most state Shops and Establishments Acts allow a probation period of 3 to 6 months. During probation, employees are still entitled to statutory benefits like EPF and ESI. Termination during probation is simpler, but employers must still follow the notice terms outlined in the employment contract and cannot terminate on discriminatory grounds.

Are Indian employers required to provide medical insurance to employees?

There's no central law mandating private medical insurance for all employees. However, employees earning up to INR 21,000 per month are covered under the Employee State Insurance scheme, which provides medical benefits. For higher-salaried employees not covered by ESI, offering group medical insurance has become a standard market practice in India, and most skilled professionals expect it as part of their compensation package.