How to Hire Employees in India: A Guide for US Companies

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 options for employing talent in India?[toc=Different Hiring Options]

When you're looking to hire employees in India, you have four different hiring options. The choice depends on your business needs, timeline, and appetite for navigating Indian labor laws and compliance requirements.

From our experience helping global companies hire employees in India, here are the common methods:

1. Set Up a Local Entity

If you're after full control over your operations in India, establishing a legal entity (typically a private limited company) is the traditional route. This requires registering your company, obtaining your Permanent Account Number (PAN), Tax Deduction and Collection Account Number (TAN), and complying with local regulations including the Industrial Disputes Act and state-specific labor laws.

Timeline: 4-6 months for setup
Best for: Companies planning long-term operations with 50+ employees in India

2. Partner with an Employer of Record (EOR)

An Employer of Record (EOR) simplifies the hiring process by acting as the legal employer for your team in India while you retain operational control. EOR services allow companies to hire employees in India without needing to establish a local entity, avoiding the 4-6 month setup timeline.

How an EOR works:

• Legal employer responsibilities: Handles employment contracts, payroll processing, tax withholdings, and compliance with Indian employment laws
• Benefits administration: Manages Employee Provident Fund (EPF), Employee State Insurance (ESI), health insurance, and other employment benefits
• Payroll & tax compliance: Processes monthly salary payments, withholding income tax, professional tax, and social security contributions
• Onboarding expertise: Provides streamlined employee onboarding with compliant employment agreements
• Risk mitigation: Eliminates permanent establishment (PE) risk and reduces administrative burdens for foreign companies

Timeline: 1-3 days to hire
Best for: Testing the market, hiring remote employees, or teams under 50 people

3. Hire Independent Contractors

Independent contractors offer flexibility for short-term or project-based needs. However, proper classification is critical, misclassifying employees as independent contractors can result in penalties up to ₹1 lakh plus back payment of provident fund contributions and severance pay.

Classifying Indian workers: employees vs. contractors

Here are the key differences between employees and contractors:

Contractors:

• Control their work schedule and methods
• Provide services to multiple organizations
• Not entitled to employee benefits, paid leave, or overtime pay
• Assume liability for their work
• Engaged for specific projects or fixed term contracts

Full-time employees:

• Subject to employer direction on job duties and work hours
• Contractually bound to one company
• Entitled to minimum wages, EPF, ESI, maternity leave, sick leave
• Protected from work-related liability
• Hired for indefinite employment relationships

Best for: Project-based work, specialized skills, remote work arrangements

4. Partner with a Staffing Agency

Staffing agencies handle recruitment, employee onboarding, and payroll for temporary or contract positions. They manage the employment relationship while you focus on day-to-day employee management.

Best for: Seasonal hiring, temporary roles, or testing talent before full-time employment

Each of these options has its own set of advantages depending on what stage your business is at and what your long-term plans are in India.

Understanding Worker Classification in India

Misclassification is one of the biggest compliance risks when you hire employees in India. The Indian government strictly enforces distinctions between employees and independent contractors.

Legal consequences of misclassification:

• Back payment of Employee's Provident Fund contributions (12% of employee's salary)
• Unpaid gratuity claims and retirement savings scheme contributions
• Penalties under Indian labor laws (up to ₹1,00,000 per violation)
• Tax compliance issues with withholding income tax
• Liability for employment benefits including health insurance and medical benefits

Safe harbor test: If workers follow your schedule, use your tools, work exclusively for you, and you control their work output, they're employees, not independent contractors, regardless of contract language.

What does the hiring process in India look like?[toc=Recruitment Process]

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:

A clear step-by-step approach to hire employees in India

Step 1: Define the Job Role

Be specific about responsibilities, required tech stack, experience range, and outcomes. Global companies often underestimate India’s talent depth, so clarity helps filter thousands of applicants fast. Include remote or hybrid expectations, shift overlap, and must-have compliance requirements like PF applicability.

Step 2: Source and Recruit Candidates

India’s talent market is fragmented, so use multiple channels to get quality applicants.

• Job portals: Naukri is the strongest for mid-senior roles. Shine and TimesJobs help widen reach. Freshersworld works only for entry-level hiring.
• LinkedIn: Essential for specialized roles, product teams, and leadership hiring.
• Referrals: India has a strong referral culture, so employees often recommend talent from prior companies.
• Agencies: Use India-based recruiters like Wisemonk who understand salary norms, notice periods (usually 30 to 90 days), and current talent demand.

Step 3: Screen and Shortlist Applications

Evaluate CVs for technical skills, domain knowledge, stability, and actual contribution since many engineers list team achievements. Shortlist based on capability and expected notice period because long notice periods can slow the hiring timeline.

Step 4: Conduct Interviews and Assessments

India's hiring process typically requires 3-4 rounds:

• Technical interviews for hard skills validation
• Practical tests or take-home assignments
• Communication and collaboration assessments for remote work readiness

Key insight: Keep interview loops tight, delays mean losing candidates to competing offers. 82% of Indian employees are actively job hunting (2025 Aon study).

Step 5: Perform Background Checks

Standard verification:

• Employment history (2-3 previous employers)
• Education credentials (degree authenticity)
• Criminal record screening
• ID validation (PAN, Aadhaar)

Legal requirement: Background checks on education and criminal records require explicit written consent under the Digital Personal Data Protection Act, 2023 (DPDP Act). Work with India-specialist verification partners (Springverify, AuthBridge) to ensure DPDP compliance.

Timeline: 7-14 days for complete verification.

Step 6: Extend a Job Offer

Offer letters in India must clearly specify compensation structure, fixed versus variable pay, PF eligibility, probation period, notice period, and leave policy. Expect candidates to negotiate. Counteroffers from current employers are very common.

Step 7: Set Up Payroll and Benefits

To stay compliant, you must manage:

• Monthly payroll with TDS tax calculation
• PF, ESI, and professional tax which is state specific
• Gratuity eligibility
• Statutory leave and holiday rules

Step 8: Onboard and Integrate

Provide new hires with compliant employment contracts, equipment, access to tools, and onboarding documentation. India values structured onboarding, and clear expectations plus early engagement directly improve retention in the first 90 days.

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 300+ global companies expand into India, Wisemonk supports your hiring journey with expertise in compliance, payroll, and seamless team integration.

For more details on onboarding and EOR services in India, check out our Employee Onboarding Checklist For Hiring in India 2025 guide.

How much does it cost to hire an employee in India?[toc=India Hiring Costs]

Based on our experience managing payroll for 300+ global companies, hiring costs in India break down into three components:

1. Salary ranges (2026):

• Junior roles: ₹4-8 lakh/year
• Mid-level: ₹12-20 lakh/year
• Senior/leadership: ₹25-40 lakh/year
• Average: ₹5.2 lakh/year (₹43,000/month)

2. Employer contributions: Add 20-22% on top of salary for EPF (12%), ESI (3.25%), professional tax, and gratuity provisions.

3. City variations: Bangalore/Mumbai salaries run 25-30% higher than tier-2 cities.

Want exact numbers for your specific role and location? Use our Salary Calculator India to get instant cost breakdowns including all statutory contributions, taxes, and take-home pay estimates.

Now that you understand the costs, let's look at the legal framework that governs these employment relationships.

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.

Note: Implementation varies by state as of 2026. Monitor state-specific notifications.

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 Employees]

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 global 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.

Critical Compliance Rule: The Code on Wages mandates that basic pay and dearness allowance combined must be at least 50% of total remuneration. This prevents employers from inflating allowances to reduce provident fund contributions.

Example:

• Total CTC: ₹10,00,000/year
• Basic + DA: Minimum ₹5,00,000 (50%)
• Remaining: HRA, allowances, benefits

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 processing requires these essential steps:

1. Establish Legal Presence: Register a local entity or partner with an EOR
2. Tax Registration: Obtain PAN and TAN for tax compliance
3. Social Security Registration:
   • Register with EPF if 20+ employees
   • Register with ESIC if 10+ employees with any earning ≤₹21,000/month
   • Must register within 1 month of crossing threshold
4. Gather Employee Data: Collect PAN, bank details, Aadhaar, investment declarations
5. Define Payroll Policies: Set pay cycles, attendance rules, overtime pay policies
6. Calculate Monthly Salary: Apply mandatory tax withholdings and social security contributions
7. Disburse Salary Payments: Pay employees via bank transfer with detailed payslips
8. File Statutory Filings: Submit EPF, ESI, TDS, and PT to government departments
9. Maintain Records: Keep accurate employee data, financial transactions, and statutory documents for minimum 3 years (audit requirements)

Non-compliance penalties: Up to ₹1,00,000 for EPF/ESI violations plus daily penalties

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.

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 blends traditional values with rapid evolution. Understanding these dynamics helps global companies navigate the 2026 hiring landscape effectively.

Key cultural traits in 2026:

• Hierarchy with flexibility. Indian workplaces respect seniority and authority, but startups and tech hubs (Bangalore, Hyderabad, Pune) are shifting toward flatter, collaborative structures. Younger generations expect more autonomy than previous cohorts.
• High adaptability remains core strength. Indian professionals excel in dynamic environments and adjust quickly to new tools and global workflows. Only 56% of graduates are considered immediately employable (India Skills Report 2026), but those who invest in upskilling thrive in remote and hybrid work.
• Retention is critical challenge. Despite strong work ethic, 75% of Indian employees are "job-hugging", staying in current roles from fear, not loyalty. High attrition persists in tech and specialized sectors. Retention now depends on clear career progression, learning opportunities, and stability over aggressive pay alone.
• Skills-first culture emerging. Companies are moving from degree-based to skills-based hiring. Demonstrated capability through portfolios and certifications now outweighs traditional credentials.
• Hybrid work is standard, not a perk. Hybrid models have stabilized in IT, consulting, and professional services. This is now baseline expectation, especially among Gen Z who prioritize work-life balance after watching millennials sacrifice for companies that didn't reciprocate loyalty.
• Team-oriented but evolving. Collaboration and group success remain priorities, though individual contribution is increasingly recognized, especially in startups and tech companies.

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]

Terminating employees in India requires strict adherence to local labor laws. India doesn't recognize at-will employment, you need documented cause and proper procedure to avoid legal disputes.

Key legal requirements

Three core laws govern terminations:

• Industrial Disputes Act: Covers layoffs and retrenchment (300+ employees need government approval)
• Shops and Establishments Act: State-specific notice period rules
• Payment of Wages Act: Final dues must be settled within two working days

Notice period: Standard 30-90 days depending on state and contract. Misconduct cases don't require notice if documented inquiry is conducted.

Severance pay: 15 days' average pay per completed year of service for retrenchment (employees with 1+ years).

Compliant termination process

1. Issue written termination letter with reason and effective date
2. Conduct internal inquiry for misconduct cases (mandatory for legal protection)
3. Settle final dues within two working days, includes accrued leave, gratuity (if eligible), pending salary
4. Collect company assets and revoke access
5. Maintain documentation for minimum 3 years

Special considerations for foreign employers

If using an Employer of Record, the EOR handles all compliance, settlements, and government notifications. Layoffs affecting 300+ employees require prior government approval, processing takes 60-90 days. Ensure terminations are executed through your India entity or EOR to avoid permanent establishment risk.

Best practice: Document performance issues consistently, follow company policies uniformly, and consult local HR experts for complex cases.

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. Wisemonk provides end-to-end workforce solutions tailored to India’s regulatory landscape, ensuring seamless compliance, payroll, and dedicated HR support for your offshore teams.

Why global companies trust Wisemonk for hiring in India:

• Fast talent acquisition and onboarding: Helping 500+ international companies hire top Indian talent with quick role kickoffs, structured preboarding, and day-one readiness powered by our India-first workflows.
• Accurate payroll and statutory operations: Managing $20M+ in monthly payroll with error-free TDS, PF, ESI, PT, compliant contracts, and fully automated filings across all Indian states.
• End-to-end employee lifecycle support: Supporting 2K+ employees with dedicated HR specialists who handle onboarding, offboarding, background checks, equipment procurement, and daily employee needs.
• Transparent and predictable pricing: Starting at $99 per employee per month with no hidden fees, no FX markups, and clean cost visibility that global teams can trust.
• Compliance and risk protection: Keeping global teams protected from misclassification, labor disputes, and accidental Permanent Establishment risk through airtight documentation and local labor law expertise.

Client review/feedback:

“Wisemonk has helped us hire right people from India for a Canadian entity. The process is so smooth we don't even notice that our payroll has people in both Canada and India.”

- Dinesh A.
Co-founder and CTO
Read the full review on G2 →

“Wisemonk has successfully hired high-quality candidates, which has impressed the client. The team is responsive to the client's requests and changes via Slack. The team also collaborates through a hiring tracker in Google Sheets. Wisemonk communicates via email and virtual meetings.”

- Dan Sampson
VP of Engineering, Cobu
Read the full review on Clutch →

Wisemonk 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.

Beyond these core services, Wisemonk also provide advanced support in contractor management, company registration, and work permit & visa assistance and building offshore teams or Global Capability Centers (GCCs) in India for businesses planning long-term India operations.

Ready to build your high-performing team in India? Book a Call Now!