Guide to Hiring in India

Hiring Indian employees is an easy solution for U.S. based companies looking to expand their talent pool while saving money. But before you start interviewing, it’s important to get familiar with how to hire employees in India and understand whether full-time employees (FTEs) or contractors are best for your business. 

Let’s take a look at some of the most important things to consider before you hire in India.

Work culture

Indian work culture is strongly rooted in hierarchy underpinned by a strong work ethic and a high value on collectivism and relationship-building. Indian employees are likely to accommodate requests as much as possible while keeping criticisms or opinions to themselves. Unlike the US, communication is often subtle and indirect. As a US employer, it’s important to let your Indian team members know their opinion is valued and encourage more open dialogue.

Worker classification

India distinguishes between employers and contractors based on a variety of measures, and iIndia distinguishes between employees and contractors based on a variety of measures, and it’s critical you classify any workers correctly to avoid hefty fines. In addition, India distinguishes between “freelancers” and “independent contractors.” A freelancer is someone who takes on work on a project-by-project basis and may have several clients at the same time. An independent contractor is project-based and will usually only take on a single client at a time (such as hiring an independent architect for a building project). There are several questions that help determine whether a worker can be considered a contractor/freelancer or if they must be classified as an employee:

• Who compensates the worker?
• What is the length of service?
• Who has the authority to hire and fire?
• How much control and oversight exist?
• What is the nature of the job?
• Who supplies the work equipment?

You can find a more detailed overview of contractors and freelancers in India here. 

India also has a fourth type of worker known as “workmen.” Workmen is a term used in the Industrial Disputes Act of 1947 that defines those employees whose primary role is not supervisory, managerial, or administrative. Much of Indian labor law for full-time employees differs between workmen and supervisory/managerial positions.

Hiring Contractors

Hiring contractors in India is a breeze with Gusto. Compliance is minimal compared with FTEs, and you can easily add global contractors, automatically gather the right tax documents during onboarding, set up automatic recurring payments, and sync with accounting software right from the platform. It’s important to note that Indian Labor Law will supersede most terms laid out in your contract, so it’s best to understand your legal requirements before hiring contractors in India.

Onboarding

With Gusto, onboarding contractors in India takes just a few minutes. Once you add the contractor through your dashboard, they’ll be notified via email on the steps to set up their account. Self-onboarding allows them to add their own personal information and local banking details and sign any necessary documentation that’s automatically saved in Gusto’s secure document storage.

Tax compliance

As a U.S. employer, you aren’t required to withhold or pay taxes in India for your Indian contractors —  that’s the contractor’s responsibility. However, the IRS does require your contractor to sign a Form W-8-BEN or W-8-BEN-E, similar to a W-9 for domestic contractors. This form means you don’t have to withhold U.S. taxes from your Indian contractor’s earnings. The good news: Gusto helps collect signatures and store this form during the onboarding process. You don’t need to send it to the IRS, but you’re required to have it on file.

Contractors in India are required to file and pay regular taxes with the Indian government, and it’s the contractor’s responsibility to make timely payments.

Contractor payments

Gusto lets you pay contractors in India on the platform you already use, without a monthly per-contractor fee. Once you submit payroll, your contractor typically receives the funds in their home currency in 2–5 business days. We’ll also send them an email notifying them that their payment has been released. Contractors can easily log in to their Gusto account to check the status of their payments and download paystubs.

Hiring full-time employees in India

Hiring full-time employees in India requires an owned entity, meaning it can be prohibitively expensive and complex for many U.S.-based businesses. With Gusto’s EOR Service, powered by Remote, you manage the day-to-day responsibilities of your employee as usual. But you outsource payroll, tax compliance, HR, and benefits administration to experts. 

Let’s take a look at some of the most important things to consider before you hire employees in India.

Pay & tax

Any business that employs more than 20 workers in India is subject to the Provident Fund Act, and employees must contribute a fixed rate of 12% of salary. The employer is required to make a matching contribution and deposit both the employer’s and employee’s contributions (i.e. 24%) to the provident fund of the employee by the 15th day of the following month.

Out of the employer’s contribution of 12%, an amount equal to INR 1,250 is allocated to the pension fund of the employee. This pension scheme contribution is calculated as 8.33% of the pensionable salary ceiling, which is currently INR 15,000 per month.

Employer: 12% to the Provident Fund. The employer must also pay PF administration fees of 1.61% of the employee’s salary.

Employee: 12% to the Provident Fund. Employees in India may choose to have their income taxed under the old tax regime or the new tax regime. 

Employee Federal Income Tax (new regime)

• 0% – ₹0 to ₹300,000
• 5% – ₹300,000 to ₹600,000
• 10% – ₹600,000 to 900,000
• 15% – ₹900,000 to ₹1,200,000
• 20% – ₹1,200,000 to ₹1,500,000
• 30% – Above ₹1,500,000

In addition to the income tax, a surcharge is levied for individuals whose income exceeds INR 5 million:

• 10% for income above 5 million, up to 10 million
• 15% for income above 10 million, up to 20 million
• 25% for income above 20 million

Resource

Benefits

Pension

India’s Provident Fund is a mandatory, public pension plan that provides basic financial support to retired, disabled or deceased workers and their families. It is funded by percentage-based contributions from both employees and employers, as well as self-employed individuals.

Health Insurance

As of 2020, it is required by law for employers in India to offer supplemental health insurance to their workforce.

Although the country has a public health system, it’s important for employees in India to have private health insurance to get the prompt, high-quality care they need. Our plans also offer global coverage (excluding the U.S.) to protect your employees when they are traveling outside their home country.

Statutory time off & leave policies

As with most Indian regulations, laws vary by state as well as by industry. Factories and their workers tend to be regulated separately from “shops and establishments.”

PTO: By law, full-time workers in India are entitled to 15 days of holiday leave per year (known as earned leave), but it varies by state and industry. 

Casual & Sick Leave: Employees in India are guaranteed protected time off for sick leave, though the annual entitlement varies by state. In some states, casual leave (provided for urgent and unexpected short-term matters) is bundled with sick leave. In Delhi, employees accrue casual/sick leave at the rate of one day per month, and they are entitled to up to 12 days. The employee is paid at 100% of their average salary, and the employer is responsible for this payment.

Maternity Leave: Women in India are eligible for 26 weeks of paid maternity leave following the birth of their first two children, of which up to 8 weeks can be used prior to delivery. For women who have more than two children, the birth of each additional child entitles them to 12 weeks of paid maternity leave.

Parental/Paternity Leave: The private sector doesn’t require parental/paternal leave, and any parental leave policies are decided by the company. 

Public Holidays: India observes only three national holidays (Republic Day, Independence Day, and Mahatma Gandhi’s Birthday) but each state has their own calendar of annual holidays that they observe. Since Gusto’s EOR service, powered by Remote, has their entity registered in New Delhi, the number of public holidays for employees will be based on New Delhi’s public holiday list.

In 2024, there are 18 public holidays in New Delhi (inclusive of the three mandatory national holidays). With the consent of the client, employees may take public holidays from their own state, but the total number of public holidays must not exceed 18.

Statutory Leave Resource

Public Holidays Resource

Termination

Termination Process: Terminations in India can be done with or without cause depending upon the employment agreement, so long as the required notice is given and severance is paid out. Employment may be terminated through:

• Voluntary termination by the employee (resignation)
• Retirement as per the employment contract
• Non-renewal or expiry of the employment contract
• Dismissal due to serious employee misconduct (theft, fraud, etc.)
• Termination for performance

Notice Period: For an employee who’s worked for at least 3 months, a notice period of 30 days is required. If an employee is being terminated for misconduct, no notice is required. Employees who choose to leave usually give 30 days notice to their employer, though this is not required. 

Probationary Periods: While probationary periods are not mandatory when hiring in India, the standard probationary period is 6 months, with the option to extend an additional 3 months at the employer’s discretion.

Severance: Required severance pay differs based on the reason for termination, according to the Payment of Gratuity Act of 1972:

• Redundancy – Employees are entitled to severance pay worth 15 days’ average pay for every 1 year of continuous service or part thereof in excess of 6 months
• Dismissed – Employers must pay termination benefits including accrued PTO, a gratuity payment (for employees with over 5 years of continuous service), payment in lieu of notice (if no notice is given), statutory bonus payment, and any other amounts due under the employment contract

Terminated for misconduct – The employee is not entitled to notice pay or severance pay

Onboarding

Our team ensures your employees are onboarded and paid as quickly as possible while keeping your business compliant with all local employment legislation. The minimum onboarding time we need is only 3 working days. Onboarding time begins after the employee submits all required information, and the onboarding timeline is also dependent upon registration with local authorities.

While Gusto Global and Remote will guide you through the compliance side, creating a positive onboarding experience is a crucial part of hiring and retaining talent. Beyond just filing forms and running a background check, you should get your new team member set up with benefits and devices, create custom welcome emails, and send org charts to help them feel like part of the team. Gusto will also help craft custom offer letters compliant with Indian hiring law including: 

• Position, job description, and start date 
• Working hours 
• Compensation and benefits (salary, equity, vacation, and insurance)
• Termination policy 
• Confidentiality and non-disclosure agreements 
• Contact information and phone number

Minimum wage

India’s national government sets a floor-level minimum wage at INR 178 ($2.16 USD) per day, which works out to INR 5340 ($65 USD) per month. This number is based on cost-of-living changes set in the 1948 Minimum Wages Act. However, the reality is far more complex.  Minimum wages vary wildly not only state-by-state, but also by skilled vs. unskilled workers as well as by industry. In Delhi, for example, for clerical and supervisory staff who hold degrees, it jumps to INR 23,082 per month ($278 USD).

Overtime pay and maximum working hours

Maximum working hours also vary by state, though Delhi adheres to a 48-hour workweek with 9-hour days. Under special circumstances, weekly hours can be extended to 54. Employees are entitled to a half-hour break for every 5 hours of continuous work and must have a full 24 hours of consecutive rest each week. Overtime is paid at a rate of 100% of the regular hourly wages. In the case of salaried employees, the “hourly wage” is calculated based on the monthly salary divided by 26 days, and assumes an 8-hour workday. 

Resource

Additional info

Record Keeping

Employers must keep a record of the hours worked, intervals of rest and meals allowed, and the amount of leave taken by every person employed. Any overtime worked must be recorded and tracked separately from regular working hours.