Hire employees in India

When it comes to skilled workers, it is hard to find any other country with such a large talent pool as India. Every year, around 3.1 million graduates join the ranks of India’s national workforce. Especially in IT, the country holds an international reputation for providing well-trained, high-quality experts.

In addition to the sheer number of qualified workers, hiring employees in India also holds financial benefits for international companies as employment costs are a lot lower than in Europe. Therefore, it’s no surprise that India ranks among the world’s top outsourcing countries.

Furthermore, the Indian Government has made the IT industry one of its top priorities by easing the legal processes for foreign companies wishing to outsource their IT workload and by creating very attractive IT policies and regulations.

There are only a few states in India where written employment agreements are mandatory. However, given the complexity of statutory and regional labour laws, it is strongly recommended to put in place a detailed employment contract when hiring an employee in India.

Fixed-term employment contracts are permitted by Indian law under the condition that the employee is only hired in order to fulfill a short-term requirement. It is therefore not possible to hire an employee via several short-term contracts in a row. Unless stated otherwise, employment agreements in India are considered to be permanent.

The employment contract needs to provide detailed information on payment. It is mandatory to indicate salaries in Indian Rupees.

Probation Period

There is no regulation on probation periods that applies to every state in India. As a general rule, a probation period should last three months. In practice, probation periods in India range between three and six months.

Working Hours and Breaks

A regular work week shouldn't comprise more than 48 hours. Daily working hours range between 8 and 9 hours.

A 30-minute rest break is mandatory after five hours of consecutive work. Employees are entitled to one day off per week.

Overtime

Any work delivered after a nine-hour day or exceeding 48 hours in one week is considered overtime. Overtime work is generally paid at a double rate. The same applies to work on public holidays.

Employees in India get paid monthly. Indian Rupees is the standard currency for salaries and wages. It is not allowed to pay employees in foreign currencies. Payments are to be made by the last day of the month – at the very latest – but usually employers start payments on the 28th of each month.

Minimum Wage

There is no national minimum wage in India. Instead, minimum pay rates vary both between provinces and sectors.

Sick Pay

Employees who cannot work because of a medical condition are entitled to 70% of their usual daily wages. However, the number of paid sick leave days varies from state to state. The general sick day entitlement ranges from 12 days to 24 days.

Bonuses

Indian legislation does provide for a 13th salary. With the Payment of Bonus Act, it has become mandatory for employers to pay their workers a minimum annual bonus equal to 8.33% of the full year’s wages. The maximum rate for bonus payments is 20% of the employee’s annual wages.

Employees and employers in India are subject to the following tax and social security contribution rates (valid for the 2023/2024 tax year running from April 1 to March 31):

Taxes

Employers

up to 30%

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• 25% – 30% corporate tax for domestic companies (40% for foreign companies)

• additional surcharge

• additional health and education cess of 4% of the outstanding tax amount

• 5% - 28% GST (18% standard rate)

Employees

up to 30% *

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• up to 30% income tax

• additional surcharge of up to 25% on income exceeding INR 5,000,000

• plus 4% health and education cess on income tax due

Social security

Employers

15.25%

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• 12% Employee Provident Fund (EPF)

• 3.25% Employee State Insurance (ESI)

Employees

12.75%

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• 12% Employee Provident Fund (EPF)

• 0.75% Employee State Insurance (ESI)

Please note that the social security contributions indicated above do not necessarily reflect the actual employment costs. These may differ depending on the employment contract and due to other factors (e.g. 13th and 14th salary, health insurance allowances, accrual for severance pay, etc.).

Annual Leave

Indian employees are entitled to a minimum of 15 days of paid annual leave. Factory workers generally receive 19 paid vacation days each year, according to the national Factories Act. Employees who do not use all of it within the ongoing year are allowed to carry over up to 30 days of unused leave into the next year.

In addition, there are three national holidays which are observed in the entire country, plus a large number of regional festival holidays. As public holidays differ from state to state, Indian law rules that employers have to allocate no less than ten paid public holidays to their employees.

Maternity Leave and Paternity Leave

Female employees who have completed a minimum of 80 days of service with an employer are entitled to paid maternity leave. However, the leave length depends on the number of children: It’s 26 weeks of paid maternity leave for the first two children, for every additional child, maternity leave is shortened to 12 weeks. Granting paternity leave is not mandatory as there is no legislation for it.

Parental Leave

There are no legal regulations that provide for further parental leave.

Additional Leave and Benefits

It is common practice for Indian employers to provide up to six days of casual leave per year for their employees – restricted to three days in one month – which can be used in case of any unexpected incident.

Employment may be terminated due to one of the following reasons:

• by default as specified in the contract

• voluntary termination of employment

• by mutual agreement

• staff reduction

• in case of liquidation

• theft, bribery or other disorderly behaviour

• refusal to obey orders

An employee cannot be dismissed because of misconduct without a proper enquiry or without having had the chance to explain his or her behaviour.

In general, employers need to respect a 30 days’ notice period when dismissing an employee – except during probation when the notice period is shortened to 15 days. It is possible for employers to replace the notice period with an equivalent payment.

Only retrenched employees who have worked for an employer continuously for at least one year are entitled to severance pay equal to 15 days’ wages for every year of service.

After five consecutive years of service, employees who are dismissed also receive gratuity payment which is calculated as follows:

Last salary × 15 / 26 × number of years of service

However, the maximum gratuity payment ist INR 1,000,000.