How to Hire in India

India is a great country for companies planning to build their workforce overseas. With a surplus of college-educated, skilled workers, India is one of the biggest talent markets in the world. It has also become one of the leading affordable destinations for sourcing tech talent.

So, it’s not surprising that U.S. companies are hiring more Indian workers. Many Fortune 500 companies use Indian talent to do well in the digital age, according to NASSCOM. With remote work becoming more common in the workplace, global employment is a great solution for growing companies.

That said, hiring workers in India comes with a host of complexities. If you’re looking to expand internationally, understanding how to hire in India is imperative. Local laws, regulations, and compliance requirements often create barriers and challenges for companies expanding into India.

Businesses must understand Indian employment laws and compliance requirements when hiring in India. This is crucial for successful operations. This guide helps businesses understand their options for hiring internationally and building a workforce in other countries.

In this article, you will learn:

1. How to hire in India

o Contractors

o Employees

o Outsource to a Global PEO Provider

2. Global Employment Laws in India

o Employment Contracts

o Trade Unions

o Data Protection and Privacy

India has an incredible and diverse workforce that touts a broad range of skill sets. Irrespective of the industry of your business, there will be numerous qualified, skilled workers available to support your needs. However, companies need to determine the best route to building their workforce overseas. This means they need to understand the different employment categories in India.

When hiring remote workers, make sure they follow the guidelines for their job classification. This is important regardless of how they are hired.

If your business is wondering how to hire in India, it boils down to three options:

· Contractors

· Employees

· Outsourced vendors

Each of these options comes with its own list of pros and cons, which we’ll outline in the following section.

Related: Why hire in India?

DIY Hire in India – Contractors

One of the fastest and easiest ways for companies to hire in India is through independent contractors. Many businesses choose this route without considering the potential pitfalls, which can result in costly fines and legal consequences. If your business wants to hire contractors in India, they must meet the country’s employment laws. The following guidelines are to be followed:

· The contractor is allowed to work for multiple companies at the same time. They cannot be restricted to only working for your business.

· The contractor oversees managing and controlling their working status and schedule. The business can’t give them specific hours of operation.

· The contractors are usually project-based or are required to work shorter periods. If they extend their time with a company, it could put the business at risk of being classified as an employee.

U.S. companies hiring in India need international contractors to fill out an IRS Form W-8BEN. This form confirms their foreign status for the U.S. government. This step will mitigate tax risks when hiring in India. However, the business must still adhere to Indian employment law to remain compliant.

If an Indian worker is classified as an independent contractor incorrectly, they have the right to take legal action. This can include suing for benefits, overtime pay and other rights. If your business is willing to accept this risk and takes all the necessary steps to ensure the guidelines are met for contractor status, hiring an independent contractor in India can be an effective method of employment.

Hiring a contractor in India can be a good staffing choice. However, it comes with risks and your company needs to be prepared for these risks. Make sure to follow all the required steps when hiring a contractor in India.

Related: International contractor vs. employee: Understanding the difference

DIY Hire in India – Employees

To hire employees in India whether full- or part-time, a business must establish a legal entity in India. If this is the hiring route you choose, plan for the incorporation process to take more time and money upfront.

Setting up a legal entity in India can take three to six months, depending on the government’s requirements. Businesses must abide by all the setup requirements including things like setting up the back accounts and tax information.

If this is the route you choose, we highly recommend working with an incorporation expert. If the entity has any errors or mistakes, the structure can quickly become inefficient and costly to maintain. Legal entities in a country can affect all parts of a business, like finance, accounting, IT, and supply chain functions. They are important for running a business smoothly.

In India, there are three types of entities you can establish:

· Corporation

· Project/Branch Office

· Liaison/Representative Office

Establishing a legal entity in India requires:

1. Obtaining a Director Identification Number (DIN) online

2. Obtaining a Digital Signature Certificate (DSC) online

3. Reserving a company name online with the Registrar of Companies

4. Preparing the Memorandum and Articles of Association

5. Filing incorporation application online

6. Requesting and obtaining a Certificate to Commence Operations

7. Making a company seal

8. Obtaining a Permanent Account Number (PAN) from an authorized franchise or agent appointed by National Securities Depository Services Limited (NSDL) or Unit Trust of India (UTI)

9. Registering with the Employees’ Provident Fund Organization (EPFO)

10. Registering for VAT

11. Registering for medical insurance

12. Various other registrations (only if a company is set up in Mumbai)

Even after a company sets up its legal entity, the work is not done. Establishing the entity itself is only the first step. Post incorporation action items may include setting up payroll, securing benefit packages, setting up accounting systems and processes, taxes, and more. Additionally, businesses will need to ensure annual corporate compliance moving forward as laws and regulations change.

Related: 7 questions about international entity setup, answered

Outsource to a PEO Provider

Companies that want to hire in India without the hassle of DIY, can use a global Professional Employer Organization (PEO) provider. PEOs, sometimes referred to as Employer of Record (EOR), act as a partner to your business.

In addition to acting as an employer, they also conduct a background check of the employee. After this process, they lease those employees to a business for an affordable rate. Companies can leverage the legal entity of the PEO provider to reduce their international risks and liabilities.

In short, the PEO handles administrative tasks so businesses can concentrate on their employees’ daily duties. PEOs use their existing legal entity network for hiring and taxes, companies can hire much faster without sacrificing compliance. Here are a few the administrative services a PEO provides:

· Fast international hiring

· Global payroll

· In-country compliance

· Reduced risks with international contractors

· Global talent acquisition

· HR technology for international workforces

· Compliant employment contracts

Related: DIY global expansion

When learning how to hire in India, businesses often have many questions about the process. We will cover some of the most common questions and concerns companies have around labor law.

Employment Contracts

Employment contracts are an important element to consider when hiring Indian employees. The relationship between an employer and employee can be expressed or implied, either through a written contract or verbal agreement. However, verbal agreements can lead to legal complications if there are any employment disputes.

For this reason, employment contracts are strongly encouraged among employers. Additionally, some Indian states like Karnataka and Delhi require written contracts for workers in shops and commercial establishments.

Employment contracts or letters commonly include the following information:

· Name and address of the employer and the employee

· Title of the job or nature of the work (or a job description)

· Place of work

· Working hours

· Probationary period, if any, and its terms

· Date of commencement of employment

· Salary and benefits (including social security)

· Type of contract (permanent or fixed term)

· Notice required for termination of employment

· Leave entitlement (paid time, sick leave, maternity leave, paternity leave, etc.)

· Conditions under which the employer can terminate the contract

Additionally, the Employees’ Provident Funds and Miscellaneous Provisions Act 1952, requires every employer with over 20 employees to make prescribed contributions to the employees’ provident fund for all Indian employees earning less than INR 15,000 per month.

Both employee and employer contribute equal amounts to the Employee’s Provident Fund (EPF). The employee receives the amount as a lump sum payment upon retirement. Employers in India, with more than 20 employees contribute 12% of their income, while those with less than 20 employees contribute 10%.

EPFO members who have contributed to the Employee Pension Scheme (EPS) account are eligible for a pension. The pension continues to be paid to the nominee. The employer’s contribution is 8.33% of the employee’s salary (basic + dearness allowance). Employees receive a pension after the age of 58 years.

Failure to contribute to the EPS and EPF may result in fines and penalties for the employers. Employers can be prosecuted and jailed if they intentionally commit fraud by avoiding making contributions in some cases.

Related: 7 common questions about international employment contracts

Trade Unions

Trade unions are common in India and are governed by the Trade Unions Act 1926 (TU Act). This creates the ability for groups to register as a trade union but does not make registration mandatory. If a trade union is recognized by the Indian government, employers must engage in collective bargaining agreements in good faith or risk a violation of fair labor practices.

The TU Act guarantees certain rights to trade unions, including their right to negotiate and secure terms of employment acceptable to its members. Employees can negotiate through a contract, but they can also protest to push for their needs. This law protects trade unions from being prosecuted for criminal conspiracy and sued in civil courts for trade disputes. Ultimately, trade unions are an important aspect for companies to consider when learning how to hire in India.

Data Protection and Privacy

Under the IT Act 2000, Indian employers need permission from employees to collect, process, and store sensitive personal data. This can include information such as passwords, financial information, bank account details, medical information and more.

Employers cannot collect personal information except with the subject’s prior consent in writing and must inform the subject of the right not to provide the information. For any of the information employers collect, they are expected to provide necessary security with the stored information. If there is a breach of personal information, the company could face legal consequences.

Employers in India can monitor employees’ email, phone calls and system use to protect business information. However, the monitoring must be limited to a work phone and cannot be performed on an employee’s phone.