Global Hiring Guide – How to Hire in India

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 destinations for sourcing tech talent at a reasonable cost.

According to the National Association of Software & Services Companies (NASSCOM), many Fortune 500 companies rely on Indian talent to succeed in today’s digital era. 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. Local laws, regulations, and compliance requirements often create barriers and challenges for companies expanding into India. Whether businesses need to navigate employment laws or maintain annual compliance, it’s important to be aware of how to hire in India.

This guide is designed to help businesses understand all their options when it comes to international hiring and developing an overseas workforce. In this article, you will learn:

  1. How to hire in India
    • DIY Hire in India – Contractors
    • DIY Hire in India – Employees
    • Outsource to a Global PEO Provider
  2. Employment Laws in India
    • Employment Contracts
    • Trade Unions
    • Data Protection and Privacy
India payroll and PEO solutions to help you hire and pay employees without a legal entity

How to Hire in India

India has an incredible and diverse workforce that touts a broad range of skill sets. No matter what industry your business is in, there will be plenty of qualified, skilled workers available to support your needs. However, companies need to determine the best route to building their workforce overseas, which means they need to understand the different employment classifications in India. Whichever way a company chooses to hire a remote worker, it’s important to remember that each new employee will need to comply with the guidelines for their designated employment classification.

If your business is wondering how to hire in India, it boils down to three options: contractors, employees, and outsourced vendors. Each of these options comes with its own list of pros and cons, which we’ll outline in the following section.

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DIY Hire in India – Contractors

One of the fastest and easiest ways for companies to hire in India is through independent contractors. As result, many businesses choose this route without considering the potential pitfalls, which can lead to expensive fines and legal penalties. If your business is considering hiring Indian contractors, they will need to qualify under the designated employment laws for the country, which typically use the following guidelines:

  • 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 of time. If they extend their time with a company, it could put the business at risk of being classified as an employee.

For U.S.-based companies looking to hire in India, international contractors need to fill out an IRS Form W-8BEN, which certifies the foreign status for the U.S. government. This step will mitigate some of the tax risks associated with hiring in India, but the business will still need to adhere to Indian employment law to maintain proper compliance.

When an Indian worker is classified as an independent contractor, without following the guidelines above, the worker can file suit for benefits, overtime and more. 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.

DIY Hire in India – Employees

Hiring full- or part-time employees in India will require a business to set up a legal entity in the country. 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 anywhere from three to six months to complete, depending on the requirements and responsiveness of government bureaucracies. It’s critical for businesses to abide by all the setup requirements, which include things like setting up the proper 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. As the foundation of an in-country operation, legal entities can impact every aspect of a business, including finance, accounting, IT, and other supply chain functions.

In India, there are three types of entities you can establish: Corporation, Project/Branch Office, and 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. Reserve a company name online with the Registrar of Companies
  4. Prepare the Memorandum and Articles of Association
  5. Filing of incorporation application online
  6. Request and obtain a Certificate to Commence Operations
  7. Make a company seal
  8. Obtain 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. Register with Employees’ Provident Fund Organization
  10. VAT registration
  11. Registration for medical insurance
  12. Various other registration (only if company is set up in Mumbai)

Even after a company sets up their 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.

Article | Hiring International Contractors or Employees (Understanding the Difference)

Outsource to a PEO Provider

For companies that want to hire in India without the added burden of DIY, a global Professional Employer Organization (PEO) can be an effective solution. PEOs, sometimes referred to as Employer of Record (EOR), act as a partner to your business. They act as the employer for the Indian employees and then lease those employees to a business for an affordable rate. This allows companies to leverage the legal entity of the PEO provider to reduce their own international risks and liabilities.

In other words, the PEO manages the administrative burden and allows businesses to focus on the day-to-day responsibilities of their workforce. Because PEOs use their existing legal entity network for hiring and taxes, companies can hire much faster without sacrificing compliance. Here are a few of 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

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Global Employment Laws in India

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, but if you have additional questions, don’t hesitate to reach out to one of our experts.

Employment Contracts

Employment contracts are an important element to consider when hiring employees in India. The relationship between an employer and employee can be expressed or implied, either through a written contract or verbal agreement. However, with verbal agreements, it 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.

There are some implied terms of employment, which include payment of wages, statutory bonus, gratuity payments, and mandatory social security contributions. These terms and conditions are implied because they are regulated and mandated by statutes.

The employer should also include employment terms such as working hours, holidays, leave entitlements, paid time, sick leave, procedure for terminations, and so on. Additionally, the Employees’ Provident Funds and Miscellaneous Provisions Act 1952, requires every employer with over 20 employees must make prescribed contributions to the employees’ provident fund for all employees earning less than INR 15,000 per month.

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Trade Unions

Trade unions are very 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. This is done through the collective bargaining agreement, but employees also have the right to hold demonstrations to further its demands. It’s also important to note that this legislation protects trade unions from certain prosecutions for criminal conspiracy and from any lawsuits in civil courts with regard to trade disputes. Ultimately, trade unions are an important aspect for companies to consider when learning how to hire in India.

Data Protection and Privacy

As part of the Information Technology Act 2000 (IT Act), employers must obtain consent from their employees for collecting, processing and storing any sensitive personal data or information. This can include information such as passwords, financial information, bank account details, medical information and more. For any of the information employers collect, they are expected to provide necessary security with the stored information. If there is ever a breach of this personal information, the company may be held liable for any civil or criminal penalties.

Employers also have the right to monitor their employees’ email, phone calls or use of any systems they may be working with, as long as it is in regard to protecting business information.

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Partnering with Global PEO Services

Getting started with global expansion can be an exciting time for any organization. However, it can also expose you to various risks and challenges. With Global PEO Services (GPS), you can manage these risks and keep your operations running smoothly.

As laws and regulations change and update, you never have to worry about compliance. We can manage all the legal requirements and payroll for international teams, while your business handles the daily tasks.