Hiring in India for the first time can be an intimidating endeavor, particularly if the intricacies of Indian employment laws and regulations are unfamiliar terrain. The significance of accurate execution cannot be overstated, as it directly impacts the success of your company. Hiring independent contractors in India creates a distinct set of challenges. The nuances of local labor laws, notably the Contract Labor Act, must be navigated skillfully. Misclassification of workers under these laws can lead to penalties from the Income Tax Department, and Indian judicial authorities can mandate retroactive provisions of benefits.

We’ll guide you through the hiring process, offering insights into crucial domains such as Indian labor laws, payroll, mandatory benefits, and more. With Rippling, you can confidently navigate the Indian hiring landscape, ensuring compliance and success.

Employer of Record (EOR) vs. entity

Before anything else, you need to decide how you’re going to hire employees in India. You have two options: either hire through an EOR or set up your own entity. 

Legal entity in India

Setting up a legal entity from scratch usually requires registration with local authorities, opening a local bank account, and consulting with local experts to ensure compliance with tax and labor laws.

Indian EOR

An EOR is a third-party service that operates as an employer on a company’s behalf—meaning you don’t need to set up your own entity. EORs handle all the legal requirements for complying with Indian laws for payroll, contracts, and benefits. EOR services also include calculating and withholding taxes, onboarding and managing employees, and running payroll.

Choosing between an EOR vs. setting up your own entity can be a tough decision. Here are the pros and cons of each approach to global employment:

Let’s say you go the EOR route. You can begin onboarding new hires by collecting their information (including name, date of birth, date of hire, bank account, and contact information) along with their Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN).

Classifying Indian workers: employees vs. contractors

A common mistake employers make is misclassifying full-time employees as independent contractors. Misclassification can damage the employment relationship early on—not to mention, get you in hot water with Indian authorities.

For a smooth onboarding process, it’s important to get employee classification right. Here’s an overview of the key differences between employees and contractors in India:

Paying employees in India

Now that you’ve decided between an EOR or setting up your own local entity, it’s time to pick a payroll solution and learn how to run payroll in India.

Next, follow these steps:

• Determine your worker’s employment status.
• Capture their payroll information, including name, date of birth, date of hire, bank account information, PAN and TAN, and account number for the Employee Provident Fund (EPF).
• Pay your employees in INR (this is legally required).
• Run payroll.

You’re responsible for withholding income tax and calculating payroll deductions for your Indian employees, so you should keep these costs of hiring in mind:

Complying with Indian labor laws

With each country having specific labor and employment laws, it can be hard to keep up—especially when you’re building a global team. Indian labor laws are no different; their regulations vary depending on industry, state government, and business size. Keep in mind, failing to comply with Indian regulations can result in steep fines and penalties. 

Here are some of the most important regulations to know when hiring in India: