Hire, Pay & Manage Employees in India

Thinking about hiring employees in India? You’re not alone, many global companies find the process daunting with all the unique legal, cultural, and compliance details to consider. That’s why we’ve put together this guide to make things easier. We’ll walk you through every step of hiring in India, from understanding employment laws and tax rules to mastering onboarding and building your team the right way. Whether you’re just starting out or looking to grow your presence, this article will help you navigate the hiring process in India with confidence and clarity.

How to hire employees in India?[toc=How to Hire in India]

India is an attractive talent market for global businesses due to its vast, skilled, and cost-effective workforce. As a business, you have three primary options to hire employees in India: using an Employer of Record (EOR), establishing your own legal entity, or hiring independent contractors. The decision on which path to take depends on your business's goals, resources, and long-term plans.

We've helped many global businesses navigate this complex landscape, and what we've observed is that each option offers distinct advantages and disadvantages:

Option 1: Use an Employer of Record (EOR)

An Employer of Record (EOR) is a third-party organization that legally employs workers on behalf of another company. This model allows you to hire employees in India without establishing your own legal entity there. The EOR handles all the local employment laws and regulations, including payroll, taxes, and mandatory benefits.

• Advantages:
  • Quick and compliant hiring process: You can onboard a new virtual employee in a matter of days or weeks, significantly faster than setting up an entity.
  • Reduced administrative burden: The EOR manages payroll and all statutory compliance, saving your business considerable time and effort.
  • Mitigated risk: The EOR absorbs the legal liability and compliance risks associated with hiring employees in a foreign country.
  • Flexibility: This is an ideal solution for testing a new market or for short-term projects.
• Disadvantages:
  • Less control: You have limited control over the employment agreement terms, as the EOR uses its own standardized contract.
  • Potential for higher costs over time: While it avoids initial setup costs, using an EOR long-term can become more expensive than managing your own entity, especially as you scale your global team.
  • Distance from the employee experience: The EOR acts as the legal employer, which can create a disconnect from your company culture.

Option 2: Establish Your Own Legal Entity in India

This option involves setting up a subsidiary or a branch office in India. This route provides the most control and is suitable for companies with a long-term strategy for the country. It gives you a direct presence and full operational control.

• Advantages:
  • Complete control: You have full control over the hiring process, brand, and company culture.
  • Direct relationship: You build a direct relationship with your Indian employees, which can foster loyalty and long-term commitment.
  • Long-term cost savings: While the initial investment is high, this option is often more cost-effective for large-scale, long-term operations.
  • Enhanced brand presence: A local legal entity shows a strong commitment to the Indian market.
• Disadvantages:
  • Time and resource-intensive: Setting up a legal entity is a lengthy and complex process that can take several months. It involves significant upfront costs and requires navigating complex Indian laws and regulations.
  • High compliance risk: Your business is directly responsible for adhering to all local employment laws and labor laws, which can be challenging to manage without local expertise.
  • Administrative burden: You must manage everything from payroll and taxes to benefits and HR administration in-house or through local partners.

Option 3: Hire Independent Contractors

This option involves engaging freelancers or consultants for specific projects on a contractual basis. It's a quick and flexible way to access talent for short-term needs or specialized tasks. Many global businesses choose this route when they hire virtual employees to handle specific functions like web design or marketing.

• Advantages:
  • Ultimate flexibility: You can engage and disengage contractors as needed, with no long-term commitment.
  • Lower costs: You avoid the costs associated with an employee's salary and benefits like provident fund contributions, paid leave, and maternity leave.
  • Simplified admin: There is no need to run payroll or manage taxes and compliance for a W-2 employee.
  • Speed: The hiring employees process is minimal and can be done very quickly.
• Disadvantages:
  • Misclassification risk: The biggest risk is accidentally misclassifying a full-time employee as a contractor. This can lead to severe penalties, fines, and legal action. You must maintain key differences in the working relationship.
  • Lack of control: You have less control over the remote workers' work hours, methods, and allegiance to your business.
  • No long-term commitment: Contractors are often juggling multiple jobs and may leave your project to pursue a better opportunity. This can be a challenge for maintaining institutional knowledge.

How to choose the right hiring option for your business?[toc=Choose the Right Hiring Option]

Choosing the right option to hire employees in India hinges on your business's goals, timeline, and long-term vision. We have guided many global businesses through this decision-making process, and what we've found is that each model is suited for a different set of circumstances.

Here's a quick comparison to help you decide:

When Each Option Makes the Most Sense

• When to Use an EOR: Ideal for companies looking to quickly and compliantly hire virtual employees without the administrative burden of setting up a legal entity. It's perfect for testing the market or building a global team of remote employees, as the employer avoids the complex local employment laws.
• When to Establish a Legal Entity: A major long-term commitment best suited for businesses with a permanent, large-scale strategy. While the hiring process is lengthy and upfront costs are high, it offers maximum control and helps you fully integrate your Indian employees.
• When to Hire Independent Contractors: The most flexible and cost-effective option for short-term projects or specialized tasks. However, it's critical to understand the key differences to avoid misclassifying an employee and facing legal issues under Indian laws.

If you are unsure about which hiring options would be best for your business, check out our article on "Employer of Record vs Own Entity: What to Choose in 2025?".

What are the hiring & onboarding steps in India?[toc=Hiring & Onboarding Process]

Hiring and onboarding employees in India requires a structured, multi-step hiring process to ensure compliance and a smooth transition for your new team member.

Based on our experience helping global companies, we have identified the key steps that are essential for a successful hiring employees and onboarding journey:

Step 1: Define the Job and Employment Agreement

Before you start looking for candidates, clearly define the jobs and roles you need to fill. Draft a detailed job description outlining responsibilities, qualifications, and the desired employee profile. Next, prepare a comprehensive employment agreement. This employment contract should be compliant with Indian laws and clearly state the employee’s salary, benefits, probationary period, and other key terms and conditions of employment.

Step 2: Sourcing and Screening

Once the job is defined, begin your search. Utilize professional networks, online job portals, and talent acquisition services to find qualified candidates. The screening process involves reviewing resumes and conducting initial phone or video conference calls to assess skills, experience, and cultural fit. This step is crucial to save time later in the hiring process.

Step 3: Interviews and Background Checks

Conduct multiple rounds of interviews to thoroughly evaluate candidates. This may include technical interviews, a managerial interview, and a final HR round. After selecting the ideal candidate, it's a best practice to conduct a thorough background check. This helps verify their identity, educational qualifications, and previous employment history. For international employees, this is a critical step to ensure a secure and compliant hire.

Step 4: Extend the Offer and Draft the Employment Contract

Once the candidate passes all checks, extend a formal job offer. Upon acceptance, draft and send a final employment agreement. This document, which the employee must sign, outlines all the terms you've agreed upon, including the probationary period, leave entitlements, and other employment laws considerations. A clear and legally sound employment contract is a fundamental requirement in India.

Step 5: Collect Mandatory Documents and Onboard

Once the contract is signed, the onboarding process begins. Your Indian employees will need to submit several mandatory documents, including proof of identity (such as a PAN card or Aadhaar card), proof of address, educational certificates, and bank account details for payroll. If you've decided to hire virtual employees, be prepared to coordinate document collection remotely.

Step 6: Set up Payroll and Statutory Compliance

This is a critical step where you must register the new employee for all mandatory benefits. This includes the Employees' Provident Fund (EPF), Employees' State Insurance (ESI), and professional taxes. Your business is responsible for deducting these contributions from the employee's salary and remitting them to the government. We've seen many global companies stumble here due to a lack of understanding of local regulations, which is why an EOR is often a preferred solution.

Step 7: Welcome and Integrate the New Employee

Onboarding is more than just paperwork. Welcome the new employee to the team with a formal induction or orientation. This should include an introduction to the global team, company culture, and their specific role and responsibilities. For remote employees, a virtual welcome session via video conference can help them feel connected and integrated. Provide them with the necessary tools, access, and training to get started on their jobs effectively.

What are the employment laws in India?[toc=Indian Employment Laws]

Employment laws in India are a complex web of federal and state-level regulations that govern the relationship between employer and employee. For global businesses, understanding these labor laws is crucial to avoid significant penalties and ensure a smooth operation.

We've seen that one of the biggest challenges for foreign companies is navigating this intricate legal framework:

1. Employment Contract

While a written employment contract isn't always mandatory by central law, it's a best practice and is legally required in some states. The employment agreement should clearly define the terms of employment, including the employee's salary, probationary period, notice period, and grounds for termination. A business needs to have this document in place to protect itself.

2. National Minimum Wage & Wages

The Code on Wages, 2019 consolidates and replaces several previous laws to set a national minimum wage. The actual salary can be influenced by state-level regulations, which means the national minimum wage can vary depending on where your Indian employees are located. Employers are also mandated to pay employees within a specific timeframe each month.

3. Working Hours & Leave

Indian laws generally cap working hours at 9 hours per day and 48 hours per week, with specific rules for overtime pay. In addition to public holidays vary by state, employees are entitled to various types of leave, including casual leave, sick leave, and paid leave.

4. Termination of Employment

Terminating an employee in India requires strict adherence to legal procedures. The Indian labor law protects workers from arbitrary termination. Generally, an employer must provide a reasonable cause (such as willful insubordination or poor performance) and a notice period as stipulated in the employment contract. For certain jobs, specific legal processes must be followed.

5. Maternity & Paternity Leave

The Maternity Benefit Act is a key piece of employment laws that grants female employees up to 26 weeks of maternity leave. Additionally, many companies and states have policies for paternity leave, though it is not yet mandated by central law.

6. Mandatory Social Security

Indian law mandates that companies contribute to social security schemes for their employees. The most significant of these is the Employees' Provident Fund (EPF), which is a retirement savings scheme. The provident fund contribution is a percentage of the employee’s salary, with both the employer and the employee making contributions.

The complexity and sheer number of employment laws make it essential to either have a local legal entity with a strong compliance team or partner with an Employer of Record (EOR) to manage these obligations. This is the surest way to operate compliantly and mitigate risk when building your global team of Indian workers.

What is the work culture like in India?[toc=Work Culture]

Imagine a scenario where a US-based manager expects direct, immediate feedback, but their Indian team member provides a more indirect, context-driven response. Or consider a situation where a European team member leaves the office at 5 PM sharp, while their Indian counterpart stays late to demonstrate commitment and team spirit.

These differences highlight how Indian work culture is shaped by unique values and practices. Let’s explore the key aspects of Indian work culture in simple terms.

1. Hierarchy and Respect for Authority: Indian workplaces are hierarchical, with decisions often coming from senior leaders who are highly respected.
2. Relationship Building: Trust and personal connections matter deeply, and relationships often extend beyond the workplace.
3. Teamwork and Collectivism: Employees prioritize group success over individual achievements, emphasizing collaboration and harmony.
4. Communication Style: Communication tends to be polite and indirect, avoiding confrontation to maintain respect and harmony.
5. Work-Life Integration: The lines between work and personal life are often blurred, with employees staying late or participating in team activities outside work hours.
6. Adaptability and Flexibility: Indian professionals are highly adaptable, thriving in dynamic environments and adjusting quickly to changes.

For a deeper dive into this topic, check out our article: Work Culture in India: All You Need to Know.

What are the compliance risks in India?[toc=Compliance Risks]

Foreign companies face several compliance risks when operating in India, particularly with labor laws and employment regulations. The key differences in legal frameworks can lead to significant penalties:

1. Employee Misclassification: This is a major risk. Misclassifying an employee as a contractor to avoid costs is a violation. Indian courts use a "control test" to determine the true relationship. Penalties include back-dated wages, unpaid provident fund contributions, and fines.
2. Failure to Comply with Social Security: Indian laws mandate contributions to schemes like the Employees' Provident Fund (EPF). Failure to register employees or make timely contributions is a common mistake for foreign companies and can lead to penalties. The employer must deduct contributions from the employee's salary and remit them correctly.
3. Non-Adherence to Leave and Working Hours: India has strict rules on working hours, overtime, and leave, including sick leave, casual leave, and maternity leave. Non-compliance with these employment laws can result in penalties and legal action from Indian employees for issues like unpaid time or denied paid leave.
4. Incorrect Termination Procedures: Terminating an employee is legally sensitive. Indian labor law requires specific procedures and a reasonable cause. A business can face litigation if it fails to provide a proper notice period or follow the correct process.
5. Lack of a Compliant Employment Agreement: A poorly drafted or absent employment contract is a major risk. It can lack crucial clauses on the probationary period and termination, leaving your business vulnerable. A compliant employment agreement is vital for a global team to mitigate legal risks.

What are the mandatory employee benefits in India?[toc=Employee Benefits]

When hiring employees in India, employers are required to provide certain mandatory benefits as per employment laws in India. These benefits ensure employee welfare and compliance with regulations. Let’s break down the key mandatory employee benefits you need to know:

Employee Provident Fund (EPF)

The Employee Provident Fund (EPF) is a mandatory retirement savings scheme where both employee and employer contribute 12% of the employee’s basic salary each month. Of the employer’s share, 3.67% goes to EPF and 8.33% to the Employee Pension Scheme (EPS). EPF ensures long-term financial security and provides tax benefits for employees in India.

Employee State Insurance (ESI)

ESI is a health insurance program for employees earning up to ₹21,000 per month. Employers contribute 3.75% of the salary, while employees contribute 0.75%. It covers medical expenses, maternity benefits, and disability compensation.

Gratuity

Gratuity is a lump sum payment made to employees who have completed at least five years of continuous service. It is calculated as:

Gratuity = (Last drawn salary × 15 × years of service) ÷ 26

For more details, you can explore "Online Gratuity Calculator 2025: Calculate Your Payments with Ease".

Maternity Benefits

Under the Maternity Benefit Act, female employees are entitled to 26 weeks of paid maternity leave for the birth of their first two children, along with medical bonuses.

Leave Entitlements

Employees are entitled to paid leaves such as:

• Casual Leave: For personal reasons, typically 7–10 days annually.
• Sick Leave: For health-related issues, usually 12 days annually.
• Earned Leave: Accumulated leave based on days worked, often around 15–30 days annually.

Bonus Payments

Under the Payment of Bonus Act, employers must pay a bonus to eligible employees earning up to ₹21,000 per month. The bonus ranges from 8.33% to 20% of their annual salary.

Minimum Wage Compliance

Employers must adhere to state-specific minimum wage laws that vary by industry and skill level.

Providing these mandatory benefits not only ensures compliance but also builds trust with your workforce. For more details on employee benefits in India, check out our article: Employee Benefits in India: A Complete Guide.

How to manage payroll and taxes for employees in India?[toc=Payroll & Taxes]

Managing payroll and taxes in India requires a structured approach to ensure accuracy and compliance. Here’s a concise, step-by-step guide based on best practices and regulatory requirements:

1. Register for TAN:
Obtain a Tax Deduction and Collection Account Number (TAN) from the Income Tax Department to legally deduct and remit taxes from employee salaries.

2. Collect Employee Details:
Gather all necessary information, including PAN, bank details, and investment declarations, for accurate payroll processing and statutory compliance.

3. Calculate Gross Salary:
Determine the employee’s gross salary by adding basic pay, allowances (like HRA, transport), and bonuses.

4. Apply Deductions:
Deduct statutory contributions and taxes:

• Employee Provident Fund (EPF): 12% of basic salary
• Employee State Insurance (ESI): For eligible employees (up to ₹21,000/month)
• Professional Tax: As per state regulations
• Income Tax (TDS): Based on income tax slabs and investment declarations

5. Calculate Net Pay:
Subtract all deductions from the gross salary to arrive at the net pay, which is credited to the employee’s account.

6. Remit Taxes and Contributions:
Deposit TDS by the 7th of the following month, and ensure timely payments of PF, ESI, and professional tax as per statutory deadlines.

7. Issue Payslips and Maintain Records:
Provide detailed payslips to employees and maintain accurate payroll records for compliance and audits.

For more details about pay stub, check out our article: Pay Stub in India: What Foreign Employers Need to Know

If you’re considering outsourcing payroll tasks, explore our article: Top 10 Payroll Outsourcing Companies in India.

How do you handle employee termination in India?[toc=Terminations]

Terminating employees in India requires adherence to specific legal frameworks to ensure fairness and compliance. Whether it’s due to redundancy, misconduct, or poor performance, the process must be handled carefully to avoid disputes and penalties. Let’s break it down step by step.

Here are the important laws and guidelines you should be aware of:

• Shops and Establishments Act governs termination notice periods and valid reasons for dismissal, such as redundancy or misconduct.
• Termination terms, including notice periods and severance pay, are often outlined in the employment contract.
• For redundancies, employees are entitled to retrenchment compensation (15 days’ pay for every completed year of service).
• Employers must pay outstanding wages, bonuses, accrued leave, and severance within two days of termination as per the Payment of Wages Act.

Our HR experts have identified four main types of termination in India:

Notice Periods and Compensation

• Notice periods typically range from 30–90 days based on the employee’s role and contract terms.
• Severance pay is mandatory in cases of retrenchment or layoffs and is calculated as 15 days’ average pay for each year of service.

Steps for Handling Termination

1. Provide Written Notice: Issue a formal termination letter stating the reason for dismissal.
2. Conduct Investigations (if needed): For misconduct cases, conduct a fair inquiry before making a decision.
3. Settle Final Dues: Pay all pending wages, leave encashments, bonuses, and severance within two working days post-termination.
4. Recover Company Property: Ensure laptops, ID cards, or other assets are returned during the exit process.

Why choose Wisemonk to hire employees in India?[toc=Why Choose Wisemonk]

Wisemonk is a specialized Employer of Record (EOR) in India, built for global companies looking to hire, pay, and manage employees in India without the complexities of setting up a local entity. We provide end-to-end workforce solutions tailored to India’s regulatory landscape, ensuring seamless compliance, payroll, and dedicated HR support for your offshore teams.

Here’s how Wisemonk supports your hiring needs:

• Talent Acquisition: We help you find top talent in India quickly and efficiently.
• Payroll Management: From salary calculations to timely payments, we handle it all.
• Tax Optimization: We ensure compliance with Indian tax laws while optimizing deductions.
• Employee Benefits: We manage health insurance, provident fund, and other statutory benefits.
• Onboarding & Offboarding: Seamless processes for welcoming and transitioning employees.
• Background Checks: Thorough pre-employment screenings to ensure you hire the right people.
• Equipment Procurement: We handle device sourcing, setup, and delivery for remote employees.
• Compliance Support: Full adherence to Indian labor laws and regulations to avoid penalties.
• Offshore Team Setup: Need a GCC or offshore team? We provide end-to-end support, including company registration.

Beyond these core services, we provide advanced support in contractor management, company registration, and work permit & visa assistance. Our services is designed to streamline every aspect of hiring and managing employees in India, so you can focus on growing your business while we handle the complexities.

Ready to build your team? Reach out to us today!

FAQs

How can I legally hire an employee in India?

To legally hire an employee in India, you have three primary options: using an Employer of Record (EOR) like Wisemonk, setting up a local legal entity, or engaging contractors. The EOR method is the fastest and most compliant approach, allowing you to onboard employees within 1-2 weeks while ensuring full adherence to Indian labor laws and regulations.

Can a US company hire an employee in India?

Yes, US companies can hire employees in India through several methods. The most straightforward approach is partnering with an Employer of Record (EOR) like Wisemonk, which handles all legal, payroll, and compliance requirements. This method allows US companies to quickly and compliantly build a team in India without establishing a local legal entity.

How to pay employees in India from the USA?

‍You can pay employees in India through local payroll in Indian Rupees, ensuring all statutory deductions like Provident Fund and taxes are made. Many companies use an Employer of Record (EOR) or payroll provider to handle payments and compliance.

How much do US companies pay Indian employees?

Salaries for Indian employees vary significantly based on the jobs, skills, industry, and location, but they are generally lower than equivalent salaries in the US, offering a significant cost savings advantage.

What is the minimum wage in India in US dollars?

The minimum wage in India varies by state and industry but generally ranges from $90 to $250 per month. In major metropolitan areas and for skilled positions, the minimum monthly wage can be higher, typically around $300 to $500. However, actual salaries depend on factors like job role, experience, and industry standards.

How to lay off employees legally in India?

Terminating an employee in India requires a clear and documented reasonable cause, a proper notice period as per the employment contract, and adherence to local labor laws to avoid legal challenges.

Do contract employees pay taxes in India?

Yes, independent contractors are responsible for their own income tax and other applicable taxes like Goods and Services Tax (GST). The business paying the contractors is typically required to deduct Tax Deducted at Source (TDS) from their pay.