Employer of Record (EOR) in India

G-P’s employer of record (EOR) model allows your company to start hiring talent in minutes via our global entity infrastructure. Unlike a Professional Employer Organization (PEO), G-P allows your company to expand your global footprint without the hassle of entity setup and management.

Our global employment products, including G-P Meridian Prime™ and G-P Meridian Core™, are backed by the largest team of HR and legal experts in the industry. We handle the growing complexities of compliant global expansion — so you can focus on opportunities ahead.

As a global EOR expert, we manage payroll, employment contract best practices, statutory and market norm benefits, employee expenses, as well as severance and termination. You’ll have peace of mind knowing you have a team of dedicated employment experts assisting with every hire. G-P allows you to harness the talent of the brightest people in 180+ countries around the world, quickly and easily.

Hiring in India

Providing a great workplace culture is very important, regardless of whether you are running in-person operations or building remote teams. In fact, remote work is gaining traction in India, partially due to the traffic in large cities like Bangalore, Mumbai, and Delhi.

Keep in mind that employees in India often expect an annual wage increase of 10-15%. If this increase is not given each year, employees will likely start looking for another job.

When negotiating terms of an employment contract and offer letter with an employee in India, it may be useful to consider the following.

Employment contracts in India

India’s labor law is complex. It is highly recommended to put a strong employment contract in place, which spells out the terms of the employee’s compensation, benefits, termination requirements, and other conditions of employment. It some states, it is a statutory requirement for an employment relationship to be supported by a written employment contract. An offer letter and employment contract in India should always state the salary and any compensation amounts in rupees rather than another currency.

Working hours in India

The India workweek is determined by the state and industry in which the worker is employed. The standard workweek is 40 hours, with a typical workday of 8 hours. Workers are generally entitled to 10.5 hours of rest between workdays.

Work hours should not exceed more than 48 hours per week, or 9 hours per day.

Employees who work more than the stipulated work hours in a day may be entitled to overtime equal to twice their normal wage. Overtime wages vary from state to state.

Holidays in India

There are 3 national holidays in India:

• Republic Day
• Independence Day
• Gandhi Jayanti

In India, some holidays vary by state (there are 28 states and 8 union territories), religion, and local custom. While the federal government may not stipulate other specific holidays employees are entitled to, employers must be aware that holiday entitlements may be stipulated by other authorities in certain regions.

Vacation days in India

Statutory minimum of paid vacation leave in India is determined by the state, industry, and classification of an employee’s position, and generally varies between 7 to 21 days. Companies often offer 15 days, but occasionally senior professionals may be given more. Companies can offer more than the statutory requirements to boost retention and often choose from a range of 15-25 days of annual leave.

India sick leave

In India, sick and/or casual leave entitlements are determined by the state, industry, and classification of an employee’s position. We commonly see companies offering 12 days of sick and/or casual leave. Some employers provide unpaid leave for long-term medical issues, but this is not mandatory.

Maternity and paternity leave in India

Eligible pregnant employees are entitled to 26 weeks of maternity leave, which can be taken as early as 8 weeks before the expected delivery date, and the remaining can be used after childbirth. Paid maternity is provided for birthing employees who have worked at least 80 days in the 12 months prior to the expected date of delivery. The employer should pay full salary for the 26 weeks of maternity leave.

There is no statutory paternity leave for non-birthing employees in the private sector, only a few employers offer this benefit.

Health insurance in India

It is a mandatory requirement for employers to provide employees with a group health insurance policy. Health insurance in India is a mixture of public and private insurance. Some candidates may request an allowance for coverage. We recommend paying a taxable allowance each year to cover the cost of a private medical plan as a supplementary benefit.

India supplementary benefits

Many employers in India also provide supplementary insurances, which can include term life insurance and personal accident insurance.

Termination/severance in India

Probationary periods are a common practice in India with 3 months being a typical probationary timeframe. The employer can extend the probation for an additional 3 months.

Procedures for termination of employment vary based on the reason for dismissal, the classification of their position (workmen vs. non-workmen), and even the state in which they are employed. For most employees, termination must be for a reasonable cause, which may include redundancy, underperformance, misconduct, insubordination, or any other similar reason.

Termination notice by either the employer or employee must be given in writing as per the employment contract. There is generally a 15-day notice during probation, but this is extended to 30 days or more after the probationary period has been completed. Payment in lieu of notice is permissible.

Indian legislation recognizes 2 categories of employees: workmen and non-workmen. Workmen who have completed at least 1 year of service may be entitled to severance pay at the rate of 15 days’ salary for every completed year of service in certain circumstances. If the employee has served 5 or more continuous years, they are generally entitled to a gratuity payment, at a rate of 15 days’ salary for every completed year of service.

India payroll

Negotiating compensation packages in India can be relatively complex. There are many pre-tax allowances for employees in India that previously it was common for the basic salary to make up 40% of the total compensation package. However, it’s important to note that as of 2023, the government now requires the base pay to make up at least 50% of the entire compensation package.

The allowances that employees are able to receive at a tax advantage vary, but here is an example of a typical breakdown:

• Basic: The basic salary, which is paid out every month and is taxable.
• Incentives/bonuses: These are paid out depending on employee performance and are taxable.
• Children education allowance: Children education allowance is exempt from tax up to INR 100 per child per month for a maximum of 2 children.
• Children hostel allowance: Children hostel allowance is exempt from tax up to INR 300 per child per month for a maximum of 2 children.
• House rent allowance (HRA): HRA is paid out to meet full or part of an expenditure on renting a house. This is paid out monthly and can be tax-free depending on conditions.
• Leave travel allowance of concession (LTA/LTC): LTA is paid to encourage periodic vacations. These are paid out once a year and can be tax-free provided certain conditions are met. This is alternative years only, starting on the employee’s 2nd year of employment.
• Vehicle allowance: This allowance may be given to maintain a car. This allowance is paid out monthly and is taxable.
• Normally, this is for top executives or sales/marketing.
• Telephone/mobile phone allowance: This allowance is given to maintain a landline or cellphone. It is paid out monthly and is taxable.
• Special allowance: This allowance can be given to pay for anything that doesn’t fit into any of the previous categories. A “special” allowance may be paid out monthly and is taxable.

The employment contract of a new employee should show the breakdown of the total salary package (Cost to Company or CTC) in a monthly amount.

Paying taxes in India

By statute, employers in India contribute to the following:

• EPF: Employee Provident Fund
• EPS: Employee Pension Scheme (only for government employees)
• EDL: Employees’ Deposit Linked Insurance Scheme

The employer and employee are obligated to contribute to the Employee Provident Fund (EPF), which is a mandatory savings scheme towards retirement benefits and pension. Employees contribute 12% of their salary to this fund, while employers contribute 13% (3.67% to EPF, 8.33% to EPS, and 1% to social insurance). This percentage is based on basic pay and does not include allowances. This does not need to be negotiated with the candidate and is included in the estimated social security costs.

Employee Provident Fund and National Pension Scheme

The chief difference between EPF and NPS is that while EPF provides guaranteed tax-free returns in the form of annual interest on the sum deposited in the EPF account, NPS offers market-linked returns. The rate of interest on EPF is determined by the government of India, whereas for NPS, the returns depend on market volatility.

Another fundamental difference between NPS and EPF is that while EPF is only meant for salaried employees working in the private sector, NPS is open to any Indian citizen, even self-employed individuals, between the ages of 18-60.

In 2020, the government of India introduced a new optional tax regime. Since then, taxpayers can choose between the new and the old tax system. Amendments proposed in Union Budget 2023 established the new tax regime as the default one and taxpayers will have to consciously opt for the old regime to use it.

Old Regime – Tax Slab FY 23-24

 

New Regime – Tax Slab FY 23-24

 

The new tax regime raises the limit of the basic exemption from INR 250,000 to INR 300,000. Tax rebate on income is also raised from INR 500,000 to INR 700,000. Individuals earning more than INR 700,000 as their annual income have to choose between the new and old tax regimes since the old tax regime provides deductions and no tax on income of up to INR 500,000.

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