Paying Contractors in India: Everything You Need to Know

Contractors provide quick access to specialized skills, allowing companies to enter new markets more efficiently without the challenges of hiring full-time employees. India, with its many English-speaking and highly skilled professionals, has one of the world’s highest labor force participation rates, making it a popular choice for hiring contractors. Of course, finding and hiring skilled contractors is one thing. Paying contractors in India securely, compliantly, and conveniently is another.

Although paying independent contractors is generally more complex than managing full-time employee payrolls, with G-P by your side, handling these challenges becomes easy. Our G-P Contractor™ offering lets you bring on and pay contractors while staying fully compliant so you can build a team that helps you reach your business goals. To help you get started we’ve gathered everything you need to know about paying contractors in India.

Where can you find and hire skilled contractors in India?

Quickly accessing a contractor’s skills is ideal for immediate and short-term projects like localizing your product or service in a new market. For example, if you choose to expand your product or service to India, local contractors can be a valuable asset for translations, local marketing, product design, and labeling regulations. Of course, India is also renowned for its depth of tech talent, making it a must-stop market for companies needing quick access to IT, software, or digital skills. 

So, where are some of the top destinations to hire contractors in India? We asked our Global Intelligence Assistant, Gia™, to help us highlight a few top hiring hubs: 

• Bangalore, known as the Silicon Valley of India, offers one of the best locations to hire contractors, especially for highly skilled front- and back-office roles. 
• Hyderabad is another major tech hub, home to many multinational companies. 
• As the financial capital of India, Mumbai has a strong presence in finance, accounting, and business services. 
• Delhi NCR (National Capital Region), which includes Delhi, Gurgaon, and Noida, offers a diverse talent pool in various sectors, including IT, finance, and consulting. 
• Chennai is another key location with a growing number of tech companies and skilled professionals. 

What are the key legal considerations when hiring contractors in India?

Contractors take on temporary roles for specific projects with defined start and completion dates. They’re not part of the company payroll and you’re not responsible for providing them with insurance, benefits like health insurance, retirement plans, and vacation time, or withholding their taxes. While you can award bonuses to contractors, be careful to avoid misclassification risks. 

For example, imagine a U.S.-based tech firm hires a software developer from India as a contractor for a short-term project. The contractor generates some work-related expenses, like software subscriptions and internet costs. The company reimburses them just like they would for a full-time employee, but without offering benefits such as health insurance or handling tax withholdings. 

Through the simple act of reimbursing the contractor’s expenses without benefits, the company is giving employee-like compensation while sidestepping legally required employee benefits. Tax authorities in India can challenge the company’s failure to provide full employment benefits and its lack of tax withholdings. The company might then have to retroactively reclassify the contractor as an employee, which could mean back-paying taxes, offering benefits not previously provided, and facing potential fines for not complying with India’s employment laws.

What are the key factors to consider when paying contractors in India?

First, create a detailed contract to ensure everyone knows when and how the contractor will get paid and to provide legal protection for all parties. Part of the flexibility of using a contractor is that you can agree to a payment structure and timeline that works for both of you. Next, determine contractor pay rates that align with your budgeting requirements and cash flow to manage finances effectively. 

This will require understanding the minimum wage system in India. This isn’t as straightforward as it may seem because India doesn’t have a single national minimum wage; each state sets its own minimum wage rates which will vary significantly depending on the industry and type of employment. It’s best practice to find contractors’ preferred currency and check the exchange rates when paying contractors, too. 

Indian Rupees (INR) are the standard local currency for paying contractors in India. Exchange rates can change which can impact your bottom line. However, with G-P’s Contractor offering, you can lock in real-time guaranteed quotes at the time of payment to avoid exchange rate fluctuations.

What are the best methods for paying contractors in India?

Choosing a safe and cost-efficient payment method is a key part of successfully handling payroll for global contractors. There are several ways to pay contractors in India, including direct deposit, checks, money orders, and virtual wallets. 

• Direct deposits minimize the risk of errors associated with manual payment methods. The process is automated, ensuring that payments are accurate and timely, often within 24 hours of initiating the payment. This ensures contractors receive their payments promptly and reliably, crucial for maintaining good working relationships. The funds are transferred directly from the payer’s bank account to the contractor’s bank account, reducing the risk of fraud. Plus, contractors do not need to take any action to receive their payments.
• Checks take longer to reach the contractor and risk getting lost or destroyed in transit. However, they may be the only payment option in less developed regions. They are also easy to stop in transit should something change. Be sure to check with your bank about the fees and exchange rates for international payments.
• Money orders function like checks. They’re a good option in less developed areas and create a useful paper trail for recordkeeping and taxes. But, you can only get international money orders at specific places like a bank, and the person you’re paying has to physically deposit the money order themselves after they get it.
• Virtual wallets enable you to digitally send money to contractors, who can quickly transfer it to their bank account or linked debit card. While you still need to consider fees and exchange rates, you’re fully protected from loss, theft, and damage. The main downside of virtual wallets is that you need the right equipment and resources to handle all digital payments.
• The best choice for paying contractors in India is G-P’s Contractor solution. Thanks to built-in Wise technology, users of Contractor can make instant payments in over 50 currencies to over 180 countries via a digital wallet, ACH transfer, bank transfer, wire transfer, or credit card. Simply approve the invoice, select the currency, review the payment quote, and finalize the payment. 

Our Contractor product ensures that all contracts and payments comply with local regulations, and the clear payment methods help reinforce the distinction between contractors and employees. Our user-friendly, self-service portal enables companies to manage all aspects of contractor payments. And the user-friendly benefits work both ways; contractors can quickly send automated invoices and process payments with this solution. 

This two-way functionality is important as complicated payment processes can create administrative overhead for both the contractor and the company, whereas simplified payments reduce the back and forth of clarifying terms, correcting invoices, or resolving payment disputes. Ultimately, simplified payment helps companies build stronger and more positive relationships with contractors.

Hire, onboard, and manage contractors in India with G-P today.

Gaining fast access to skills can significantly enhance your success in global markets. Sometimes that means hiring contractors instead of full-time employees and India, with its strong IT workforce that’s proficient in the English language, is one of the top digital hubs in the world. But to tap into this talent pool, you have to have a top-tier payment system in place first. 

Contractors are more likely to prioritize projects from companies that offer a hassle-free payment experience. If they know they’ll be paid quickly, reliably, and easily, they’re more likely to work with you. G-P’s Contractor offering mirrors the flexibility and accessibility of contractors and enables global companies and their talent to work seamlessly together.

Contact us today or request a proposal to learn how to hire contractors compliantly.