A Comprehensive Guide to Hiring Employees From India

May 31, 2023
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Companies worldwide prefer hiring employees in India due to the country’s fast-growing economy and large tech talent pool. As of FY22, the tech talent pool comprised 3.8 million professionals, representing more than 80% of the 4.7 million tech industry employee base.

With an employer of record like Rapid, which has 25 years of experience in local compliance, you can take advantage of this vast pool of high-quality tech talent. We help you onboard your employees within minutes, manage payroll and benefits, and implement your company culture in the India team.

Indian tech professionals are known for their robust educational background, excellent communication skills, fluency in English, and strong work ethic. They are also known to be dedicated, hard-working, and driven to succeed.

Indian tech professionals are known for their robust educational background, excellent communication skills, fluency in English, and strong work ethic.  They are also known to be dedicated, hard-working, and driven to succeed. 

IMF data

Also, niche tech skills like AI/ML, cybersecurity, and low-code development will become base skills by 2030. Therefore, India has been robustly reskilling its non-tech and core tech talent into digital tech talent to keep pace with the demand. 

However, it is a challenge to navigate the ever-changing labour laws of India’s 28+ states and those of the central government. Global companies may find themselves running into employment risks without thorough knowledge of the local laws and compliance. 

That’s why it makes sense to partner with an employer of record (EOR) service that will take the hassle of taxation and compliance off your hands. 

In this blog post, we will explain how companies must stay on top of a variety of local laws when hiring in India. 

We will also compare the pros and cons of EOR services with setting up one’s own legal entity to understand the best way to hire employees in India. 

Challenges of Hiring Employees in India

When hiring Indian workers, companies have to deal with these challenges:

  1. Compliance with ever-changing labour laws 
  2. Knowledge of local taxation  
  3. Administering mandatory benefits and contributions
  4. Extended lead time to onboarding employees
  5. Payroll and compensation complexities

Let’s take a closer look at some of these hiring considerations.

Legal and Regulatory Considerations for Hiring in India

To hire talent in India, companies face the arduous task of staying up-to-date with workplace laws and regulations:

1. Employment Laws and Regulations

The Indian workforce is categorised into employees and non-employees (contract workers, third-party employees, consultants, interns). 

A contractor is defined as a person who provides services to a company, but is not an employee of that company. They are also known as freelancers, consultants, or self-employed individuals.

Note that contractors are different from “contract workers,” who are subcontracted by independent contractors or are indirectly hired by companies for a short time. 

The distinction between employees and independent contractors is important because employee misclassification–when a worker is given a wrong designation, either by mistake or deliberately–attracts penalties and fines in millions of rupees. 

Companies also have to compensate the employee for the lost wages and benefits. Moreover, companies may face lawsuits from the misclassified employee or labour unions that represent them. 

Thus, not only must companies select suitable talent and classify them correctly, they must also understand the business culture, local labour laws, and compliance regulations.  This is why hiring employees from India can be tricky.  

There is no specific law in India that governs remote work. However, companies that hire remote employees in India should document the working arrangement in the employment contract or by drawing up a policy. 

2. Visa and Work Permit Requirements

The Indian authorities issue two types of visas for six months up to five years:

  • Business visa: Issued to people who want to invest, set up a business or conduct business activities like negotiations and meetings.
  • Employment visa: Granted only to senior managers or highly skilled technical professionals who want to migrate to India for work. Their company should be registered in India. In addition, the employee’s annual salary must be at least US$ 25,000. 

3. Taxation and Social Security

All companies in India are taxed on their global income. For companies not based in India, the tax applies only to the revenue generated within the country. 

Corporate taxes are based on the annual turnover accrued:

Type of company and Corporate tax rate

Employee Benefits

Employees receive 15-24 days of paid annual leave in India, but the laws governing paid time off (PTO) vary from state to state. Employment contracts should clearly state the PTO earning rates and rollover benefits.

Employees also receive at least 12 days of sick leave in a year. Women who have worked with the employer for 160 days in the previous year are entitled to 26 weeks of paid leave. 

Mandatory benefits include Employees Pension Scheme and Employees Provident Fund (EPF). 

Employers also offer private health insurance–laws around this vary from state to state. 

How can you hire Indian workers? We’ll take you through the steps:

Recruiting and Hiring in India 

In India, the average time taken to hire employees is 32 days. Thus, companies should budget two months for onboarding an employee from when the position was first advertised. 

1. Finding and Evaluating Candidates: 

Create a job ad that details the qualifications and skills you’re looking for in an ideal candidate. Depending on the position and location you’re hiring for, you can post the job ad on social media, online job boards like Naukri and Indeed, professional 

networking sites like LinkedIn, and print newspapers. You can also hire a local recruitment agency. They charge 1-2 months of the employee’s salary as fees. 

Candidates in India submit a CV and/or a cover letter along with their application. Compared to other countries, CVs in India contain more personal information such as age, gender, marital status, and photo.

2. Interview and Selection Process: 

Next, shortlist candidates based on their CVs and schedule interviews with them.

The interview process comprises several rounds: a written test used to screen applicants without the necessary skills and 1-3 rounds of interviews with various executives. 

Select the best-fit candidates for the role and extend job offers. 

3. Extending Offers: 

Create a detailed employment contract that outlines the expectations from the employee clearly. 

Include information about the compensation (in Indian rupees), benefits, and allowances. Also, outline the procedures for termination. For remote employees in India, the contract should explicitly state the terms and conditions of the working arrangement. 

An attractive offer has three elements: a good job title, an optimal salary structure, and good insurance benefits.

Employees review the contract and confirm their agreement to the terms with their signature.

Onboarding and Integration 

A smooth onboarding improves the company’s reputation for the new employee and ensures that they are well-integrated into the team. 

Several steps are involved in onboarding:

  • Collecting documents like PAN card, bank details, and address proof for payroll
  • Adding the employee to internal systems for payroll, insurance, and retirement benefits
Steps Involved in Onboarding

Managing and Engaging Employees in India 

Employees engaged at work are more likely to be productive and stay at their jobs longer. This, in turn, boosts the company’s profit margins and improves the employer brand. 

Other aspects of working with employees in India are:

  1. Communication and Collaboration

As mentioned previously, Indians are well-educated and speak English fluently. They are equipped with superior management skills that meet both local and global business needs. The tech talent is highly skilled and trustworthy, and some of India’s universities–IISc, IIT, and IIM–are considered to be among the best in the world. 

Indian professionals are direct and assertive and good at articulating what they want. The Indian work culture prefers group work, so Indians are particularly good at working in teams. They are also respectful of hierarchies and do not speak out of turn. 

Indians also have a strong work ethic and they are highly engaged with their work. 

  1. Performance Management and Feedback

Performance management involves periodic reviews of an employee’s performance throughout the year instead of conducting a year-end appraisal. 

The steps to set up an effective performance management system are as follows:

  • Set SMART goals - By setting Specific, Measurable, Achievable, Result-oriented, and Time-bound goals, employees have an actionable way to meet them. E.g. Complete four modules of dealing with sales objections by the end of the month. 
  • Implement a performance planning mechanism - It defines the manager’s expectations of the employee based on their role and the SMART goals that have been set. It describes short-term and long-term goals, the evaluation process, blockers, and an action plan to overcome them.  
  • Build a continuous feedback process - When feedback is provided regularly instead of once a year, employees can assess their own progress and make adjustments wherever required. It also helps keep up morale and motivation.
  • Collect employee information - Managers collect information on the employee from various sources and collate them for an objective evaluation. 
  • Track progress - By closely tracking progress at an individual level, managers can provide timely constructive feedback to employees. 
  • Record the results - Managers create a performance log to record observations, recommendations, and the employee’s achievements. These logs act as a reference for future performance appraisals.

C. Team Building and Employee Engagement

Employee engagement is not just about holding fun activities but designing them to fuel a sense of togetherness among all team members. It is a bigger challenge if a team is based in different locations or works in hybrid mode. 

Leena AI’s Employee Engagement in a Hybrid Workplace Report 2022 reveals insightful facts:

  • More than 40% of the respondents used employee engagement to attract and retain quality talent.
  • 50% of the respondents have seen an increase in employee satisfaction and productivity after improving employee engagement
Employee Engagement

When hiring employees in India, hold inclusive engagement activities so the new talent feels comfortable. 

Compliance and Risk Management

1. Compliance with Labour Laws and Regulations

India has a rigorous labour law compliance regime. Compliances are not limited to filing returns. The records are evidence of compliance and must be produced in case of discrepancies. 

Based on the areas being regulated, Indian labour laws are of the following types:

Types of labour laws in India

2. Mitigating Risks and Liabilities

Non-compliance of labour laws attracts significant legal implications and risks. 

The Indian Contracts Act requires employers to set up effective contract management with their employees or third-party entities as part of corporate risk and compliance management.

Pre-emptive screening of employees is another part of corporate risk and compliance management. For example, companies are conducting background checks on prospective employees to mitigate future risks even though there are no legal requirements except for banks and schools in certain states under specific notifications.

3. Maintaining Data Privacy and Security

In India, data privacy and security is regulated by four different laws:

  • Information Technology Act - protects e-commerce, e-governance, e-banking, and all communication devices
  • Indian Penal Code (IPC) - protects against cyber fraud, including sensitive information theft and identity theft
  • Companies Act - covers all regulatory compliances, including cyber forensics, e-discovery, and cybersecurity diligence.
  • National Institute of Standards and Technology (NIST) compliance - authorises a Cybersecurity Framework to address cybersecurity risks.
Data privacy and laws in India

Why Should You Employ an EOR Service for Hiring in India?

If you work with an employer of record (EOR) service, you don’t have to go through the long, cumbersome process of setting up a legal entity in India. 

An EOR platform like Rapid, that has deep local expertise and a strong network of recruitment partners, can expertly navigate through the labour laws and compliances, and hiring and onboarding procedures.

In addition, it offers background verification services, IT equipment logistics, and assistance with hiring office spaces to ensure the best employee experience.

To help you decide whether you should hire Indian workers through an EOR or set up your own legal subsidiary, here is a comparative analysis: 

EOR VS Legal Entity

In Conclusion

The choice is quite clear. The best way to hire employees in India is through a trustworthy EOR service. 

An EOR like Rapid is a one-stop solution for businesses looking to expand to India. It enables them to focus on growth without worrying about managing complex legal and compliance issues. It offers a comprehensive suite of services, including digital onboarding, contract management, payroll and benefits administration, and compliance management.

Schedule a demo now to scale up your business operations in India with Rapid

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