Employer of Record in India
The business world in India has been changing rapidly. In this competitive scenario, navigating the process of global hiring in India is crucial. Global employers, thus, must understand how to use an Employer of Record in India to simplify the hiring, onboarding, compliance, tax and payroll process.
You are on the right page if you want to hire employees from India but are looking for EOR guidelines. This blog will serve as a guide to hiring in India with an Employer of Record.
What is an EOR?
An EOR or Employer of Record is a solution that helps employers to find talent for their organizations. Further, the platform also helps in payroll, including compensation calculations, managing leave and benefit and attendance sheets, compliance with local labor laws, and many other business needs.
In short, with an EOR, you can seamlessly manage your remote workforce.
When do you need EOR in India?
Suppose you plan to expand your business in India and are unaware of the local labor laws in India. In that case, you need an EOR partner in India that can guide you on how to hire an employee through an EOR in India. Following are the situations in which you need an Employer of Record in India:
- Want to hire employees from India
- Setting up a local entity takes time and a complex process
- You want to save time and cost and finish the process with a faster and more accurate
- Manage local employees with local labor laws and regulations
Benefits of using an EOR in India
Using an Employer of Record (EOR) service in India offers significant advantages for companies looking to expand their workforce or operations without establishing a local entity. Here are the key benefits:
- Compliance with local laws: Navigating India’s complex regulatory landscape can be daunting for foreign companies. An EOR ensures full compliance with local labor laws, tax regulations, and employment standards, mitigating legal risks.
- Rapid market entry: Setting up a legal entity in India can be time-consuming and costly. An EOR allows companies to quickly enter the Indian market and start operations without bureaucratic delays.
- Cost efficiency: By using an EOR, companies can avoid the overheads related to setting up and maintaining a legal presence in India, such as incorporation costs, office space, and administrative staffing.
- HR and payroll management: EORs handle all aspects of HR and payroll for local employees, including recruitment, contracts, salary disbursement, tax deductions, and compliance with local employment laws, freeing companies from these complex and resource-intensive tasks.
- Risk management: Employment practices in India come with their own set of challenges and risks. An EOR mitigates these risks by ensuring hiring and employment practices comply with local regulations.
- Local expertise: EOR providers bring invaluable local knowledge and expertise, assisting companies in navigating the Indian market’s nuances. It includes cultural insights, compensation norms, and effective management practices.
- Operational flexibility: Companies can scale their operations up or down in India with ease, hiring, or downsizing through the EOR without the complexities tied to a local entity. This agility is crucial in a dynamic market like India.
- Focus on core business: Outsourcing employment responsibilities to an EOR allows companies to concentrate on their core business strategies and growth rather than getting bogged down by administrative tasks and compliance issues.
- Access to talent pool: EORs can provide access to a broader talent pool, leveraging their local networks and recruitment capabilities to find the best candidates for your business needs.
- Benefits and payroll administration: EORs can offer competitive benefits packages to employees, which is key to attracting and retaining top talent in India. They also ensure accurate and timely payroll administration, adhering to local laws and practices.
Hire in India
There are multiple phases involved in hiring employees in India. Let’s understand these:
Employment contracts or agreements in India
In India, having well-defined employment contracts and agreements is crucial for employers and employees. These documents establish the terms and conditions of the employment relationship, ensuring clarity and protection for all parties involved.
Here’s a list of key points to know:
- Written document: All employment contracts exceeding 24 months must be in writing, preferably in English or the local language, as both parties understand.
- Personal information: Employee’s name, address, contact details, and designation.
- Start date and duration: Whether the contract is for a fixed term or an indefinite term.
- Job description: A clear description of the employee’s duties, responsibilities, and reporting lines.
- Compensation: Salary, allowances, bonuses, and other forms of payment.
- Working hours and leave entitlements: Regular working hours, rest periods, and details of annual leave, sick leave, and other paid leaves.
- Termination clause: Grounds for termination and required notice periods.
- Probationary period: Up to 6 months for managerial/supervisory positions and three months for others.
- Confidentiality and non-compete clauses: Legally enforceable with reasonable limitations.
- Training and development: Agreements for specific training programs and associated obligations.
- Stock options or grants: Clearly outlined terms and conditions.
- Tax implications: Ensure proper withholding and reporting income taxes and social security contributions.
Labor law compliance in India
Operating in India’s dynamic business landscape requires a firm grasp of labor laws. Ensuring compliance safeguards your company and fosters a positive work environment for your employees.
Here’s a comprehensive guide to key aspects of labor law compliance in India:
- Industrial Disputes Act, 1947: Establishes the framework for employer-employee relations, dispute resolution, and termination procedures.
- Minimum Wages Act, 1948: Sets minimum wage standards for different industries and locations.
- Factories Act, 1948: Regulates factory workers’ working conditions, safety standards, and welfare provisions.
- Contract Labor (Regulation and Abolition) Act, 1970: Regulates engagement of contract labor and prohibits its use in core activities.
- Shops and establishments act in various states: Govern working hours, leave provisions, and other regulations for commercial establishments.
- Constitution of India: Guarantees fundamental rights to workers, including freedom of association and protection from exploitation.
Key compliance areas
- Employment contracts: Must be written, include mandatory elements, and comply with minimum wage standards.
- Working hours and overtime: Maximum 48 hours per week, with overtime regulations and compensation requirements.
- Leave entitlements: Annual leave, sick leave, and other statutory leaves as per applicable laws.
- Social security and benefits: Contributions to mandatory schemes like provident fund, health insurance, and gratuity.
- Provident fund and gratuity: Employer and employee contributions, governed by specific regulations.
- Termination: Following proper procedures and providing legal notice periods based on contract terms and service duration.
- Discrimination and harassment: Strict prohibitions against discrimination are based on various factors and requirements for a respectful and safe work environment.
- Unionization and collective bargaining: Respecting employees’ right to organize and engage in collective bargaining activities.
Payroll and payroll taxes in India
Managing payroll and payroll taxes in India can seem complex, but understanding the key elements is a prime measure for any business. Here are the necessary elements to help you navigate this important aspect:
- Employees’ Provident Fund Organisation (EPFO): Manages employee provident fund contributions and benefits.
- Employees’ State Insurance Corporation (ESIC): Handles employee state insurance contributions and benefits (healthcare, maternity, etc.).
- Income Tax Department (ITD): Governs income tax collection and compliance.
- State tax departments: Collect professional tax in some states.
- Gross salary: Employee’s basic salary before deductions.
- Income Tax (IT): Calculated based on a progressive tax bracket system.
- Employee Provident Fund (EPF): Shared contributions between employer and employee (12% each).
- Employee State Insurance (ESI): Shared contributions between employer and employee (4.75% and 1.75%, respectively).
- Professional Tax (PT): Applicable in some states, deducted from gross salary.
Employee contributions to voluntary benefit plans or company loans.
Employee benefits and compensation in India
Attracting and retaining top talent in India requires offering competitive benefits and compensation packages. Here’s a list of core elements to consider:
- Provident Fund (PF): Employers and employees contribute 12% of the basic salary towards retirement savings.
- Employee State Insurance (ESI): Provides healthcare, maternity, and other benefits. Shared contributions: employer (4.75%) and employee (1.75%).
- Gratuity: Lump sum payment upon retirement or death after five years of service. It is calculated as (gratuity amount) x (number of years served) x (last drawn basic salary + dearness allowance) / 20.
- Leave entitlements: Annual leave (15 days), sick leave (10 days), casual leave (2 days), and other special leaves are mandated.
Commonly offered benefits
- Health insurance: Covers medical expenses beyond ESI.
- Life insurance: Provides financial security in case of death.
- Retirement plans: Supplement PF benefits for a more comfortable retirement.
- Performance bonuses: Reward outstanding employee performance.
- Training and development: Invests in employee skills and career growth.
- Minimum wage: Varies depending on region and industry.
- Basic salary: The main component of employee compensation.
- Overtime pay: Compensates for work beyond standard hours.
- Allowances and bonuses: Provide additional income on top of the basic salary.
Severance pay and employee termination in India
Terminating an employee in India involves specific legal requirements and regulations regarding severance pay. Understanding these is prime for employers and employees to ensure a smooth and compliant process.
All employees are entitled to severance pay upon termination, regardless of the reason (voluntary resignation, dismissal with/without cause, layoffs).
The amount of severance pay depends on the reason for termination and the employee’s length of service.
Employers must follow proper termination procedures, including providing written notice and paying all final wages and benefits.
Types of severance pay
- Indemnity (Indemnización): Paid when an employee is dismissed without cause. The amount equals three months’ salary plus 12 days’ salary for each year of service, capped at twice the minimum wage in the region.
- Proportionality (Proporcionalidad): Paid when an employee is dismissed with cause listed in the Federal Labor Law or a collective bargaining agreement. The amount is calculated based on the portion of the unused vacation period and seniority premium earned.
- Seniority premium (Prima de Antigüedad): Paid upon voluntary resignation or retirement. Equal to 12 days’ salary for each year of service, capped at twice the minimum wage in the region.
The risk of employee misclassification in India
Employee misclassification, mistakenly categorizing employees as independent contractors instead of employees, poses significant risks. The risks vary depending on the industry, employee role, and specific circumstances. Here’s a list of the potential consequences:
- Financial penalties: Misclassification can lead to hefty fines from Indian authorities. These can include back taxes, social security contributions, and other liabilities, reaching up to 10 times the evaded amount.
- Legal action: Misclassified employees may sue for unpaid wages, benefits, and other entitlements, resulting in substantial legal costs and reputational damage.
- Compliance issues: Non-compliance can attract scrutiny from government agencies like the Labor Department, income tax department, and provident fund organizations, leading to additional penalties and complications.
- Loss of intellectual property: If misclassified employees create intellectual property for the company, the employer may not have legal ownership, potentially causing significant financial loss.
- Reputational damage: News of misclassification can harm your company’s image and make attracting and retaining top talent difficult.
Cost of an EOR in India
The cost of using an Employer of Record (EOR) in India can vary significantly depending on several factors, including:
- The EOR you choose: Different EORs have different pricing models and fee structures. Some may charge a flat monthly fee per employee, while others have a base fee plus additional fees for specific services like visa processing or payroll taxes.
- The number of employees you need to hire: Most EORs offer volume discounts for more significant numbers of employees.
- The type of services you need: Some EORs offer essential services like payroll processing and compliance, while others offer more comprehensive packages that include benefits administration, visa assistance, and recruitment.
- The complexity of your needs: If you have unique requirements, such as needing to comply with complex visa regulations or industry-specific labor laws, the cost may be higher.
Here are some approximate figures to give you a starting point:
- Flat monthly fee per employee: $50 – $300+
- Base fee: $200 – $1,000+
- Additional fees: $50 – $200+ per service
Here are some additional factors to consider when calculating the cost of using an EOR in India:
- Hidden fees: Make sure you understand all the costs associated with the EOR’s services, including any one-time setup fees, administrative fees, and termination fees.
- Currency fluctuations: If you are paying in a different currency than your local currency, be sure to factor in currency exchange rates.
- Taxes: You may be responsible for paying taxes on the EOR’s fees, depending on your location and the EOR’s pricing structure.
Regarding the cost and expenses involved in hiring Indian talent, you can consider a cost-effective EOR partner like Global Squirrels to narrow down the price while you expand your business.
How to hire an employee through an EOR in India – Global Squirrels
Global Squirrels is one of the best Employer of Record partners in India that assists you in finding the top talent for your business needs. As an EOR partner in India, it helps streamline the HR process and other compliances to smooth your hiring journey.
The platform offers a flat license fee of $199/employee/month without markups or agency fees.
Consult with our expert and experience a cost-effective and time-saving solution that works faster and accurately.
Employer of Record helps hire the right candidate, avoid compliance, set up any local entity, and take care of the entire payroll system. As the Indian economy is boosting, you can tap into the Indian talent hub by employing Indian professionals for your organization. With Global Squirrels, one of the best EOR partners in India, you can receive hiring and payroll assistance efficiently.