How to Hire Employees Legally in India 2025 Guide

If you’re planning to expand into one of the world’s fastest-growing economies but aren’t sure how to hire employees legally in India, this guide walks you through everything you need to know: why the market is attractive, what to prepare before hiring, the legal options for employing staff (via entity, EOR, or contractor), and how to ensure full compliance under Indian labor and tax law.

Why Hire in India?

Skilled Workforce with Global Capabilities

India is home to one of the largest and most diverse labor forces in the world, with over 520 million working-age people, with particularly strong talent in IT, engineering, finance, customer support, and life sciences.

The country graduates more than 1.5 million engineers annually, and its English-speaking professionals support global operations across industries. Competitive salary levels compared to Western markets allow international employers to scale efficiently without compromising quality.

English-Proficient and Globally Aligned

English is a recognized business language in India and is widely used in education, government, and corporate environments, along with daily life.

Many professionals are multilingual and have prior experience in global firms, making cross-border collaboration and remote work simple.

Expanding, Tech-Forward Economy

India’s GDP growth continues to rank among the highest globally (estimated 6–6.5 % in 2025).

Supported by government programs such as “Make in India,” “Digital India,” and PLI schemes for manufacturing and technology, the country offers strong infrastructure, a growing startup ecosystem, and pro-investment reforms that favor international employers.

What to Know Before Hiring in India

Understanding Local Business Culture

India’s corporate environment traditionally balances professionalism with relationship-based communication. Here, respect for hierarchy, collaborative decision-making, and clear documentation are highly valued.

As an employer, building rapport and trust can therefore be key to long-term retention.

Importance of Labor Protections and Worker Rights

Employees in India enjoy robust legal protections under national labor legislation and continuous labor reforms. For example, mandatory benefits include the provident fund (retirement), employee state insurance (health), gratuity (severance), and paid leave, all of which offer employees work-life balance on paper.

As a result, compliance with registration, timely remittance, and statutory reporting are essential parts of the employer experience in order to avoid fines or reputational risks.

The Legal Landscape for Employment

India’s new Labour Codes, covering wages, industrial relations, occupational safety, and social security, modernize and consolidate dozens of earlier laws. Together, they define employment conditions, contract rules, working hours, benefits, and termination procedures.

Foreign employers should pay particular attention to permanent establishment risk, contractor classification, and registration with statutory authorities such as the Employees’ Provident Fund Organisation (EPFO) and Employees’ State Insurance Corporation (ESIC).

Compliance Risks to Watch For

Payroll Errors and Incorrect Filings

Late or incorrect filing of TDS (tax withholding), PF/ESI contributions, or salary disbursements can lead to interest penalties and audits by the Income Tax Department or EPFO.

Thus, maintaining accurate digital records and automated payroll systems is key for continued success.

Misclassification of Workers

Engaging full-time staff as “contractors” may expose you to retrospective tax liabilities and PF back payments.

Worker classification should therefore always align with control, supervision, and work integration levels.

Permanent Establishment (PE) Risk

If your company operates in India without a legal entity but exercises sustained management, control, or contracts locally, you may trigger Permanent Establishment status and create corporate income tax obligations under Indian law.

Breach of Labor Codes or State Regulations

Failure to provide written contracts, pay minimum wages, or comply with Shops and Establishments Act provisions may attract penalties and legal disputes.

To avoid this, India’s state labor departments actively enforce compliance, particularly in IT, retail, and manufacturing.

Hiring Foreign Nationals in India

Foreign workers require an Employment Visa issued by the Indian Mission abroad, valid for 1–5 years depending on contract terms and visa type.

Types of Work Permits and Visas in India

Employment Visa (E Visa)

Foreign nationals who intend to work in India must obtain an Employment Visa (E-Visa) issued by the Indian Embassy or Consulate in their home country.

This visa applies to skilled professionals, executives, and technical experts working for an Indian-registered entity or branch. It is typically valid for 1 year or the term of the employment contract, and can be renewed in India by the Foreigners Regional Registration Office (FRRO).

Eligibility and Requirements

• The foreign employee must earn a minimum annual salary of USD 25,000, unless exempted (e.g., volunteers, language teachers, or foreign staff for NGOs).
• The role must require specific expertise that cannot easily be filled by a local worker.
• The sponsoring employer must be an Indian-registered business, such as a subsidiary, branch, or EOR partner.

Business Visa

A Business Visa is suitable for short-term assignments such as attending meetings, negotiations, or exploring investment opportunities.

However, this visa does not permit hands-on work or service delivery in India.

Project Visa

A Project Visa is designed for skilled foreign workers employed in specific projects in the power, steel, or infrastructure sectors. It is typically tied to the duration of the project and sponsored by the Indian client or contractor.

Sponsorship Responsibilities for Employers

The sponsoring entity is responsible for:

• Providing a valid employment contract outlining job duties and duration.
• Ensuring registration of the foreign employee with the FRRO within 14 days of arrival.
• Maintaining records of employment, visa renewals, and termination notices.
• Demonstrating that the role could not be filled by a local candidate if requested by authorities.

Failure to comply with immigration or visa conditions can result in fines, blacklisting, or loss of employer sponsorship privileges.

Three Options for Hiring Workers in India

1. Set Up a Legal Entity

Establishing a private limited company or branch office allows full control over employment relationships.

However, entity setup requires government approvals, corporate tax registration, and adherence to complex compliance requirements (e.g., GST, PF, ESIC, TDS filings). This route suits long-term operations with multiple local hires.

2. Partner with an Employer of Record (EOR)

An EOR enables you to hire staff in India without forming a local entity. The EOR acts as the legal employer, handling payroll, contracts, tax withholding, provident fund contributions, and compliance, all while you manage day-to-day work.

This option provides the fastest, most compliant market entry with minimal administrative overhead.

3. Hire Independent Contractors

Engaging freelancers or consultants is common for project-based or specialized roles.

However, if a contractor works under your control, fixed hours, or long-term exclusivity, Indian authorities may treat them as employees. Misclassification risks back-taxes, penalties, and liability for unpaid statutory benefits.

Employees vs. Contractors in India

Legal Definitions and Key Differences

Under Indian law, an employee works under an employer’s supervision and is entitled to statutory benefits and protections.

In contrast, a contractor or consultant operates independently, controls their own schedule, and is paid against deliverables or invoices.

Control and Supervision Tests

Key indicators of employment include fixed working hours, provision of tools/equipment, integration into your organizational hierarchy, and direct supervision. The greater the degree of control, the stronger the case for employee status.

Paying Contractors vs. Employees

Contractor payments are subject to Tax Deducted at Source (TDS) of 1–10 % depending on service type under the Income Tax Act. Employers do not pay PF/ESI unless a true employment relationship exists.

However, long-term exclusivity, supervision, or set working hours can trigger reclassification as employment, leading to retroactive liabilities.

Misclassification Risks and Penalties

If authorities determine that a contractor is effectively an employee, the employer may face liabilities for retrospective provident fund and insurance contributions, tax shortfalls, and possible penalties under the Income Tax Act and Social Security Code.

Hiring and Paying Independent Contractors in India

Legal Framework for Contractors

Independent contractors are governed by the Indian Contract Act (1872). Their agreements should specify deliverables, payment terms, liability, and ownership of intellectual property.

Companies hiring contractors should avoid clauses that imply employment (e.g., fixed hours, supervision, or benefits).

Tax Obligations and Invoicing

Contractors must register for PAN and, if applicable, GST. Companies must withhold tax at 1–10% (TDS) depending on the nature of services under Section 194C or 194J of the Income Tax Act.

Contractors are responsible for their own income tax filings and GST returns.

Paying International Contractors

When paying foreign contractors, ensure compliance with the Foreign Exchange Management Act (FEMA) and verify double taxation treaty provisions. Payments typically require Form 15CA/CB certification from a chartered accountant.

Converting Contractors into Full-Time Employees

If your contractor’s role evolves into ongoing, supervised work, it is best to transition them into a formal employment contract.

This ensures compliance with PF, ESI, and labor regulations while improving retention and legal protection.

Labor Laws You Must Follow When Hiring in India (for Employees)

Employment Contracts (Fixed-Term and Permanent)

Written contracts are required for compliance and should specify job title, salary, probation, working hours, benefits, and termination clauses.

Probation typically ranges from 3 to 6 months, after which the employee attains full benefits and notice rights.

Minimum Wage and Salary Structure

India does not have a single national minimum wage. Rates vary by state, region, and industry, set by local labor departments. For example, as of early 2025:

• Delhi’s minimum monthly wage for skilled workers ≈ ₹20,000–₹22,000
• Maharashtra ≈ ₹18,000–₹20,000

Employers must verify the applicable State Minimum Wages Notification regularly, as revisions occur annually or semi-annually.

Working Hours and Overtime Rules

The standard workweek is 48 hours (8 hours/day over 6 days). Overtime must be compensated at 200 % of basic wages or via time-off in lieu as allowed by law.

Flexible and remote-work arrangements are increasingly accepted, though state Shops and Establishments Acts govern working-time registration.

Paid Leave, Sick Leave, and Holidays

Typical statutory entitlements:

• Earned/Privilege Leave – Minimum 15–20 days per year (accrued).
• Casual Leave – 7 days per year.
• Sick Leave – 7–12 days per year depending on state.
• Public Holidays – 10–12 national and regional holidays annually.

Unionization and Industrial Relations

Workers have the right to form and join trade unions under the Industrial Relations Code (2020).

Employers must follow due process before redundancies or layoffs, including notice, consultation, and compensation where applicable.

Collective bargaining agreements are also less common than in many countries, but still recognized in certain industries (e.g., manufacturing, transport).

Payroll, Taxation, and Compliance in India

Employer Payroll Registrations

Before hiring, every employer must register with:

• Income Tax Department (for TAN – Tax Deduction Account Number)
• EPFO and ESIC for social security
• State Labour Department under the applicable Shops and Establishments Act

Income Tax Withholding (TDS)

Employers must deduct Tax Deducted at Source (TDS) from salaries as per the Finance Act 2025 slabs (0 %–30 %), deposit monthly, and file quarterly Form 24Q returns. Annual Form 16 certificates must be issued to each employee for personal tax filing.

Social Security and Statutory Contributions

• Employees’ Provident Fund (EPF) – 12 % of basic salary from both employer and employee, payable to EPFO.
• Employees’ State Insurance (ESI) – Employer 4 %, Employee 0.75 % (eligible if gross salary ≤ ₹21,000 / month).
• Gratuity – 15 days’ wages for each year of service after 5 years of continuous employment.
• Professional Tax – Levied by some states (e.g., Maharashtra, West Bengal).
  Non-remittance attracts interest and penalties under the respective Acts.

Payroll Cycle and Reporting

• Salary Payment Deadline – Within 7 days of the end of the wage period.
• PF/ESI Remittance – By the 15th of the following month.
• TDS Deposit – By the 7th of the following month.
• Quarterly TDS Return – Form 24Q by month-end following the quarter.

Employers must maintain detailed payroll and attendance records for 8 years.

When to Use an Employer of Record (EOR) in India

• Fast Market Entry – Begin operations in weeks instead of months of entity setup.
• Compliance and Payroll Accuracy – INS Global manages tax, PF/ESI, and reporting under local law.
• Avoid Classification Risks – Employees are hired legally under INS Global’s registered entity.
• Scalable Solution – Expand or downsize flexibly without long-term fixed costs or legal exposure.

Hiring Costs in India

Base Salary Ranges by Industry

Salary levels vary widely by region and role. While India offers cost advantages, competitive pay is key to attracting high-quality professionals.
Approximate monthly salary ranges (2025 benchmarks):

• Software Engineers: ₹60,000–₹150,000
• Finance and Accounting Staff: ₹40,000–₹90,000
• Customer Support/Operations: ₹25,000–₹60,000
• Sales/Marketing Professionals: ₹50,000–₹120,000
• Manufacturing Technicians: ₹20,000–₹45,000

Rates in Tier-1 cities like Bengaluru, Mumbai, and Delhi tend to be 15–30% higher than in Tier-2 cities.

Statutory Contributions and Benefits

Employer payroll costs include mandatory contributions to:

• Employees’ Provident Fund (EPF): 12% of basic salary (employer match required).
• Employees’ State Insurance (ESI): 4% of gross wages for employees earning ≤ ₹21,000/month.
• Gratuity: Payable at 15 days’ wages per year after 5 years’ continuous service.
• Paid Leave & Public Holidays: Typically 25–30 days per year combined.

Together, statutory contributions add approximately 15–18% on top of gross salary.

Additional Costs: Bonuses, Allowances, and Incentives

• The statutory bonus under the Payment of Bonus Act (for eligible employees) ranges from 8.33% to 20% of annual salary.
• Many companies offer performance bonuses, transport or meal allowances, mobile reimbursements, and medical insurance as part of total compensation.
• Some employers provide “retention bonuses” or “13th-month salary” to remain competitive in high-turnover industries.

Cost Comparison: Contractor vs. EOR vs. Entity Setup

Choosing the right model depends on your growth goals, number of hires, and risk tolerance.

Onboarding Workers in India

Before the First Day: Compliance and Documentation

• Verify the employee’s Aadhaar ID, PAN (Tax ID), and bank account.
• Obtain signed employment contracts and declarations for PF/ESI.
• Register new hires in EPFO and ESIC portals.
• Provide onboarding documents including company policies, confidentiality agreements, and code of conduct.

First Day: Orientation and Policy Training

Introduce company values, HR policies, attendance systems, safety guidelines, and IT setup and clarify working hours, leave management, and reporting structure.

First Week: Tools, Systems, and Local Practices

Ensure the employee is integrated into payroll and performance systems. In India, punctual salary payment and transparent communication during onboarding can strongly influence retention.

Ongoing: Compliance Monitoring and Employee Support

• Conduct regular payroll and compliance audits.
• Keep pace with changes in State Labor Laws and Tax Regulations.
• Maintain employee engagement through learning programs, wellness benefits, and feedback channels.

When to Use an Employer of Record (EOR) in India

• When You Need Fast and Compliant Entry – Begin operations quickly while staying compliant with Indian labor, tax, and social security laws.
• When You Want to Avoid Entity Setup Burdens – Skip months of registration, licensing, and bureaucracy.
• When You Need Accurate Payroll and Benefits Administration – The EOR manages payroll, PF/ESI contributions, tax deductions, and filings.
• When You Want Reduced Legal Risk – The EOR assumes the role of local employer, shielding you from misclassification or PE exposure.

With INS Global as your EOR partner, you can hire, manage, and pay your Indian employees seamlessly, while retaining full control over day-to-day operations.

How INS Global Can Help You Hire in India

End-to-End Employment and Compliance Support

INS Global manages every aspect of local employment, from drafting compliant contracts to handling PF/ESI registration, payroll, and tax filings, thus ensuring your workforce remains fully compliant under Indian law.

Payroll, Contracts, and Tax Filing Covered

We handle all statutory filings (EPF, ESI, TDS, Professional Tax) and ensure your global employees receive timely, accurate payslips each month.

Local Expertise + Global Coordination

Our India-based HR and legal specialists work with your global HQ to ensure consistent hiring policies and efficient local execution.

Scale Your Workforce Without Legal Barriers

Whether you’re hiring in India for one remote engineer or establishing a 50-person team, INS Global enables you to expand in India without entity setup, administrative complexity, or compliance risk.

Grow Your Business in India with INS Global

India offers a rare combination of scale, skill, and opportunity, but navigating its labor laws and payroll systems can be complex.

INS Global helps you hire confidently and compliantly, managing the legal, HR, and payroll side while you focus on growth and performance. Contact us today to explore how INS Global can support your India expansion strategy.

Final Checklist Before Hiring in India

1. Draft Compliant Contracts – Include role, probation, salary structure (basic + allowances), benefits, and termination terms.
2. Decide Hiring Method – Entity, EOR, or Contractor based on business goals and risk tolerance.
3. Register with Authorities – TAN, EPFO, ESIC, state labour department.
4. Set Up Payroll & Benefits – Determine pay cycle, TDS deductions, PF/ESI remittance, gratuity tracking.
5. Monitor Compliance Changes – Stay updated on Labor Code implementation and state-level notifications.