Hire and manage employees in India
Table of contents
Key takeaways
India has consolidated 29 labour laws into four codes (effective April 1, 2026). The most significant change is a new wage definition capping allowances at 50% of CTC, meaning at least 50% must be classified as basic wages, increasing EPF and gratuity bases.
Employers with 20 or more employees must contribute 12% of basic wages to EPF (matched by the employee). ESI applies to establishments with 10 or more employees where any employee earns up to ₹21,000/month: employer contributes 3.25%, employee 0.75%.
Employees become eligible for gratuity after 5 years of continuous service (1 year for fixed-term employees under the new codes). Gratuity = (Last drawn wages × 15 × years of service) ÷ 26, capped at ₹20 lakh tax-free.
India does not have at-will employment. Employees have strong security of tenure under the Industrial Relations Code. Notice periods of 30 to 90 days are standard. Retrenchment requires 15 days of compensation per year of service.
Female employees are entitled to 26 weeks of fully paid maternity leave after 80 days of service—one of the most generous globally. The Maternity Benefit (Amendment) Act 2017 also mandates creche facilities for establishments with 50 or more employees.
Foreign companies can hire Indian employees without a local entity using an Employer of Record (EOR). An EOR handles EPF/ESI registration, TDS on salaries, professional tax compliance, and full labour code compliance on your behalf.
Employer of Record (EOR) vs. entity
Before you can begin the hiring process in India, you need to decide whether to set up a local entity or hire through an Employer of Record (EOR).
Legal entity in India. Setting up an Indian entity (Private Limited Company or LLP) requires registration with the Ministry of Corporate Affairs, EPFO, ESIC, and state-level authorities. This typically takes 4 to 8 weeks.
Indian EOR. An EOR acts as the legal employer on your behalf, handling all payroll, benefits, and compliance requirements without you needing to set up a local entity.
Read our guide to hiring through an EOR in India to understand the steps involved, including how Rippling can help you hire and onboard Indian employees in 90 seconds.
Contractors | Employees |
|---|---|
High level of worker control. Contractors are generally given more autonomy to determine how to complete the work and when to do it. | More direction from the employer. Employees are generally subject to more control and direction from their employer, who will provide guidance on how to perform the work and may set specific hours of work. |
Equipment and tools are owned by the worker. | Equipment and tools are typically provided by the company. |
Less integrated. Contractors tend to be independent, they’re more likely to work remotely, and they use their own tools and equipment. | Highly integrated. Employees are typically more integrated into the employer's organization, for example, they may work at the employer's premises. |
No entitlement to benefits. Contractors are not entitled to the same benefits, leave entitlements, and protections as employees. They’re responsible for paying their own taxes. | Entitled to benefits. Employees are entitled to certain employment benefits and protections, such as minimum wage, overtime pay, and vacation pay. They may also be entitled to benefits like health insurance, retirement plans, and paid sick leave. |
Time-bound engagement. Contractors are typically engaged for a specific project or period of time. | Indefinite engagement. Employees are generally hired for an indefinite period of time. |
Risk of loss. Contractors may assume more risk and liability for the work they perform. | No risk of loss. Employees are generally protected from liability for work-related issues. |
Non-exclusive services. Contractors cannot be contractually bound to a single company; they can provide their services to more than one organization. | Exclusive services. Employees can be contractually bound to provide services to just one company. |
Subcontracting. Contractors can delegate work to be performed by another person or business. | No subcontracting.Employees are expected to do their work themselves. They can’t delegate responsibilities to subcontractors without company approval. |
See our EOR guide for India for a full comparison of the pros and cons.
Classifying Indian workers: employees vs. contractors
A common mistake employers make is misclassifying full-time employees as independent contractors. Getting this wrong exposes your company to back taxes, penalties, and potential legal action. Indian law distinguishes employees from contractors based on factors including control over work, economic dependence, and integration into the business. Learn more in our worker classification guide for India.
Work permits for Indian employees
Before moving forward with the hiring process, make sure your prospective employee is legally allowed to work in India. Indian citizens can work without any additional authorisation. Foreign nationals need a valid work visa. Common work visas include the Employment Visa and the Business Visa. For more details, see our guide to work permits in India.
New hire onboarding checklist
With a new hire that is legally allowed to work in India, you can continue the onboarding process. A strong onboarding experience starts before day one and continues through the first 90 days. See our new hire checklist for India for a full list.
Before their first day
Send an offer letter and collect the signed employment agreement.
Complete a background check.
Register them with EPFO and ESIC (if applicable).
Enroll them in payroll and any company benefits.
Order and configure their devices.
On day one
Ensure their workspace is ready.
Send a welcome email and give them a first-week agenda.
Schedule a 1:1 with their manager.
During their first 90 days
Provide general and role-specific training.
Assign work and help them set goals.
Schedule consistent check-ins and offer regular feedback.
What to include in an offer letter in India
An offer letter (or employment contract) is one of the first documents that establishes the employment relationship in India. Key items to include: job title and duties, start date, compensation and salary structure, benefits (EPF, ESI, gratuity), probation period, working hours, termination policy, and any NDA or IP assignment clauses. Read our guide on how to create offer letters for employees in India.
NDAs and confidentiality agreements in India
Non-disclosure agreements (NDAs) are enforceable in India under the Indian Contract Act 1872, as long as they are reasonable in scope and duration. They are necessary to protect trade secrets, client data, intellectual property, and business strategies. Read our guide on NDAs in India.
Running background checks on Indian employees
Hiring employees in a new country comes with a lot of unknowns, and that includes the need for background checks. Background checks are allowed in India with employee consent and must comply with the Information Technology Act and data protection regulations. Common checks include criminal record verification, employment history, education verification, and reference checks. Read our guide on background checks in India.
Paying employees in India
Now that you’ve decided between an EOR or setting up your own local entity, it’s time to choose a payroll solution. Read our step-by-step guide to running payroll for employees in India. Key payroll obligations include TDS (Tax Deducted at Source) on salaries, EPF and ESI contributions, and professional tax (in applicable states). Income tax in India uses a new default regime (FY 2025-26) with seven slabs:
Income Range (INR) | Income Tax Rate (New Regime, FY 2025-26) |
|---|---|
Up to 4,00,000 | 0% |
4,00,001 to 8,00,000 | 5% |
8,00,001 to 12,00,000 | 10% |
12,00,001 to 16,00,000 | 15% |
16,00,001 to 20,00,000 | 20% |
20,00,001 to 24,00,000 | 25% |
Above 24,00,000 | 30% |
Mandatory employee benefits in India
The Ministry of Labour and Employment sets forth the statutory minimums (required employee benefits) in India. Key mandatory benefits include:
EPF contributions: 12% of basic wages from employer (for establishments with 20+ employees).
ESI: Employer contributes 3.25% for employees earning up to ₹21,000/month.
Gratuity: After 5 years of service (1 year for fixed-term employees under the new codes).
Maternity leave: 26 weeks of fully paid leave for female employees (after 80 days of service).
Earned/privilege leave: 12 to 15 days per year (varies by state and industry).
Professional tax: Deducted by the employer in applicable states.
Read our full guide on offering benefits in India for more on statutory and supplementary benefits.
Managing remote employees’ computers and apps
For a smooth first day (and beyond), you need to make sure your new employee’s devices, apps, and accounts are configured correctly. Rippling lets you ship, configure, and manage devices for Indian employees remotely, and instantly provision or deprovision access to all company apps. Read our guide on managing remote employee devices.
Protecting company IP in India
Protecting one’s original ideas should be top of mind for anyone hiring in India. IP rights in India are governed by the Copyright Act (1957), the Patents Act (1970), and the Trade Marks Act (1999). Copyright protection is automatic upon creation. Patents must be registered with the Indian Patent Office. NDAs and IP assignment clauses in employment contracts are essential to ensure company ownership of work created by employees. Read our primer on IP ownership in India.
Complying with Indian labor laws
With each country having specific labor and employment laws, it can be hard to keep track of them all. India’s four Labour Codes (effective April 1, 2026) consolidate 29 laws and introduce significant changes including the new wage definition, expanded ESI coverage, and updated working hours rules. Read our full guide on Indian labor and employment laws for more details.
Terminating employees in India
Indian employees enjoy strong protections against unjustified dismissals. At-will employment does not exist. Termination must follow a formal process and, for establishments with 100 or more workers, requires government permission for retrenchment. Notice periods of 30 to 90 days are standard. Employees terminated after one year of service are entitled to retrenchment compensation of 15 days’ average wages per year of service. Read our guide on terminating employees in India.
Frequently asked questions about hiring in India
Do I need an Indian entity to hire employees in India?
No. Foreign companies can hire employees in India without setting up a local entity by using an Employer of Record (EOR). An EOR like Rippling acts as the legal employer on your behalf, handling EPF registration, ESI enrollment, professional tax compliance, TDS (tax deducted at source) on salaries, and compliance with India’s labour codes. Setting up your own Indian entity (Private Limited Company or LLP) requires registration with the Ministry of Corporate Affairs, EPFO, ESIC, and state-level authorities—a process that can take 4 to 8 weeks.
What are EPF and ESI and how do they work for employers?
The Employees’ Provident Fund (EPF) and Employees’ State Insurance (ESI) are India’s two mandatory social security programs. EPF applies to establishments with 20 or more employees: both employer and employee contribute 12% of basic wages. The employer’s 12% is split—3.67% goes to the provident fund and 8.33% to the Employees’ Pension Scheme (EPS). ESI applies to establishments with 10 or more employees where any employee earns up to ₹21,000/month (or ₹25,000 for persons with disability): the employer contributes 3.25% of wages and the employee contributes 0.75%. Both are administered federally—EPF by the EPFO and ESI by the ESIC.
What are India's Four Labour Codes and when do they take effect?
India has consolidated 29 central labour laws into four codes: the Code on Wages (2019), the Industrial Relations Code (2020), the Code on Social Security (2020), and the Occupational Safety, Health and Working Conditions Code (2020). One major change under the Code on Wages is that “wages” are redefined to cap all exclusions (HRA, bonuses, allowances) at 50% of total remuneration—meaning at least 50% of CTC must be classified as basic wages. This increases the base for EPF and gratuity calculations. Draft Central Rules were published on December 30, 2025, and full enforcement is expected from April 1, 2026, though state-level timelines may vary.
What is the gratuity entitlement in India?
Gratuity is a mandatory lump-sum payment made to employees upon retirement, resignation, or death after completing a minimum period of service. Under the Payment of Gratuity Act 1972, employees become eligible after 5 years of continuous service (except in cases of death or disability). Under the new Labour Codes, fixed-term employees become eligible after just 1 year of service. The formula is: Gratuity = (Last drawn wages × 15 × Years of service) ÷ 26. The maximum gratuity amount exempt from income tax is ₹20 lakh. Gratuity is funded entirely by the employer.
How do terminations work in India?
India does not have at-will employment. Employees have strong protections against unjustified dismissal under the Industrial Disputes Act (and the new Industrial Relations Code). For establishments with 100 or more workers, termination without government permission constitutes unfair dismissal. Notice periods are typically specified in the employment contract—30 to 90 days is standard. Employees who are terminated after one year of service are entitled to retrenchment compensation of 15 days’ average wages for every completed year of service. Termination must be preceded by a formal notice and, in many cases, a charge sheet and inquiry process.
What statutory benefits must employers provide in India?
Indian employers must provide several mandatory benefits: EPF contributions (12% of basic wages for establishments with 20+ employees); ESI coverage (for employees earning up to ₹21,000/month); gratuity (after 5 years of service, or 1 year for fixed-term employees under the new codes); paid leave including 12 to 15 days of earned/privilege leave per year, 12 days of casual leave, and sick leave (amounts vary by state); and maternity leave of 26 weeks (fully paid) for female employees who have worked for at least 80 days—one of the most generous globally. Professional tax is deducted by the employer in states where applicable.
Aviso legal
Rippling and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.
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