India rules · all investors

Hiring: India rules for foreign companies

CA Utsav Dogra, Chartered Accountant, ICAI M. No. 542375

Indian employment law is contract-based with statutory overlays: the four labour codes, state shops and establishments laws, and standing orders for larger establishments. There is no at-will employment; termination needs notice or pay in lieu, and some cases need a fair process.

Setting up employment properly

Salary structures are usually split into basic pay, allowances and benefits. Under the codes, if exempt allowances exceed half of total remuneration, the excess counts as wages for provident fund and gratuity, so structures built on a low basic salary need review.

Before the first hire, the company registers with the provident fund and, where wages fall within its limit, employee state insurance, plus state professional tax and labour welfare fund where applicable.

Employment basics

Written contracts with notice, confidentiality and IP assignment.
Provident fund registration; ESI at lower wage levels; state professional tax.
If exempt allowances exceed 50% of pay, the excess counts as wages for contributions.
Shops and establishments registration for each office.

Checklist

Indian offer letter and employment contract
Salary structure under the codes
PF, ESI and state registrations
Payroll calendar and TDS
IP and confidentiality terms

Common mistakes

Using home-country contracts
Low basic-salary structures that breach the wage rule
Hiring before registrations
No IP assignment from employees

How this applies to your country

Our service: Payroll and expatriates

Questions

Is gratuity mandatory?

Yes, under the Code on Social Security, after the qualifying service period, with a shorter period for fixed-term employees.

Can contractors be used instead of employees?

Genuine independent contractors can be engaged, but misclassification and PE risks need care.

Can staff be hired before the company exists?

Yes, through an employer of record, with a planned transfer to the company later.

Queries

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