Hiring Employees in India: A Guide for Foreign Companies

Can a foreign company hire employees in India?

The simple answer is – yes! In fact, I recommend you do. Hiring employees in India has always been a smart and strategic business decision – especially for foreign companies expanding globally.

Simply put, you can’t directly hire full-time employees from India. The legal restrictions stop you from doing that without a legal entity in India. However, you can get help from local companies who hire employees on your behalf. They take care of managing the employees and their HR activities like payroll, taxation, compliance, etc. These are the Employer of Record (EOR) companies.

Today, this blog will help you better grasp the intricacies of this strategic decision. It takes you through the process of hiring employees, specifically in India. Yes, this blog aims to cover everything from discussing challenges to finally giving you a solution that serves you just right.

Now I know I put a lot of confidence in those first two statements up there. But I come bearing proof. So, let’s answer the question – Why is India the best place for hiring employees?

Why is India the Best Place for Hiring Employees?

Between November 2023 and January 2024, around 5,157 companies were registered in India. It is, therefore, quite evident that India is a hot attraction for foreign companies. But why? A simple Google search will give you factors that are strong and good enough like –

• A large and rich supply of highly qualified, experienced, and skilled talent
• Cost-effective workforce
• Robust digital infrastructure
• Supportive schemes from the government
• Flexible time zone (Yes, we Indians can work round the clock)
• Proficiency in English

But let’s go a bit beyond simple Google searches. India is one of the best places for hiring employees, also because of the following reasons.

• Established HR outsourcing industry
  The reason why hiring employees in India is easy is the strong base of the outsourcing industry. India has an established HR outsourcing industry and offers types of remote workforce solutions, specific to your needs.
• Adaptable and flexible work culture
  Indian employees bring flexibility to work and are adaptable to remote, hybrid, and in-office work models. To put a cherry on top, Indian employees are adept at smoothly collaborating with foreign companies and their employees. That leaves close to no room for errors.
• Stable political climate and government schemes
  India has a strong and stable political environment with deep democratic roots. It especially supports companies bringing in foreign investments. Schemes like #startupindia help Indian and foreign companies set up their businesses. They offer seed funding, tax benefits, easier compliance, and the sort.
• Strong workforce
  To start with, let’s allow the numbers to speak. The present workforce in India is at a whopping 643.3 million! This data comes straight from the vaults of the Reserve Bank of India’s KLEMS database. It is also covered by the Ministry of Labour and Employment.
• Affordable office spaces
  India has some of the most affordable and well-designed corporate infrastructures. That is for when you decide to set up offices here. (P.S. – We are sort of pros at helping you with that.)
  Read: Office Space Solutions for EOR Teams in India

If that is not reason enough, we have a lot more to offer to ensure successful hiring in India. Click below to get in touch with us.

What You Need to Know Before Hiring Employees in India

This section covers all the key points you should know, to hire employees in India. Hiring employees in India is like navigating a complex but rewarding puzzle. There are multiple factors at play. These factors include legal compliance, cultural nuances, operational challenges, functional requirements, age diversity, etc.

Let’s get a deeper insight into this.

• The work culture in North India is a lot different than in South India.
• India has a more hierarchical system of operations.
• Employees ranging between the ages of 18 to 30 are more opportunity-driven. Employees above 30 years of age are more stability-driven.
• The labor laws change when you move to different regions. For example, the minimum wage for skilled workers in Delhi is Rs. 21,917 per month, while in Maharashtra, it is Rs. 17,067 per month.

These were only some of the factors I mentioned above, off the top of my mind. These factors go into elaborate detail as we dig further.

Compliance stands to be one of the most important factors. There are strict requirements to manage local employment norms. One major error in compliance or taxation, and you’re looking at big potential losses, even damage to reputation. And we definitely don’t want that.

Now now, I am not really planning to scare you away. Hiring employees in India might not be, but I promise I have a breezy solution to this problem. However, before I bring the solution to you, let’s first understand the factors you need to know to hire employees in India.

Eligibility to Hire in India

When discussing hiring employees in India, you can picture yourself at an intersection that breaks into two roads. You either take a road where you have your legal presence to be eligible to hire employees on your own. Or you take a road where you hire someone with a legal right to hire employees on your behalf. Based on this, the two roads/options you’re looking at are –

• A subsidiary company, or
• Employer of Record (EOR), aka, international PEO (Professional Employer Organisation)

Let’s see what the two roads have in store for you.

1. Set up Your Shop with a Subsidiary Company

If you choose the subsidiary, you’re basically opening up your own store in India, your own legal entity. This entity operates independently but is still owned or controlled by your main business. A subsidiary gives you complete control over your operations and the hiring process. You’re the pilot of your airplane.

However, as Uncle Ben has rightly said, “With great power comes great responsibility!”

Setting up a subsidiary means dealing with registration paperwork, tax regulations, local labor laws, and ongoing compliance. It’s a long-term commitment, not a quick fix. It requires you to fully engage with, and thoroughly understand India’s business landscape. This needs deep research, local expertise, and tactics to survive in the Indian market.

What I’m saying here is that the Indian market can get overwhelming for you if you’re absolutely new.

If you still want to set up a subsidiary company, you absolutely can. If this idea feels like a long shot right now, we have an easier way in! You can start by entering the market with an EOR company. What is an Employer of Records (EOR)? It is a model that allows you to dip your toes in and learn the ins and outs of the Indian market. As you grow more confident and familiar with the business landscape, you can make the switch to a subsidiary when you’re ready. It’s a smart way to avoid the upfront complexity and cost while still working toward your long-term goals.

2. Hiring Made Easier with Employer of Record (EOR)

On the other hand, Employer of Record (EOR) is the road where you outsource all legal processes and still have a team in India. In this case, the EOR company becomes the legal employer. Your EOR partner manages the recruitment services for you.

For instance, they hire employees on your behalf but don’t control the day-to-day operations for you. And EOR company manages all things legal. This includes employment contracts, payroll, tax filings, and ensuring compliance with local labor laws.

This road is ideal for you if you want to get started quickly without setting up a legal entity. It is one of the best options for SMBs (Small and Medium Businesses), as this road is a lot more cost-effective. EOR also helps you test the waters in India without a long-term commitment. It gives you the flexibility to hire in India without the need for a full-fledged legal setup while staying compliant with all the local regulations.

For a better understanding, let’s draw up a basic difference chart between a subsidiary and EOR.

Key Factors to Consider for Choosing Between a Subsidiary and EOR

Let’s get into the nitty-gritty of how a subsidiary is different from EOR and what fits you better. Without further ado, let’s go.

 

Point of Difference	Subsidiary Company	Employer of Record (EOR)
Legal Entity	The company has it’s legal entity	EOR acts as the legal entity of the company
Long-term Vision	Suitable if you are committed to establishing a long-term presence in India, with potential investments, local partnerships, or acquisitions.	Suitable for short-term plans where flexibility is key, especially if you’re unsure of long-term prospects in India or want to start small.
Control and Ownership	Provides complete control over operations, brand presence, and decision-making in India. A legal entity that enables independent business activities.	EOR hires employees on your behalf while you focus on business operations. More flexible. Less direct control over local HR processes.
Industry-Specific Regulations	Better for highly regulated industries needing direct control like Pharmaceuticals, Finance, or any industry that requires obtaining a legal license.	While EOR is a good option in multiple industries, it might not work in highly regulated sectors with direct legal control and compliance.
Compliance and Legal Framework	You are responsible for complying to all local laws and compliance requirements. Resource-intensive but greater autonomy.	EOR assumes the responsibility for compliance with all local employment laws. Reduces the legal and administrative burden on your company.
Cost and Time	Costly and time-consuming. Involves setting up an entity, registering with gov. authorities, and fulfilling legal obligations like auditing and tax filings.	Faster and more cost-effective. Lesser time to start operations. EOR provides IT & infrastructure support, making it an attractive option for faster market entry.
Hiring Talent	Operating under your own legal entity allows you to establish your brand and corporate culture directly with employees.	EOR plays a role in influencing employee experience and what they feel for the company since they are under EOR’s payroll.
Scalability and Risk	Best for long-term, large-scale growth, but higher risks. Offers better scalability as you can also sell your product/services here. Difficult to scale down.	Ideal for small, flexible teams and testing the market. Offers better risk management as EOR manages the legal factors. Easier to scale down.
Brand Presence and Credibility	Stronger local brand presence and credibility.	Less permanent brand presence; may seem more temporary.
Exit Strategy	Harder and costlier to shut down or exit.	Easier to exit with fewer formalities.
Recommendation	Best if you want full control and plan for a long-term, large-scale presence in India.	Ideal for quick market entry, small teams, or if you’re testing the waters.

 

For a detailed answer, you can also read, ‘EOR or Subsidiary: Which One to Choose for Global Expansion?’

Cost of Hiring Employees

When it comes to hiring in India, you’ve got a few models to consider:

Success Fees

Here, you pay hiring partners a percentage of each employee’s Cost to Company (CTC). Expect to shell out between 8% to 15% of the CTC. Think of it as a “Congratulations, you hired someone!” fee.

Retention/Monthly Fees

This is like a subscription service for hiring help. You’ll pay anywhere from ₹25,000 to ₹125,000 per month, depending on the partner’s expertise and the level of service. It’s like having a personal shopper but for your recruitment process.

Hybrid Model

This is a mix of success fees and monthly retention, offering flexibility. You can adjust based on your hiring pace, requirements, and the effort needed to find a candidate for that role. For instance, finding candidates for higher-level positions is much more difficult than entry-level.

In India, choosing the right model plays an important role in balancing your budget while still finding cost-effective and top talent!

Internal Hiring

You also have a ‘do it yourself’ option. Here, you internally hire an HR team in your company who can search and recruit potential candidates in India.

However, the important thing to note here is that your HR team should be well-versed with the local market expertise in India. They should specialize in Indian labor laws and compliance, cultural nuances, recruitment practices, localized benefits, workplace norms and expectations, etc. While this expertise could be available in your location, comparatively it’ll be more expensive than the three options mentioned above.

 Employee Hiring Process in India

Here’s a number that’s about to make your business expansion plan a little sunnier. According to Trading Economics, the Labour Force Participation Rate (LFPR) in India is at an all-time high, standing at 50.20%. The current Employment Rate stands proudly at 46.90%, which is as good as 47%.

Now that we have substantial numbers showing a strong market to hire employees in India let’s understand the hiring process

Recruitment Planning

So, the very first step of hiring a team is knowing who, when, where, and how to hire. We, at Remunance, start out by analyzing the requirements of employees. In this stage, companies tell us what they need. This includes –

• Number of employees required
• From which specialization
• Number of years of experience
• Preferred location
• Specific skillset or institution
• Allocated salary for the role
• Acceptable notice period, etc.

Based on this information, either the company or the EOR partner, or both together create a job description. Responsibilities are assigned, the role is defined and that is your first step. You now have personas ready of what your employees should be like, and their roles and responsibilities.

Talent Sourcing Platforms

The next step is to take these job descriptions and post them on various job boards. In India, the most popular five job boards where you’ll find most of the recruiters and employees are –

• Naukri.com
• LinkedIn
• Glassdoor
• Foundit
• Wellfound

The company/EOR partner posts required job profiles on these apps and applications start coming in!

Application Review and Screening

Welcome to an important, but rather time-consuming and frustrating process. This step includes reviewing and screening the received applications and shortlisting them for interviews. There is one major problem that companies face here.

75% of the total applications received are absolutely irrelevant. Meaning, most of the applications don’t fulfill the requirements for the role. Some even could be for completely different profiles.

For instance, to secure a better opportunity, applicants tend to apply for roles for which they are underqualified. And a LOT of them do that. This can result in a considerable time being wasted.

The solution, you ask? Just some good ol’ local wisdom. With local expertise by your side, you can screen and shortlist best-fit candidates. Your EOR partner will do an amazing job at this. You will get a filtered list of the most suitable and qualified applications from a pool of a thousand applicants.

Interviews With the Company

You now have your best suitors. You now interview them. Your EOR partner takes your role of communicating with the applicants, engaging them, and getting them interested in your company. They set up interview dates and timings and get the applicants in front of your interview panel.

There’s also an option where EOR companies can fully take over this step. You give us your requirements and tell us what you expect from your employees. We put that to use and do the interviews on your behalf.

Extending the Offer

Once a candidate is chosen, a verbal offer is extended. This is followed by sending a formal offer letter. Your EOR partner regularly communicates with the candidate in this step. We make sure candidates are engaged, their doubts are solved, etc. We make sure they understand the company and the work better and there’s no confusion.

Creating Employee Contracts

Once companies give their green signal, EOR companies prepare the employment contracts and then send them to the candidate. Keeping candidates engaged at this stage is key to avoiding losing them to competitors.

Onboarding the Employees

The new hire is introduced to the company, provided with details about their role, and given an overview of company policies. Your EOR partner will make sure they feel comfortable and motivated about the company.

Background Verification

Your EOR partner will also conduct a thorough background check before the employee officially joins. Here we, at Remunance check if their employee history is correct. Most employees manipulate their history to get better offers. We also check for any criminal background. We then give our green signal that the employee is good to go.

Employee Engagement and Support

EOR partners ensure continuous engagement and provide support to the new hire. This is to make sure employees continue to feel nurtured and taken care of. We solve their queries and make them feel supported enough.

And voila! That’s your set of employees in India, all hired and good to go! If companies don’t stay in constant touch with the employees, they might start feeling disconnected from the company. But this is where your favorite EOR partner can jump in to save the day. We maintain the bridge of communication between you and your employees things like regular employee engagement activities.

Now that you guys know the employee hiring process in India, let’s take you on a ride through India. Meaning, let’s understand how things work here in India. Let’s get into the good and bad aspects of the whole hiring process and understand common practices.

Must Know Things About Indian Employees and Work Culture

Okay, so you’ve understood the pricing strategy and know the process of hiring employees in India. Let’s say you’ve pretty much made up your mind about expanding or setting up teams in India.

However, before you proceed, allow me to give you some local insights to help you understand how things really work in India. I am going to take you through some negative and positive aspects and common practices, of hiring processes in India. Shall we? After you. (*Proceeds to open a door to India*)

Positive Aspects of Hiring in India

• Diverse Skill Levels: Basically, imagine a Venn diagram. From entry-level to highly experienced across all niches and industries. That is what India offers. Even if IT stands at the top, you will find talent here for healthcare, finance, marketing, insurance, real estate, etc. And those are only the industries that came to the top of my head.

• Loyalty With Engagement: While job hopping may be the current trend, with the right employee engagement, that can change. Indian professionals, especially from the age group of 18 to 35 are all chasing rapid professional growth. They search for companies that can offer recognition, career growth opportunities, and personalized perks. With the correct employee engagement, you can observe long-term loyalty even in the most competitive market.

• Family-influenced Decisions: A lot of Indian professionals take family input seriously when making career decisions. To tip the scales in your favor, you can be supportive of this. This can be done by offering family-friendly benefits, like health insurance or flexible work arrangements. John Deere, for instance, has amazing flexible work arrangements. It opens doors even for Indian women to have a great opportunity in their careers. In return, employees are also known to work harder because they were given benefits.

• Tech-savvy and Adaptable: Indian employees are quick to adapt to the latest technologies, often taking the initiative to upskill themselves with certifications or online courses.

• Strong Peer Recommendations: Referrals carry a lot of weight in India. Candidates are more likely to be reliable when referred by a peer or trusted colleague. This often brings a strong sense of responsibility and commitment to the role.

Negative Aspects of Hiring in India

• Accents and MTI: Mother Tongue Influence (MTI) can sometimes cause communication challenges, especially in client-facing roles. And it goes both ways. Foreign employees might have difficulty understanding Indian employees because of their accents, and vice versa.

• Faking Interviews: In rare,  but possible cases, candidates might have someone else sit for their interview, either physically or virtually, leading to unpleasant surprises later on. This also causes a waste of resources and time for the company.

• AI-powered Answers: With tools like ChatGPT, some candidates might rely on AI to answer interview questions or even complete tests, making it harder to gauge their real abilities.

• Fake Documents: It’s possible for candidates to submit falsified credentials or background information, adding a layer of complexity to the hiring process. They can also manipulate employment history to show more experience or skills that they may not have.

• Criminal Backgrounds: Conducting thorough background checks is essential as candidates might attempt to hide their criminal histories. These checks can also help understand if potential candidates with a criminal history are worth giving a chance. As some of these criminal offenses might not be that serious. This decision solely lies with the company.

• Offer Shopping: One of the most common practices in India is ‘offer shopping’. Some candidates are just ‘shopping’ for job offers to get a better deal elsewhere or in their dream company. They might accept an offer only to use it as a bargaining chip with other employers.

• No-shows: Like offer fishing, no-shows are another frequent occurrence. Shockingly, only 30-40% of candidates show up on their first day of work, which is why companies need to engage with them post-hiring to increase attendance. While these might pose risks to a smooth expansion, it is nothing that cannot be fixed. EOR partners specialize in dealing with all the above-mentioned issues. They can easily be fixed with some training, thorough background verification, and high employee engagement.

Common Practices of Hiring in India

• Off-hour Interviews: In India, candidates often prefer interviews during holidays, weekends, or after regular working hours to avoid conflicts with their current jobs.

• Quick Interview Processes Needed: With the abundance of job opportunities, candidates expect a short interview and decision-making process. If you’re slow to respond, they might jump ship to another offer.

• Salary Increases and Bonuses: Due to increasing inflation, it’s common for companies to attract and retain talent by offering salary hikes and bonuses. It’s not just about the pay, but about keeping up with the ever-growing cost of living.

• Counter-offers at Play: Here’s a fun one. It’s almost expected that candidates will come back with a counter-offer from another company. Employees often use this phase to get the best salary and desired company. Be ready to negotiate, re-negotiate, and, just when you think it’s over—negotiate some more.

• Festive Job Slowdowns: During major festivals like Diwali, the hiring process can practically grind to a halt. Candidates are busy with family and celebrations, and hiring managers might be too. So, if you’re trying to hire around this time, patience is your best friend (along with a box of sweets to send post-Diwali).

Here’s a further insight into how things work in India. Read: Discover the 4 Cs of Indian EOR Services

How Remunance is Making it Easy for Foreign Companies to Hire Employees in India

If you’re still with me, you’re caught up with the comprehensive idea of what hiring employees in India looks like. There’s no doubt India is one of the best places to set up remote teams.

But there’s also no doubt that one who doesn’t have local expertise cannot do it alone. Only someone who has in-depth knowledge and knows all practices can help you get a smooth entry into the Indian market.

This is where Remunance steps in. I will tell you in two parts how Remunance helps you hire employees in India.

Pre-hiring Perks

• Pre-engagement activities: Remunance’s pre-engagement activities significantly increase the chances of candidates joining and sticking around. With Remunance, you can bid adieu to no-shows and job-hopping. We keep them happy, motivated, and engaged!
• Thorough background checks: A dedicated team, along with trusted external vendors, ensures rigorous background checks, so you can hire with confidence and avoid any surprises down the line.

Post-hiring Perks

• Employee benefits: We offer attractive benefits to keep employees smiling and satisfied.
• Engagement activities: Fun and interactive engagement activities build team spirit and loyalty.
• 360-degree support:
  • Infra support: We handle all infrastructure needs, ensuring a smooth workspace.
  • IT support: Our IT support keeps the tech troubles at bay, letting employees focus on their work.

Did I not say I have a breezy solution for you? With Remunance, hiring in India is not just easy; it’s a breeze! And this is not all we do, no no. We are much more than this and have a range of services that can make your ‘Mission Business Expansion in India’ dream come true and become solid. Reach out to us anytime you want and we will be more than happy to assist you.

The Wrap-up

India has a business landscape that presents both opportunities and equal challenges in expanding your workforce. You need to have a deep understanding of the legal landscape, cultural nuances, and effective recruitment strategies.

With the right strategies up your sleeve, the Indian workforce can prove to be one of the strongest assets of your company. And if things go all well, considering setting up a subsidiary here is also not a bad idea. It is rather another strategic business move. One major benefit it gives is allows you to tap into a large customer base, as you can now legally sell your products and services.

While a subsidiary can be something to circle back to in the future, you can still easily tap into the mighty workforce of India.

Frequently Asked Questions

Guidelines to Hire EOR Employees in India

What motivates Indian professionals to join EORs?

EOR- a Reliable Strategy to Build Remote Teams in Uncertain Times

 

The Best Way to Offer Employee Benefits to Your Remote Team: EOR