Employer of Record in India: Everything You Need to Know

You all must be well aware of the influential employment model employer of record. But the time has come to get into specifics. Hence, we’ll completely focus on employer of record in India in this blog. India as a country is a hot zone for recruiting talent per se. The reasons?

• •   Abundant young workforce
  •   Optimized cost per hire
  •   Highly skilled professionals with strong educational background

In a hiring environment as this, an EOR in India comes as a cherry on top. Apart from doing all the necessary EOR tasks, an employer of record in India focuses on country-specific hiring concerns.

It provides solutions that are culturally and legally apt for Indian employees. It helps and saves businesses understand and implement the hiring dynamics in India through and through. It’s always there for your remote team during times of need in this rich and diverse country.

Want to know how? Let’s get started!

What is an Employer of Record in India? 

The Employer of Record in India is known to hire employees on behalf of foreign companies. It is a third-party service that legally holds the status of an employer. 

An India EOR looks into responsibilities like payroll, compliance, taxes, and HR functions. Hence, the contracted company looks only into daily activities that generate revenue. 

What Exactly Does an EOR in India Do?

 

An Employer of Record (EOR) in India helps companies hire and manage employees without setting up a legal entity. It handles compliance with India’s complex labor laws, tax regulations, and employee benefits. This includes managing contracts, payroll, social security contributions like Employees’ Provident Fund (EPF) and Employees’ State Insurance (ESI), and ensuring smooth onboarding.

The real advantage? It cuts through bureaucracy and reduces compliance risks. Businesses can scale faster and access top Indian talent without legal hurdles. This model is popular with startups, SMEs, and global firms looking for a cost-effective, hassle-free way to build teams in India.

  

Why Should You Partner with an Employer of Record in India?

It’s a well-known fact that global companies are hiring remote employees from India. Most of the startups and MSMEs are partnering with employer of record India in doing so. 

The real question here is “Why”? Why do they prefer the EOR India employment model over others? Let’s discuss that here. 

Compliance with Indian Labor Laws Is Taken Care of  

As diverse as the country is, India’s labor laws always prove to be challenging. India has over 40 central laws and numerous state-specific regulations. Now, if you were to hire employees directly in India, you need to understand the basics of these laws. Otherwise, you could end up with legal disputes. 

A few of the inevitable labor laws in India include: 

• • Employees’ State Insurance (ESI)
  • Provident Fund
  • Gratuity
  • Shops and Establishment Act

We’ll give you a bird’s eye view of each of these laws and a few more important ones later in this blog. But for now, let’s say you miss filing a specific report for the ESI scheme.

What happens next? You burn your pockets paying huge fines. On the contrary, if you partner with an India EOR, any said legal risk goes. Their expert team stays current with all local labor laws your business must follow. 

Faster Access to the Local Talent Market

Suppose your company needs to hire a remote team of 10 software engineers within a month. In this situation, would you go through the lengthy process of setting up a local entity? Or worse, handling the complex paperwork involved in the process?

India has a workforce of over 500 million people. This makes India one of the largest talent markets globally. Joining hands with an India Employer of Record allows you to access this treasure trove right away. 

The EOR leverages its strong talent database and builds the team within the required timeline. This allows your project to begin without delay.

Cost-Effective Expansion

Did you know? The cost of hiring employees in India is much lower compared to Western markets. Hence, a UK-based startup expanding to India can save up to 70% in labor costs. That’s impressive, right?

However, this can be true only if you choose the right employment model. Otherwise, the team expansion process can be quite expensive and time-consuming.

By using an EOR in India, you can avoid setting up an entire HR department. This cuts down on the cost of hiring efficient recruiters and legal advisors and setting up payroll systems. An employer of record in India finds you the best talent within an affordable budget. 

Read about cost of hiring remote employees in India  

Reduced Risk and Liability

Suppose you hire a team of sales representatives in India. However, six months later, you unfortunately face a layoff scenario. To add to this mishap, you forgot to comply with India’s termination regulations. Consequently, your company is exposed to a potential lawsuit.

When partnered with an EOR India, it handles all employee-related liabilities. It takes care of the severance pay and employee contracts. It also ensures there is no mismanagement of employee benefits during the termination process. An employer of record in India spares your business from any material or reputational damage. 

How to Hire Employees in India? 

Knowing the head-to-toe of Indian hiring culture before team expansion in the country is crucial. Hence, we’ve broken down the necessary factors into bite-sized information for you. We aim to help you with as much clarity as possible. 

Employment Classification

• • Employees in India fall into three categories: permanent, contract, or temporary.
  • Know your employee’s classification. It’s the key to staying compliant with local employment laws. If you find the process daunting, EOR services in India can assist you with that. 

Work Hours and Overtime

• • The standard workweek in India is 48 hours, with a 9-hour daily cap.
  • Does the concept of overtime pay exist here? You bet! Follow the Factories Act and Industrial Disputes Act to keep things above board.  

Probation Periods

• • Most companies have a probation period (usually 3-6 months). This is to see if employees are a good fit.
  • Employees are evaluated in this period before regular employment status is confirmed. 

Employment of Women

• • There are specific laws for the protection of female employees.
  • Some of them include the Maternity Benefit Act and rules for night shifts.
  • Companies need to implement these while hiring women. Needless to say, employer of record services in India always stay on their toes while complying with them.  

Termination Rules

• • The Industrial Disputes Act governs how employees can be terminated.
  • Usually, employers need to give notice or compensation. It also depends on the company size.

Regional Disparities

• • Labor laws differ slightly from state to state.
  • Always double-check the local rules about holidays, wages, and benefits before hiring.
  • To be absolutely certain, take help from someone who is well familiar with the region-specific rules. An employer of record in India. 

Retirement Benefits

• • If an employee has completed 5 years or more of service, they’re entitled to Gratuity.
  • Plus, companies must offer a Pension Scheme under the EPF Act. It’s mandatory to get that retirement planning right under Indian law.

Workplace Safety

• • Especially in industries like manufacturing or construction, safety laws are a must.
  • Follow the Factories Act and any specific regulations to avoid accidents and fines.

Contractual Agreements for IT Companies

• • In the IT sector, it’s common to have non-compete clauses, intellectual property agreements, and confidentiality terms.
  • Make sure these are clearly stated in your contracts to avoid headaches down the line.
  • Most EOR services in India take care of these clauses without any extra fees charged.  

Workplace Culture

• • Indian work culture leans heavily on respect for seniority and hierarchy.
  • Customize your recruitment strategies to fit this dynamic. Don’t overlook it! 

Statutory Benefits

• • Offering benefits like medical insurance and paid leave is mandatory.
  • These benefits are the bread and butter of employee rights. Partner with an employer of record India to avoid cutting corners.

What Is the Cost of Hiring Employees in India?

There are multiple factors associated with the hiring costs in India. To avoid missing out on any important part, we’ve broken down this section as much as possible. Excited to get into the cash vaults of the hiring industry in India? 

Let’s first talk about the factors affecting the basic salary or compensation of an Indian employee. 

1. 1. Industry type
   2. Candidate location (metro cities or smaller towns)
   3. Cost of living
   4. Incentives and perks  (bonus structures and other goodies)

Okay, these were pretty self-explanatory. Now, let’s talk about the factors that the Indian government mandates for employers to pay. 

1. 1. State-specific Labor Welfare Funds: Requires employers to contribute a small percentage of the employee’s salary. This is to promote welfare schemes for workers, like providing housing, healthcare, and financial support in case of accidents.
   2. Professional Tax (PT): State-level tax that applies to individuals earning income through employment or professional services.
   3. Payment of Bonus Act, 1965: Applicable for employees earning a certain income level. The bonus amount must not be less than 8.33% of the employee’s salary or Rs. 100 (whichever is higher). It’s usually paid during the festive season like Diwali. 
   4. Equal Remuneration Act, 1976: Every gender should receive equal pay for equal work without discrimination.

Now, an employer of record India does handle all the costs associated with hiring in India. But more on that later.

How Does an Employer of Record in India Help You Hire Employees? 

This section will exhaustively talk about the ways EOR services in India ease your life. We’ll walk through the entire hiring process with an India EOR step-by-step. 

Recruitment and Screening

• • EOR services in India can assist you with recruitment. They specialize in the Indian talent market and help you find top candidates.
  • They also conduct thorough background checks on candidates.
  • The India EOR leverages its network of pre-screened talent, making the process faster and more efficient.

Draft an Employment Contract

• • A well-drafted contract is your safety net. It sets clear expectations for both the parties.
  • An Employer of Record in India will help you create legally accurate employment contracts.
  • The contract drafted by an India EOR covers job responsibilities and salaries. It also covers benefits, probation periods, and termination clauses.

Verify Legal Documents

• • EOR services in India verify all the necessary employee documents and their authenticity.
  • Crucial documents include proof of identity, proof of address, educational qualifications, etc.

Onboard & Integrate

• • A solid onboarding process can make all the difference. Employer of Record in India effectively integrates new hires into your company culture.
  • The India EOR provides a structured onboarding process. It ensures that the employees feel welcomed and understand their roles and responsibilities.

Read the complete guide about hiring employees in India  

Payroll and Wages in India

Here is what needs to be discussed while talking about payroll in India:

1. 1. Payroll Cycles
   2. Salary Components
   3. Deductions
   4. Taxation and Income Tax Slabs
   5. Overtime and Bonuses
   6. Employee Benefits
   7. Statutory Compliance
   8. Payment Methods
   9. Final Settlement

Payroll Cycles

The country usually follows a monthly cycle. Most employees get their bank account credited at the end of each month. Very few organizations opt for bi-weekly cycles.

Salary Components

Basic salary represents 40 to 50% of an employee’s total pay. However, the Cost to Company (CTC) of any Indian employee consists of non-core components too. It’s composed of a House Rent Allowance (HRA) and a special allowance.

Then there’s Conveyance allowance and Leave Travel Allowance (LTA). They help with an employee’s travel-related expenses. Last but not least there’s Provident Fund (PF) to support employees after they retire.

Read the descriptive guide about salary calculations in India 

Deductions

There are several deductions made from an employee’s pay. For example, a portion of the basic salary is taken out for Provident Fund (PF) and Gratuity. Then comes the Professional Tax (a state-level tax) and the income tax.

Taxation and Income Tax Slabs

For now, let’s understand that income tax in India is deducted at source (TDS). Also, there are various tax slabs depending on the employee’s income. We’ll discuss taxes in India at length in the later half of the blog.

Overtime and Bonuses

When worked beyond regular hours, Indian employees are entitled to extra pay. It’s often calculated at one and a half times or double the hourly wage. We’ve already discussed bonuses previously in the blog.

Employee Benefits

The most crucial employee benefits are health insurance, paid leave, maternity leave, and in some cases paternity leave. Health insurance in India covers the employee’s family as well. Additionally, working women in India are entitled to 26 weeks of maternity leave.

Statutory Compliance

The Payment of Wages Act looks after the timely payments of employees. Whereas, the Minimum Wages Act ensures that no employee is paid below a certain amount.

Payment Methods

The most common method for salary credit in India is employees’ bank accounts. This method is carried out through Electronic Fund Transfer (EFT), NEFT, or RTGS. With digital payments becoming the norm, physical cheques are almost obsolete today.

Final Settlement

The final settlement process is implemented after an employee leaves the company. It includes paying out any remaining salary for the days worked. Here, unused leave days are also compensated.

Are you feeling overwhelmed reading the huge lists of payroll components? You can only fathom the difficulty of keeping track of them all at once.

That’s why you need an employer of record India. It will act as a GPS tracker for the payroll system in your company.

How Does an Employer of Record in India Help You Run Payroll?

An employer of record in India holistically administers the payroll process for you. It manages compliance, tax deductions, and wage distribution for employees. EOR services in India take full responsibility for accurate salary calculations.

It ensures that statutory contributions are deducted correctly. They also manage payroll frequency, and disbursements, and provide detailed payslips. EOR services in India takes charge of timely and compliant payroll processing on your behalf.

Taxes in India

The tax system in India is based on direct and indirect taxes. The components that come under direct taxes are: 

• • Income tax
  • Corporate tax
  • Wealth tax

At the same time, only one prominent component falls under indirect taxes. GST or Goods and Services Tax. 

Income tax has different slabs and depends on the employee’s annual income. Let’s have a look at the most currently updated tax slabs in India.

 

Now, this was for individuals within the age of 18-60 years. This is the official working age bracket for Indian employees.

GST, on the other hand, is a consumption-based tax. Its rates depend on the type of goods or services.

How Does an India EOR Help You Calculate Taxes?

An Employer of Record in India effectively calculates employee tax deductions. They manage proper tax filings by staying updated with local tax laws.

They consider factors like employee salary, location, and applicable exemptions during tax calculations. The India employer of record removes the complexities of India’s tax system. It saves businesses time and reduces risks of non-compliance.

Learn the tax advantages of switching from subsidiary to EOR 

What Are the Common Employee Benefits in India?

This section will talk about a few employee benefits in India that are not discussed in this blog yet.  Let’s have a quick look.

• • Performance bonuses (Paid according to individual, team, or company performance)
  • Meal vouchers or subsidized meal plans
  • Flexible working schedules
  • Childcare benefits (On-site childcare facilities or financial aid for working parents)  
  • Life and disability insurance (Protects employees’ families and incomes in case of unforeseen events)
  • Employee assistance programs, EAP (Confidential counseling services for employees facing personal or professional challenges)
  • Training and Development (Skill development programs, certifications, or workshops to enhance employee growth)
  • Transport Allowance (Reimbursement or allowance for commuting expenses)
  • Recognition and Rewards Programs (Acknowledging employee contributions through awards, gift vouchers, or public recognition)
  • Employee Stock Option Plans, ESOPs (Mainly provided by startups)

How Does an India Employer of Record Help You Administer Benefits in India?

EOR services in India flawlessly integrate employee benefits in your payroll process. They account for accurate deductions and contributions related to employee benefits. Additionally, employer of record services in India can customize benefit packages.

This caters to every employee’s needs and provides them required support. By outsourcing employee benefit management to an India EOR, companies can offer competitive benefits. This will again help with employee job satisfaction and retention.

Leave Entitlements in India

Let’s look at the different types of leaves an Indian employee is entitled to.

• • Sick Leave (SL): Offered in case of an employee’s health issues. The limit for this kind of leave is 7 to 12 days of sick leave per year.
  • Casual Leave (CL): Offered in case of family emergencies or unexpected matters. The limit for this kind of leave is 7 days per year.
  • Earned Leave (EL) / Privilege Leave (PL): Accumulated over time and carried forward to the next year if unused. Indian employees are entitled to 15-30 days of earned leave annually.
  • Public Holidays: Offered during festivals or other significant days in the country. The limit is 3 to 15 days of public holidays each year.
  • Leave Without Pay (LWP): Offered when an employee exhausts their available leave balance but requires extended time off. There is no certain limit to this. It varies from company to company.
  • Maternity/ Paternity Leave: Already discussed earlier in the blog.  

Additionally, employees can also convert their unused earned leaves into a cash payout. This process is called leave encashment.

How Does an Employer of Record in India Help You Manage Leave and PTO?

An Employer of Record (EOR) in India carefully carries out leave policy management. They communicate leave policies to employees in a timely manner.

This ensures that they are aware of their entitlements and how to request leave. An India EOR also tracks leave balances, approvals, and usage through efficient systems. This provides real-time reports for both employers and employees. 

EOR services in India also do accurate calculations of PTO accruals. They do so based on tenure and company policy. They dedicatedly follow specific rules around leave types and payments in India.

Terminations in India

Let’s talk about employee termination in India. And we’ll start with types of termination.

1. 1. Voluntary Termination: Represents employee resignation or retirement.
   2. Involuntary Termination: This is mainly employer-driven.
   3. Dismissal: For misconduct or company policy violations by an employee.Retrenchment: Represents laying off
   4. due to budget constraints or company restructuring. 
   5. Termination Due to Disability/Illness: When an employee is unable to work due to prolonged illness or injury.

Now let’s talk about the termination process of an Indian employee.

• • Notice Period (For 1-3 months)
  • Severance Pay
  • Show Cause Notice (applicable in case of employee misconduct)

However, Indian employees are also protected by certain laws in case of termination. Some of them include protection against unfair dismissal, tribunal redress, and reinstatement.

In tribunal redress, employees can proceed to the court in case of wrongful termination. The employee can also claim reinstatement and back wages in such cases.

How Do EOR Services in India Help You Process Terminations?

EOR services in India effectively manage all the crucial factors of employee termination. Some of them are notice periods, severance pay, and proper documentation.

They accurately calculate and disburse final settlements. Employer of record in India drafts all the necessary paperwork. Paperwork like termination letters and clearance certificates.

They also sensitively handle cases of wrongful termination. They make sure that the termination is fair and transparent. Further, they conduct exit interviews.

This helps in maintaining positive employer-employee relations. Ultimately it prevents employees from making any unfair claims against your company.

Why Choose Remunance As Your Best Employer of Record in India?

Why Remunance you ask? We can provide you with a thousand reasons. But let’s start with the most prominent ones. First things first, Remunance has 21 years of mastery in this industry. 

No doubt, Remunance is undisputedly considered as the thought leader in the Indian EOR industry. Remunance being the leading employer of record in India also boasts about its employee strength. The current number stands at 1,123 and counting. 

Our team of local experts has actually seen and done it all when it comes to managing employees. Let’s look at how Remunance thinks outside the box besides doing the basic EOR duties immaculately.

• • They believe in being transparent and honest with both their clients and employees.
  • They believe in being there for their clients and employees by providing prompt response and 360-degree support. 
  • They believe in handling all business deals and employee concerns in a respectful manner always. 

Remunance is strong in ethics and dedicated in their duties. I think you got your answer of “Why Remunance?”