Hiring guide in India

What should I know about hiring in India?

Legal requirements for hiring in India

To ensure a fully compliant hiring process, employers in India must follow a couple of important laws and regulations.

Legal framework

Types of employment contracts

In India, there are four major types of employment contracts, depending on the nature of work and the unique work needs of the employer and employee. 

Full-time or indefinite employment contracts are offered to permanent employees, typically for a standard workweek of 40 hours or more. A full-time employment contract in India should outline the benefits mandated by law, including paid leave, national holidays, and Provident Fund contributions, and optionally include benefits like health insurance, gratuity, and pension plans.

Part-time employment contracts are offered to employees who work less than 40 hours per week and have flexible working schedules. While these contracts should guarantee the mandated minimum wage in India, they don’t always include statutory benefits such as paid leave or Provident Fund contributions.

Zero-hour contracts are based on the employer’s workforce needs, where employees receive remuneration only for the hours they work. Zero-hour employees are entitled to minimum wages for the hours worked, but they don’t receive statutory benefits. The last type, casual contracts are used for short-term and seasonal work and don’t mandate a fixed salary and work schedules. Casual contract employees are paid based on their completed work in accordance with minimum wage laws and are generally not entitled to statutory benefits.

Content of an employment contract

Indian employment contracts are based on principles like offer, acceptance, and consideration. However, these aspects are highly dependent on factors such as the business type, internal policies, and others.

Employment contracts in India act as a mutual agreement between the employer and the employee and, therefore, must set out the most important work terms and conditions. Such details include the names of the parties, job title and position, duties and responsibilities, wage, duration, and entitlements to benefits like health insurance and vacation days. 

The main goal of employment contracts in India is to provide job security, prevent future disputes, and protect against wrongful termination, which is beneficial for both the employer and the employee.

Download a free employment contract for India through Native Teams.

Oral, written or electronic employment contracts

According to Indian labour laws, employment contracts can be in a written, oral, or e-contract form.

Starting from written employment contracts, their purpose is to provide a formal and structured framework for the employment relationship. These contracts outline the most important work terms and conditions, offer enhanced legal protection, and are most commonly used for long-term and permanent employment arrangements. 

Oral employment contracts are a legally valid form which includes a verbal agreement between the employer and the employee. Due to their limited enforceability and potential for disputes, they’re commonly used in informal and short-term arrangements.Finally, electronic employment contracts are commonly used as an alternative to written contracts, mainly for remote work setups. These contracts are created, signed, and stored using digital platforms and e-signatures and offer greater efficiency and accessibility for both parties.

Probationary period

The probationary period in India is a common practice, as it marks the beginning of employment. The period is split into several phases, including the introductory period, training, goal-setting, transition, and performance evaluation. 

After completing the phases, the employment can result in confirmation of employment, extension of the probationary period, and termination.

Working hours

Working hours in India are governed by multiple statutes, each specifying different limits and provisions. 

According to the Factories Act 1948, the maximum working hours are 9 hours per day, 48 hours per week, with overtime compensation if these limits are exceeded.

Under the Mines Act 1952, miners are not allowed to work for more than 10 hours a day, including overtime. Finally, following the Shop & Establishment Act which varies across the country, the daily working hours range from 8 to 10 hours, with a maximum of 48 hours per week. However, according to this act, overtime hours are compensated at double the regular rate.

Breaks and night work

India is a country with a diverse workforce, and mandated breaks are essential to promote well-being and contribute to a healthier work-life balance. Therefore, as mandated by the Factories Act 1948 and the Shop & Establishment Acts, every worker is entitled to at least 30 minutes of break after 5 hours of continuous work. 

Night work in India typically spans from 7:00 PM to 6:00 AM, with specific legislation tailored to different industries. Night shifts in the country are typically compensated higher, even though this highly depends on the industry, location, and expertise level.

Annual leave

Annual leave entitlements in India are designed to ensure that employees have the opportunity to take time off from work for personal reasons, vacations, or rest. Such entitlements are governed by a variety of acts, including the Factories Act 1948, the Shops and Establishments Acts, and others. 

In simple terms, each worker in India is entitled to annual leave, with wage provisions, duration, and eligibility criteria varying across states. However, workers are protected by minimum leave entitlements, where employers are obligated to provide a certain number of annual leave days for each completed year of service. Employees can carry over unused annual leave to the next year within specified limits and may encash unused leave days according to organisational policies and laws.

Public holidays

Employment laws in India address national holidays to ensure fair treatment for all cultural and national observances. Although the number of festive holidays may vary from state to state, employers are obligated to grant leave on 26 January (Republic Day), 15 August (Independence Day), and 2 October (Gandhi Jayanti). Employees who work on national holidays are entitled to double wages.

Wages and contributions

Salary laws in India are created to ensure fair compensation through several key regulations. 

These include minimum wage laws at both central and state levels, the Payment of Wages Act ensuring timely and accurate wage payments, and the Equal Remuneration Act mandating equal pay for equal work. In addition, the Bonus Act requires annual bonuses based on profit and productivity, the Gratuity Act provides for gratuity upon meeting certain criteria, and taxation laws require employers to deduct TDS from salaries.

To calculate the salary and taxes in India, click here.

Sick leave

Sick leave in India is a paid leave provided to employees to recover from an illness or injury without facing financial repercussions. Employers are obligated by law to offer sick leave to their employees separately from paid vacation time. 

Sick leave policies in India may differ depending on the company’s location and local laws. However, the Indian labour law recognises short-term and long-term illnesses in sick leave policies, with different procedures in place for each.

Parental and maternity leave

According to the Maternity Benefits Act 1961, new mothers in India are entitled to a minimum of 26 weeks (182 days) of paid maternity leave before or after childbirth. Women also have the option to use 8 weeks of leave before their expected delivery date. 

When it comes to paternity leave, there is no specific nationwide legislation mandating it in India. However, many companies in India are taking proactive steps to introduce paternity leave as part of their employee benefits package, typically lasting from a few days to a couple of weeks.

Termination of the employment relationship

The Indian labour law recognises a few types of employment termination. 

Starting from resignation, the employee initiates it voluntarily, and they are obligated to provide notice as per the terms of their employment contract.

The employment relationship can also be terminated by the employer for a variety of reasons, such as poor performance, misconduct, redundancy, or violation of company policies. Depending on the reason, employers may be required to provide notice or pay in lieu of notice.

Retrenchment is the type of termination due to reasons like closure of the business, reduction in workforce, or financial constraints. In the case of retrenchment, employers must provide notice, pay compensation, and follow fair selection criteria. 

Dismissal is also a type of termination that occurs due to serious misconduct or breach of employment terms by the employee. Depending on the severity of the misconduct, dismissal may result in immediate termination without notice or compensation.

Layoffs are a type of termination that temporarily removes employees from work due to several factors. During the duration of layoffs, employees may be entitled to certain benefits like compensation or re-employment rights. Finally, constructive dismissals occur when the employer creates a hostile work environment or breaches the terms of employment to the extent that the employee resigns. In this case, employees may be entitled to compensation or other remedies.

Ordinary dismissal by employer

In India, both the employer and the employee can ordinarily terminate the employment contract following a valid reason for termination and a notice period. 

The employee can ordinarily terminate the employment contract by giving a resignation letter and completing the notice period determined by the contract. On the other hand, employers can also ordinarily terminate the contract for reasons such as breach, serious misconduct, redundancy, and unethical behaviour by the employee.

The ordinary dismissal must be in written form and contain an explanation. If the employment relationship is terminated without any cause, the employee is entitled to severance pay.

Notice period and challenging the dismissal

Termination of employment in India requires following a notice period, which is typically specified in the employment contract.

In the absence of a specific employment contract clause, the notice period is governed by two main laws – the Industrial Disputes Act 1947 (IDA) and the Shops and Establishments Acts (S&E). 

According to IDA, employers must give one month’s notice or pay one month’s wages in lieu of notice when terminating the employment of the worker. On the other hand, the S&E acts mandate a notice period of one month for termination of employment that has lasted for at least 3 months. 

If the employee believes that their termination was unfair or without a proper cause, they can challenge the dismissal through a few mechanisms, such as the Internal Grievance Redressal Mechanism and Labour Courts.

Rights and obligations of unemployed individuals

The rights and obligations of unemployed individuals in India are governed by a variety of legal provisions and welfare schemes. The eligible individuals can have access to unemployment benefits such as financial assistance, job-seeking aid, retraining and skills development, and more.

Unemployed individuals are also protected with rights to dignity and non-discrimination while also having the responsibility to actively seek job opportunities in the country.

Severance pay

Severance pay is a financial compensation provided to an employee by the employer upon termination of their employment. Individuals in India can be eligible for severance pay under a couple of circumstances, such as contractual agreements, company policies, termination due to various reasons, and others. 

Severance pay packages in India come in different forms, such as lump sum payments, continuation of benefits like health insurance and pension, and even job search support and career assistance.

Prohibition of competition

According to the Indian labour law, non-compete clauses in employment contracts must be reasonable in duration, geographical scope, and nature of restriction. They are enforceable only if they protect legitimate employer interests, such as trade secrets or client relationships, and must be supported by considerations like employment, compensation, promotion, and others. 

In addition, such clauses should not restrict the employee’s ability to earn a livelihood and should protect their interests.

Remote working policy

While there are no specific laws solely dedicated to remote working in India, there are several existing regulations that influence remote work policies and practices. 

Employers in India must adhere to a few key labour laws, such as the state-specific Shops and Establishment Act, the Minimum Wages Act, and the Industrial Disputes Act, to ensure compliance with working hours, wage requirements, and protection of remote workers’ rights. 

Additionally, employers must also implement remote work policies within employment contracts, detailing expectations for work hours, communication, performance evaluation, and data security. 

It’s important to note that remote workers are entitled to the same benefits and entitlements as on-site employees, including paid time off, insurance, and other perks.

What are the advantages of hiring employees from India vs other countries?

Hiring employees from India can offer several advantages compared to hiring from other countries. 

Firstly, India has a vast and diverse talent pool with a strong emphasis on education in science, technology, engineering, and mathematics. This makes the country an excellent source of skilled professionals in IT, software development, engineering, and other technical fields.

In addition, India’s fast-growing economy and its position as a global leader in outsourcing and business process management mean that Indian employees often have experience working with international clients and projects. This can be very advantageous for companies seeking expertise in IT services, customer support, and back-office operations.

The cultural adaptability and proficiency in English, which is widely spoken and used in business settings in India, are a huge advantage for ensuring the smooth integration of Indian employees into international teams. Additionally, the cost-effective labour market in India allows companies to benefit from high-quality talent at competitive wage rates.

Why use Native Teams for hiring in India?

Native Teams lets you employ team members ‘like a local’ meaning you get all the benefits of a global team, wherever you are based. Here are the reasons why you should use Native Teams for hiring:

• No paperwork: We will handle all the necessary paperwork for you.
• Save on taxes: We help you handle your taxes.
• No company set up: You can expand your business using our company entitles.
• Online onboarding: We’re here to ensure your onboarding process is trouble-free.
• No accounting: We will handle all of your accounting needs, including invoicing, payroll, and more.
• Increase your profit: We assist you in growing your business and maximizing your profits.
• Compliance expertise: we can assist your company in navigating the regulatory environments and ensure you meet all relevant requirements.
• Local support: We can assist you in understanding and complying with the relevant local laws.