How to hire and pay employees in India
How to hire and pay employees in India
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Before hiring
Before Hiring
Before you employ in India, you need to understand the country's recent labor law consolidation. India has merged 29 central labor laws into four labor codes covering wages, social security, industrial relations, and occupational safety. While not all states have fully implemented these codes, they're reshaping compliance requirements—particularly around contract terms, working hours, and statutory benefits.
Here's what makes India unique: labor law varies significantly by state. Registration requirements, professional tax rates, and even holiday calendars differ between Maharashtra, Karnataka, and Tamil Nadu. You can't apply a one-size-fits-all approach.
An EOR like Oyster manages these state-specific requirements for you, ensuring your employment contracts, payroll, and benefits comply with local regulations from day one. Without local expertise, you risk misclassification, benefit shortfalls, or regulatory penalties that could have been avoided.
Recent News
If you want to hire employees in India, you can't treat payroll and compliance as a "set it and forget it" project. In the last 12 months, India has seen meaningful legal and economic shifts that can change your employment costs, your onboarding timelines, and what you need in an offer letter.
Staying current is how you avoid the painful version of global hiring: surprise statutory costs, delayed first payroll, and last-minute contract rewrites.
Labour Codes moved from "someday" to "now" (effective 21 Nov 2025)
India's four Labour Codes were widely reported as commencing on 21 November 2025, with a transition period while Central and State rules are finalized. Here's the thing: even if the codes are "in force," your day-to-day obligations still depend on the state(s) where your employees sit.
If you're hiring across multiple states, plan for uneven timelines and extra admin while rules and forms settle.
Expect wage-structure redesign pressure (the "50% wages" effect)
Post–Nov 2025 guidance and coverage has highlighted a more standardized definition of "wages," often discussed as pushing employers toward basic wages at ~50% of total remuneration/CTC in many salary structures.
Practically, that can increase the base used for statutory benefits like PF/ESI/gratuity—raising employer cost and sometimes changing take-home pay. Action item: model your India compensation templates now (basic vs allowances) so your offers don't break when payroll runs.
ESIC is signaling broader coverage under the new wage definition (Dec 2025 activity)
Following the Labour Codes' effective date, late-2025 commentary highlighted potential ESIC coverage expansion as "wage" definitions change. This matters most around the ₹21,000 eligibility threshold, where a revised wage calculation could pull more employees into ESI than you expected.
Action item: verify eligibility against your actual wage components and ensure registrations and contribution workflows are ready before you onboard.
EPF wage ceiling revision is a high-priority watch item (possible Apr 2026)
The EPF wage ceiling (₹15,000/month) hasn't been universally changed yet, but 2025 reporting shows active pressure and discussion around raising it (often cited to ₹25,000) with some references to 1 April 2026 as a potential date if approved.
If that happens, mandatory coverage and contribution costs could rise for mid-wage roles, and your CTC math will need updating. Action item: build "what if the ceiling changes?" scenarios into your India hiring plan so Finance isn't surprised later.
Payroll withholding got more complex for many employees (FY 2024–25 onward)
During 2025 filings, employers saw process changes affecting salary TDS under Section 192 and Form 16 workflows, including a reported ₹75,000 standard deduction under the new regime for eligible taxpayers.
There's also more emphasis on employees sharing information about other TDS/TCS so employers can adjust monthly withholding correctly. Action item: tighten onboarding and payroll checklists (PAN, regime choice, declarations, proof collection) to reduce back-and-forth and end-of-year corrections.
Minimum wages and DA/VDA revisions continue (cost floors still move)
Even with the Labour Codes in motion, minimum wages are still updated through Central and State notifications, often via DA/VDA revisions—such as Central sphere revisions effective 1 April 2025 (order dated 28 March 2025).
If you hire operational or hourly roles, this isn't a "nice to track" item; it's a compliance baseline. Action item: track minimum wages by state, location, and job category—and don't assume your vendor is doing it correctly.
State working-hours rules are in flux (example: Karnataka proposals in 2025)
State Shops & Establishments rules can affect scheduling and overtime policies, and 2025 coverage highlighted draft proposals in Karnataka discussing shifts like 9→10 hours/day with a 48-hour weekly cap and higher overtime allowances (reported as under evaluation with pushback).
Even if you're a white-collar employer, these rules can matter depending on your setup and role category. Action item: confirm state-specific S&E requirements before you set "global" working hours policies for India.
Economic signals: steady growth outlook, but uneven hiring pressure (Jan 2026)
India's Economic Survey presented in January 2026 projected real GDP growth of roughly 6.8%–7.2% for FY27, supporting continued hiring demand in many sectors.
At the same time, recent reporting points to cautious salary hikes and slower net hiring in parts of IT, influenced by macro uncertainty and AI-driven productivity shifts. Action item: expect more scrutiny on fixed vs variable pay and keep compensation decisions aligned with statutory wage-definition rules—not just market norms.
Hiring in India is absolutely doable—but the last year is a reminder that it's rarely "just run payroll." If you want speed and compliance (without guessing how each change affects your costs), Oyster pairs software with real humans who can help you make the right call for your team and your budget. Start hiring globally with Oyster.
At a glance
CURRENCY
INR
OFFICIAL LANGUAGE
HINDI, ENGLISH
PAYROLL FREQUENCY
MONTHLY
EMPLOYER TAXES
12.05%
13th / 14th SALARY
N/A
Good to know
Good to know
- Festival bonuses are expected, not optional: In India, employees typically receive a festival bonus (often called Diwali bonus) equivalent to one month's salary or a percentage of annual earnings. This isn't legally mandated in all sectors, but it's a deeply rooted cultural expectation. Failing to provide it can hurt morale and retention, especially in competitive markets like Bengaluru or Hyderabad.
- Salary expectations vary dramatically by city and role: A software engineer in Bengaluru commands significantly higher compensation than the same role in Pune or Jaipur. Regional cost-of-living differences, talent density, and industry clusters all influence pay bands. Work with local experts to benchmark salaries accurately—underpaying risks losing candidates to competitors, while overpaying strains your budget without strategic benefit.
- Communication styles lean formal and hierarchical: Indian workplace culture often values respect for seniority, formal titles, and indirect communication. Employees may hesitate to disagree openly in meetings or escalate concerns directly. Building trust takes time, and understanding these cultural nuances helps you manage performance, feedback, and collaboration more effectively across your global team.
- Statutory compliance is complex and non-negotiable: India requires registration with multiple authorities: Provident Fund (PF), Employee State Insurance (ESI), Professional Tax, and Labour Welfare Fund, depending on employee count and state. Missing deadlines or incorrect filings trigger penalties. An EOR handles all registrations and filings, so you don't have to navigate this bureaucracy yourself.
- Contractor misclassification carries serious risk: India scrutinizes worker classification closely. If you engage someone as a contractor but they function as an employee (fixed hours, exclusive work, managerial control), authorities can reclassify them—triggering back taxes, penalties, and statutory benefit liabilities. Get classification right from the start, or work with an EOR to employ them properly.
Top countries hiring in
India
Labor laws in
India
Working hours and overtime
Employees in India are legally permitted to work a maximum of 48 hours per week and nine hours per day, with at least one rest day per week. Overtime is paid at double the regular wage rate for hours worked beyond this limit.
Some sectors—particularly IT and technology—operate under exemptions that allow more flexibility around working hours, but those exemptions don't eliminate the employer's obligation to track time and ensure compliance.
Remote and hybrid work arrangements have become common post-COVID, especially in tech hubs, with data showing that over half of employers provide flexible working arrangements, and 80% of those offer remote work specifically.
While flexibility is expected, you still need clear policies around core hours, availability, and overtime eligibility. Failing to define this in employment contracts creates ambiguity that can lead to disputes or compliance gaps.
Minimum wage
Minimum wage regulations differ from state to state and vary based on the industry and the job. For example, the daily minimum wage for an office manager in a commercial enterprise in Karnataka is INR 716.89/day.
Employment contracts
Employment contracts in India must be written and should be provided in English or the regional language, depending on the employee's preference and state requirements. Contracts must include:
- Job title
- Salary
- Benefits
- Working hours
- Leave entitlements
- Notice period
- Termination terms
While India doesn't mandate contracts in all cases, having a written agreement protects both parties and clarifies expectations.
Include clauses on intellectual property (IP) ownership, confidentiality, and non-compete terms where appropriate—India's courts enforce reasonable non-compete provisions, but they must be narrowly tailored.
If you're employing remotely, specify which state's labor laws apply and clarify reporting structures. Missing these details creates legal exposure, especially during termination or IP disputes.
Probationary period
Probationary periods in India typically last three to six months. During probation, termination is simpler—employers can dismiss employees with shorter notice or for performance reasons without the same procedural requirements that apply after confirmation. However, you still need to document performance issues and follow fair evaluation processes.
Clearly define probation terms in the employment contract, including evaluation criteria, extension possibilities, and confirmation procedures. Don't assume probation means you can terminate without cause—India's labor laws still protect employees from discriminatory or unfair dismissal, even during probation.
Pensions
Non-compete agreements
Post-employment non-compete clauses are legally unenforceable in India.
Estimate your savings when using Oyster
Use this calculator to get an estimate of employment costs using Oyster.
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- Taxes, and social security20,602
- Net annual salary29,389
- Taxes & contributions12,885
- Social Tax11,875
- Occupational Health fee35
- Labor Accident Insurance375
- Fct (Wage Guarantee Fund)0
- Allowances600
- Fct (Wage Guarantee Fund)600
Benefits and leave in
India
Vacation time
Employees in India are entitled to annual leave at a rate of one (1) day for every twenty (20) days of work, or 18 days per year. Unused earned leave typically carries forward and can be accumulated up to a maximum of 45 days, and must be paid out in the employee's final payment in case of termination.
India also recognizes casual leave (typically 7-12 days per year for short-term absences) and sick leave, which are treated separately from earned leave. Employees expect this distinction, and failing to provide adequate leave categories can hurt retention.
Cultural holidays and festival leave are also important—many employees take extended time off during Diwali, which should be planned for in your team's workflow.
Sick leave
Employers in India are not legally required to provide paid sick leave, but most companies offer 7-12 days per year as part of their benefits package. Employees typically need to submit a medical certificate for absences longer than two consecutive days.
For extended illness, companies may require documentation from a registered medical practitioner and can implement policies around extended sick leave.
Some industries and collective agreements mandate sick leave, so check sector-specific rules. Offering competitive sick leave is table stakes in India's professional labor market—candidates expect it, and stingy policies signal you don't value employee wellbeing.
Maternity and paternity leave
In India, female employees who have worked for at least 80 days in the last 12 months are entitled to between 12 and 26 weeks of maternity leave, depending on the number of children they have. Maternity leave is paid by the employer for the full period of leave at the rate of the employee's average daily wages. If a mother experiences pregnancy-related illness (e.g., premature birth, illness related to delivery of the child, miscarriage, etc.), the employer must provide an additional month of paid leave.
Paternity leave is not required by law, but it is customary for employees working in private sector companies to receive this leave in accordance with company policy (typically 2 weeks).
Parental leave
Maternity leave in India is 26 weeks (approximately six months) for employees with two or fewer surviving children. Employers must pay full salary during this period. The Maternity Benefit Act applies to organizations with 10 or more employees, and many companies extend coverage universally, with approximately 80% providing maternity leave and/or pay above the statutory requirement.
Employees can also take maternity leave in split blocks before and after childbirth, though at least six weeks must be taken postpartum.
While paternity leave is not legally mandated at the federal level, it has become a common practice, with approximately 85% of companies providing paternity leave or pay above the statutory requirement.
Adoption leave and commissioning leave (for surrogacy) are covered under the Maternity Benefit Act, providing 12 weeks of paid leave. Offering competitive parental leave policies—and noting that around two-thirds of companies also provide childcare support—helps attract and retain top talent, especially in competitive sectors like technology and finance.
Holidays
View a list of recognized public holidays in India here.
Employer tax
Employers in India contribute approximately 12% of an employee's basic salary and dearness allowance to the Employees' Provident Fund (EPF), plus 0.5% for administrative charges and 0.85% for the Employees' Deposit Linked Insurance (EDLI).
Additionally, employers contribute 3.25% of gross wages to the Employee State Insurance (ESI) scheme for employees earning up to ₹21,000 per month. Professional tax varies by state but typically ranges from ₹200-₹2,500 per year.
Employer contributions also include Labour Welfare Fund (LWF) in certain states and, in some cases, gratuity provisions. Total employer tax burden typically ranges from 13-20% of gross salary depending on compensation structure and location.
An EOR handles all these calculations, registrations, and remittances, ensuring compliance across jurisdictions without requiring you to navigate state-specific rules.
Individual tax
Employee income tax in India follows a progressive slab system, ranging from 0% (for income up to ₹2.5 lakh annually) to 30% (for income above ₹10 lakh). Employees can choose between the old tax regime (with deductions and exemptions) or the new simplified regime (with lower rates but fewer deductions).
Tax is withheld monthly through Tax Deducted at Source (TDS), which employers remit to the government on behalf of employees.
Employees also contribute 12% of basic salary and dearness allowance to the EPF and 0.75% to ESI (if eligible). Foreign nationals working in India may be subject to different tax residency rules, and double taxation treaties can impact liability.
Work with local payroll experts or an EOR to ensure accurate withholding, especially for equity compensation, bonuses, or international assignees.
Termination in
India
Terminating employees in India requires careful compliance with both federal labor codes and state-specific regulations. For employees in industrial establishments with 100+ workers, prior government approval is required before termination—making dismissal procedurally complex and time-consuming.
For smaller organizations or non-industrial roles, employers have more flexibility but must still follow fair procedures, provide adequate notice, and document performance or conduct issues.
Severance pay is not universally mandated, but gratuity is required for employees who have completed five or more years of continuous service. Gratuity is calculated as 15 days of salary for each year of service, based on the last drawn salary. Employers must also settle all accrued leave balances upon termination.
For performance-based terminations, document warnings, performance improvement plans, and any corrective actions—India's labor courts scrutinize unfair dismissal claims closely.
Redundancy (layoffs due to business reasons) requires advance notice, consultation with affected employees, and, in unionized or larger establishments, government approval. Retrenchment compensation is typically 15 days of average pay for every completed year of service.
Mishandling termination exposes you to litigation, back pay claims, and reputational risk. An EOR manages termination procedures in compliance with local law, reducing your legal exposure while treating employees fairly.
Notice periods in India vary by seniority and industry but typically range from 30-90 days. Junior roles often require one month's notice, while senior or specialized positions may require two to three months. Notice requirements should be clearly defined in the employment contract and applied consistently.
Employers can offer payment in lieu of notice, allowing employees to leave immediately while receiving salary for the notice period.
Garden leave (where employees remain employed during the notice period but are relieved of duties) is less common in India but can be negotiated. Employees who resign without serving the full notice period may forfeit accrued benefits or face contractual penalties, depending on company policy.
Ensure your notice period terms are enforceable and align with industry standards—unreasonably long notice periods can deter candidates or create retention issues.
Severance payment is given to workers who have been continuously employed for two years and are terminated for redundancy. Severance payment depends on the duration of employment, performance, and salary.
In addition, employers must make "retrenchment compensation" that is equal to 15 days' wages for every completed year of service.
Start hiring employees in
India
You have three main options for employing in India:
- Setting up a local entity – Gives you full control but requires months of legal work, registration with multiple authorities, and ongoing compliance management. It makes sense if you're committing to long-term, large-scale operations in India—but it's expensive and slow.
- Working with an Employer of Record (EOR) – Provides a middle path where you can employ full-time employees without setting up a legal entity.
- Engaging contractors – Offers speed and flexibility, but misclassification risk is high, and you sacrifice the stability and commitment that comes with full employment.
An EOR like Oyster provides a middle path: you can employ full-time employees in India without setting up a legal entity. Oyster becomes the legal employer, handling contracts, payroll, statutory benefits, tax withholding, and compliance—while you manage the employee's day-to-day work.
You can start employing in as little as 48 hours, scale quickly, and remain compliant across state-specific regulations without hiring local HR or legal experts. This approach works whether you're testing the India market with your first hire or building a distributed team across Bengaluru, Mumbai, and Hyderabad.
Oyster's EOR service includes transparent pricing with no hidden fees, access to local employment experts, and integrated payroll across 180+ countries. We're a B Corp committed to fair employment practices—no exploitative cost-cutting, no compliance shortcuts.
Whether you need help navigating probation periods, managing terminations, or understanding festival bonus expectations, you get both the platform and the people to support you. Talk to our team to explore whether EOR, entity setup, or a hybrid approach is right for your India expansion.
Disclaimer: The information provided in this resource is for general educational purposes only and shall not be construed as legal advice. While Oyster strives to provide current and accurate information, Oyster makes no warranties or representations as to the correctness of the content provided and accepts no liability or responsibility for any errors or omissions in the content provided. By using this resource you acknowledge and agree that you do so at your own risk. The content of this resource is subject to change without notice.
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