We live in an increasingly globalised world where few things manage to stay confined to one location. Digitisation and the transition to an online way of working have allowed us to become hyper-connected, and we have greater access to different cultures than ever before — good news for expanding businesses.

However, some nations around the globe are attracting more attention than others. Take India, for example. With the fastest-growing economy in the world and a rich pool of talent available to hire, it’s little wonder that India presents a popular opportunity for many businesses looking to employ overseas.

Why employ in India?

Over the past 15 years, India has seen significant financial investment, and its economy has grown by six times since 2000. The country sits alongside Brazil, Russia, China and South Africa as one of the ‘BRICS’ nations: emerging economies and developing markets to watch. India’s economy is now large and complex and has seen substantial stabilisation, meaning it’s well-positioned to enter the league of the world’s top superpowers in coming years.

The labour force in India currently exceeds 170 million: a vast talent pool of skilled and unskilled labour that’s available at a reasonably moderate cost compared to other countries. India is also well-known for its workforce’s skills in coding and technology. As a result, the country quickly became home to dozens of up-and-coming, high-tech organisations in the telecommunications, information technology and engineering industries.

In terms of doing business in India, the regulatory landscape has also seen noteworthy improvements, particularly in legislation around starting a business and trading across borders. These reforms have meant that India upped its ‘ease of doing business’ (DB) ranking from 139th in the world in 2010 to 63rd in 2020.

Employing in India isn’t without its nuances, though, and it’s vital to get your India payroll right to avoid financial penalties, damage to your reputation and unhappy employees.

Knowing your responsibilities

Like all nations worldwide, India has a specific set of requirements and regulations regarding employing and paying workers. However, the country has laws that govern payroll at both a national and a local level, impacting how you pay your employees in India.

Salaries and minimum wage

Salaries are paid in the national currency of the Indian rupee (INR) in 12 equal monthly instalments. If a business has less than 1,000 employees, it’s paid on or before the seventh of the following month. If the company has more than 1,000 employees, it’s paid on or before the 10th day per the statutory norm. However, best practice is to pay on the last working day, ensuring employees are paid by the first of the following month. Any tax deducted at source from the salary must also be paid on the seventh to avoid a penalty.

India doesn’t have a country-wide minimum wage. Instead, the respective state governments set the minimum wage per region, defining thousands of jobs for skilled, semi-skilled and unskilled workers in over 400 employment categories. Many states are also divided into zones that dictate the level of pay, with Zone I denoting a higher minimum wage.

The Indian Labour Ministry has also proposed a new wage code for the financial year 2022/23. Currently, most of India’s states are in the process of notifying the draft guidelines for four new codes in the respective states, and the final codes and yet to be finalised. As such, the new codes haven’t been rolled out yet. The new wage code changes the way wages are defined, increasing the employees’ and employer’s contributions towards each employee’s provident fund, gratuity and other retirement payments resulting in reduced take-home pay and additional costs to the employer.

Employment contracts

In India, there’s no legal requirement to execute an original employment contract, nor does the contract have to be signed prior to the hire date.

Each employee’s probationary period sits between one and six months, and both employees and employers are required to provide a 30-day notice period (although this may vary company to company and per role) or to be paid in lieu of notice, if they’re terminating the contract. However, no notice period is required if the contract is terminated due to employee misconduct.

There’s no specific severance payment made to employees in India. However, the salary payable to employee and other payments such as gratuity and leave encashments are paid as per the eligibility and applicability.

Taxes

The Indian government recently launched a new tax regime, and employers can choose to pay income tax as per the new or old one. For the new regime, the tax brackets for annual salaries are as follows:

  • Income up to INR 250,000 = no tax
  • Income between INR 250,000 to INR 500,000 = 5%
  • Income between INR 500,000 to INR 750,000 = 10%
  • Income between INR 750,000 to INR 1,000,000 = 15%
  • Income between INR 1,000,000 to INR 1,250,000 = 20%
  • Income between INR 1,250,000 to INR 1,500,000 = 25%
  • Income more than INR 1,500,000 = 30%

It’s important to ensure that your employees have access to their payslips and tax certificates. Issuing payslips is a legal requirement in India, and it supports those applying for loans or filing any of their own tax returns.

Professional tax is also levied and collected by the state governments in India. Any person earning a salary or practising a profession such as a lawyer, doctor or chartered accountant is required to pay professional tax — but each state has a different rate and a different method of collection. Some states and Union Territories, such as Delhi, don’t collect professional tax at all.

Employer costs

Hiring employees comes at a greater cost than an employee’s salary alone. The employer costs of hiring in India amount to a total of 17.75% of each employee’s salary, comprised of 4.75% towards the employer’s contribution to Social Security, i.e. 4.75% towards ESIC (applied to employees whose monthly salary is less than INR 21,000) and 13% employer contributions towards employees’ provident funds and admin charges.

The pension scheme in India is known as the Employees’ Provident Fund (EPF) and is managed by the central government. Contributions to this fund are made by the employee and the employer equally. Each employee is provided with a Universal Account Number (UAN), meaning the employee’s provident fund contributions remain in one account even if the employee changes jobs multiple times.

What’s more, bonuses are required by statutory law and usually range between 8.33% to 20% of an employee’s basic salary. Any bonuses are typically paid once within eight months from closure of the accounting books, generally during Diwali.

Outsourcing your payroll in India

There’s a lot to think about when it comes to compliantly hiring and paying your employees in India. A global payroll provider can provide slick payroll outsourcing services that deal with all aspects of managing payroll and employing in India.

TopSource Worldwide is a leading third-party payroll provider that understands the complexity of managing payroll in-house and will work with you to simplify processes from start to finish. We offer full support via our local centres in major cities in India, including Mumbai, Bengaluru, Hyderabad, Noida and Pune.

From timely payroll processing through to statutory filing, reporting, analytics and expense management, our experienced professionals work as part of your team to support you and ensure your employees in India are paid on time, every time.

When you outsource to TopSource Worldwide, we’ll keep your business compliant with all legal payroll requirements and give you 24/7 access to all employee payroll data via our secure online application, Portico™. Portico™ is a fully hosted HR data storage platform and payroll solution that streamlines processes, reduces costs, boosts efficiency and allows for employee self-service.

Take advantage of our world-class payroll outsourcing services to remove all the hassle of hiring in India. Get in touch to learn more about how we can facilitate your business expansion today.

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Published On: 20/04/22Last Updated: 14/09/22

About the Author: Sachin Disa

Sachin heads the India Payroll business unit and is responsible for global sales into India, India domestic sales and delivery, and local finance support in India. Sachin has over 17 years of experience with the company, his previous roles include head of UK payroll operations, head of accounting support services, head of sales in India and VP of finance.

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