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No one can deny that India is a powerhouse of talent. With over 500 million people in the workforce and a median age of just 28 years, India offers one of the world’s youngest and most dynamic labour markets. Whether you’re looking for skilled software engineers, AI specialists, finance professionals, or multilingual customer support teams, Indian employees bring technical expertise, adaptability, and global experience to the table.
It’s no surprise that major companies like Google, Amazon, and Salesforce have expanded their operations in India. And it’s not just tech giants, businesses of all sizes are hiring workers in India to scale operations and access specialised skills.
But with this opportunity comes complexity. Navigating India’s employment ecosystem means understanding a mix of national labour codes and region-specific policies. On top of that, you also need to think about retention strategies to meet workers’ expectations.
In this blog, we’ll walk you through everything you need to know to compliantly engage, manage, and pay workers in India. If you’re planning to hire Indian employees, this guide will help you understand the legal and cultural nuances that matter for your long-term success.
Understanding the Indian employment landscape
India’s workforce is young, and increasingly digital. The country offers talent across tech, operations, sales, design, and more.
While there are massive talent opportunities available, businesses looking to hire workers in India need to be mindful of the national and state-specific rules to remain compliant. Employment types range from permanent employees to gig and contract workers, and choosing the right engagement is important to avoid landing in any legal troubles.
State-specific labour laws and central regulations
India has a two-layered system when it comes to employment laws. Central laws such as the Code on Wages, Industrial Relations Code, and Social Security Code apply across the entire country. These central regulations cover important topics like wages, working hours, termination procedures, and social benefits.
But at the same time, individual states have their own labour laws that cover key operational details, such as leave policies, holiday schedules, working conditions, and minimum wage rates—all of which can vary significantly from one state to another.
For example, if you’re hiring workers in India’s Maharashtra and Tamil Nadu, you’ll need to follow different guidelines:
- In Maharashtra, employers must register under the Maharashtra Shops and Establishments Act and maintain detailed employee records. The state also has its own list of mandatory holidays.
- In Tamil Nadu, the leave accrual system and working hour guidelines are different, and employers must follow the local Shops and Establishments Act for that region.
This means that if you’re hiring Indian employees across multiple states, your employment contracts, onboarding processes, and HR policies must be adjusted based on where your workers are located.
Worker classification: Contractor vs. employee
Employees in India work under a contract of service. They are on the company’s payroll and are entitled to statutory benefits such as Provident Fund (PF), Employee State Insurance (ESI), paid leave, gratuity, and sometimes a bonus. They are also protected by labour laws like the Industrial Disputes Act and the Maternity Benefit Act. Employers in India have control over how employees perform their work, including their working hours, processes, and day-to-day responsibilities.
Independent contractors, on the other hand, work under a contract for service. They are typically hired for specific projects or short-term assignments and are paid based on the completion of agreed deliverables. They operate independently, with little direct oversight on how the work is done, and are not entitled to employee benefits under Indian law. Contractors also handle their own taxes and compliance matters.
The difference is not always just about the contract label. Indian courts and regulators look at the actual working relationship. If a contractor is treated like an employee, such as working full-time, using company tools, following fixed office hours, and reporting to a manager, they may be legally reclassified as an employee. This can lead to penalties, including demands for back payment of statutory benefits and contributions.
Setting up compliant payroll and statutory contributions
Before your company can directly hire Indian employees, you must first establish a legal business presence in the country. This can be done by forming a subsidiary, entering a joint venture, or setting up an approved office through the Reserve Bank of India. Once established, employers are required to register with tax and social security authorities, maintain accurate employee records, and follow both central and state-level payroll regulations.
Many of these steps are mandatory and carry penalties for non-compliance. As such, companies need to put the right systems in place before hiring begins.
Mandatory contributions and deductions
Payroll compliance in India requires employers to deduct and remit several statutory contributions on behalf of their employees. These deductions ensure that workers receive benefits related to retirement, health, and taxation. The core components include:
- Provident Fund (PF): A mandatory retirement savings scheme for employees earning above a certain threshold. Both the employer and employee contribute a fixed percentage of the monthly salary to the fund.
- Employee State Insurance (ESI): A health insurance scheme that covers medical, disability, and maternity benefits for employees earning below a designated wage ceiling.
- Professional Tax (PT): A state-level tax applicable in certain states like Maharashtra, Karnataka, and West Bengal. It is deducted from employees’ salaries and paid to the respective state government.
- Tax Deducted at Source (TDS): A federal income tax withheld from employee salaries and deposited with the Income Tax Department, based on applicable tax slabs and exemptions.
These contributions must be deposited with the relevant government bodies within strict deadlines. Errors or delays in filing can result in financial penalties and reputational risk.
Tools and technology for payroll management
Given the complexity of India’s payroll environment, companies are increasingly relying on technological tools and platforms to stay compliant and efficient. Modern payroll systems go beyond basic salary calculations. They automate statutory deductions, generate government-compliant reports, and integrate directly with tax and social security portals.
Many businesses use Human Resource Information Systems (HRIS) to align with Indian labour regulations. These platforms allow for secure employee data management, easy salary processing, and real-time reporting of compliance metrics. Integrated solutions can also connect payroll to banking systems for timely disbursement and with EPFO (Employees’ Provident Fund Organisation) and TRACES for statutory filings.
In addition, digital tools can support onboarding workflows, document storage, and audit preparedness, which are essential for inspections by labour or tax authorities. For global companies managing remote Indian employees, cloud-based platforms offer scalability and centralised control without the need for a large in-country HR team.
Managing payroll and benefits is often a time-consuming process, particularly for companies unfamiliar with India’s multi-layered regulatory environment. The process of setting up payroll systems, securing regional registrations, and staying updated on evolving rules can delay hiring and strain internal resources.
For this reason, more international companies are turning to Employer of Record (EoR). An EoR allows businesses to legally hire workers in India without establishing a local entity, while also handling payroll, compliance, and statutory contributions on their behalf.
Hiring in India without a legal entity
Hiring talent in India doesn’t always require you to set up a local company. For companies entering the Indian market for the first time or looking to hire a few key people, establishing a legal entity can be expensive, time-consuming, and complex.
That’s where an Employer of Record (EoR) comes in. An EoR is a third-party service provider that legally employs workers on your behalf. This means your company can quickly and compliantly hire Indian employees without dealing with local incorporation, tax registrations, or ongoing regulatory tasks. The EoR handles payroll, employment contracts, statutory benefits, and government reporting, while your team focuses on day-to-day operations and collaboration.
Benefits of the EOR when hiring workers in India
Working with an EoR for your international hiring efforts in India offers several advantages, including:
Faster onboarding
You can hire Indian workers in days instead of months. The EoR already has the legal infrastructure and handles employment contracts, tax registrations, and local compliance.
Cost-efficient operations
Since you don’t need to set up a subsidiary or hire a local legal or HR team, you save on upfront costs and reduce administrative overhead.
Full legal compliance
The EoR ensures that all payroll, taxes, social contributions, and statutory filings are handled correctly and on time, helping you avoid legal and financial risks. An EoR simplifies hiring in India while giving you peace of mind that your workforce is fully compliant with local laws.
When to use an EoR vs. entity setup
An EoR is a flexible solution that fits a variety of business scenarios. It’s especially useful in the early stages of entering the Indian market or when agility is a priority. Here are some common situations where using an EOR makes sense:
- Testing the market: If you’re exploring India as a new market and want to assess demand or operations before making long-term commitments.
- Hiring a small team: When you need to onboard a few employees without investing in a full legal setup.
- Needing to move quickly: If time is a factor and you want to start operations or projects without delay.
- Avoiding administrative complexity: When you prefer not to manage local payroll, benefits, and legal compliance internally.
- Operating without physical presence: If you don’t plan to open an office immediately but still want to hire Indian talent.
On the other hand, setting up a legal entity is a better fit if you’re building a large team, opening a physical office, or planning long-term business operations in India. It gives you more control and permanence but also comes with greater regulatory and administrative responsibilities.
Managing cultural and operational dynamics
Hiring workers in India brings access to a highly skilled and diverse talent pool, but effectively managing Indian employees requires more than just good onboarding and payroll setup. India’s workplace culture is shaped by deep-rooted values, educational systems, and regional diversity. Understanding how people prefer to communicate, collaborate, and stay engaged will help you build strong, motivated teams that work smoothly across time zones and borders.
Communication styles and hierarchies
In Indian workplaces, respect for hierarchy and seniority is still quite common, particularly in traditional sectors or in smaller cities. For example, employees may refer to managers as “Sir” or “Ma’am,” a practice stemming from school systems and social norms where formal address is a sign of respect.
In metros like Bangalore, Hyderabad, and Pune, you’ll often find younger employees more comfortable with direct communication, especially if they’ve worked with international teams before. However, in Tier 2 or Tier 3 cities, a more formal and top-down communication style might still be the norm.
Employers hiring workers in India should take the initiative to encourage participation by explicitly inviting feedback, asking clarifying questions like “What would you suggest?” and reinforcing that disagreement is welcome in the right context.
Regular check-ins, clear expectations, and a manager who is approachable (yet structured) go a long way in bridging this gap.
Building engagement across distributed teams
Remote work is popular in the country notably for roles like developers, digital marketers, content writers, and customer service professionals. Many employees may be working from shared homes or in multi-generational households, which means flexibility and empathy around meeting times and deadlines is appreciated.
To engage with your team effectively, you must establish a strong onboarding process. In India, new hires often expect a high-touch onboarding experience. This means being walked through tools, roles, reporting lines, and company values. Many companies also assign a “buddy” during the first few weeks to help new employees get settled, a practice that works especially well in Indian teams, where mentorship and peer support are culturally familiar.
Also, consider running short virtual team-building activities or recognition shoutouts during weekly team calls. Indian employees often value being acknowledged in front of their peers, which signals appreciation and helps build loyalty.
Finally, remember that professional growth is closely tied to motivation. Providing clear career development paths, skill-building opportunities, and regular feedback is a key part of engagement in Indian workplaces—especially among younger employees who value upskilling.
Retaining talent in India’s competitive market
Hiring great talent in India is just the start. Keeping that talent is an entirely different challenge, especially in fast-paced sectors like technology, digital services, and customer support, where job-switching is common. Many Indian employees, particularly in cities like Bangalore, Hyderabad, and Pune, receive multiple job offers each year, often with better pay or learning opportunities.
This shows that retention strategies need to go beyond offering a competitive salary. Employers must focus on making their teams feel valued, supported, and invested in. Building a strong workplace culture, offering room for growth, and supporting employee well-being are key to reducing attrition and increasing loyalty. Here are some of the practical things you can do to retain Indian employees:
Personalised recognition and rewards
Recognition holds deep value in Indian work culture. A one-size-fits-all reward policy rarely makes an impact. Personalised appreciation, whether verbal recognition in a team meeting, a handwritten note, or a performance bonus, can be much more meaningful.
Many Indian employees place high importance on family and community as well. Offering rewards that reflect these values, such as flexible work hours, or education allowances for children, can go a long way. Small, thoughtful gestures like sending a gift box during festivals or acknowledging personal milestones (like a child’s graduation or a parent’s health recovery) can strengthen emotional connection and loyalty to the company.
L&D and career growth expectations
Professional development is a major motivator for Indian workers. Many professionals view their job as a stepping stone to bigger career goals, so they expect access to upskilling and career advancement.
As an employer, you can support this by offering clear learning paths, skill certifications, internal mobility programs, and mentorship. This not only boosts retention but also helps close skill gaps and improve performance. Promoting from within is especially valued; it shows that the company recognizes hard work and supports long-term growth.
Many companies in India now partner with platforms like Coursera or Udemy to offer training programs. Employees often appreciate when learning hours are built into their work week, rather than being treated as after-hours homework.
Mental health and well-being support
While mental health is gaining attention in India, there is still a degree of stigma around talking about stress, burnout, or emotional struggles. Employers who take proactive steps to support mental well-being stand out in a positive way.
This can include offering access to professional counsellors, flexible working arrangements, wellness days, and stress management workshops. Even providing a quiet space for breaks or encouraging team leads to check in on workloads can make a difference.
Your roadmap to scalable workforce success in India
Hiring workers in India brings access to skilled talent, but it also demands understanding local labour laws and regulations. Whether you’re engaging a contractor or scaling a full team of Indian employees, you must consider regional laws, cultural norms, and operational tools.
To succeed, businesses must first understand the regulatory environment. India has distinct classifications for employees, contractors, and gig workers, each governed by different compliance requirements. Navigating these classifications carefully helps avoid legal pitfalls and supports sustainable growth.
Cultural awareness is equally critical. India’s business norms, such as a high value placed on relationships, respect for hierarchy, and varying regional languages and customs, impact everything from team communication to performance expectations. Companies that embrace these differences and localize their engagement strategies are better positioned to build trust and loyalty.
In addition, leveraging scalable infrastructure, such as technology platforms or an EoR model, ensures that your workforce operations remain efficient as you grow. Whether you’re building a lean remote team or scaling up a larger operation, these solutions help you stay agile and compliant.
As you align your workforce strategy with India’s unique legal and cultural context, you set the stage for scalable, long-term success. With the right roadmap, you’re not just hiring talent, you’re building a resilient and future-ready presence in one of the world’s most vibrant markets.
Simplify hiring in India (and beyond) with full compliance
Expanding your team in India and beyond can quickly become overwhelming. Every country has its own labour laws, regulations, and risks — and staying compliant requires time, resources, and local knowledge.
That’s where CXC comes in. We make it easy to find, hire, manage, and pay workers in India and 100+ countries, without needing to set up a legal entity. Our Employer of Record (EoR) solution handles compliance, contracts, and payroll so you can focus on scaling your business confidently. Ready to build your global teams? Speak to our team today.
