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Employer of Record (EoR) in India
Hiring in India offers tremendous benefits for international companies looking to expand into new markets. India’s educational system, notably strong in IT and technical domains, produces a large pool of highly skilled professionals who are equipped to drive innovation and growth.
However, the process of hiring and managing a workforce across borders comes with its own set of challenges, from navigating local employment laws to establishing efficient payroll systems and ensuring full compliance with both local and international tax regulations. Understanding and adhering to the country-specific laws and regulations in India is crucial. These include labour laws, tax obligations, and employment standards, which can vary significantly from those in the U.S. or other countries.
Companies can bypass all these challenges by utilising the employer of record (EoR) solution for their global expansion efforts.
What is an Employer of Record service (EoR)?
An Employer of Record (EoR) is a third-party service provider or organisation that acts as the legal employer for your employees in any country or region where your company does not maintain a local presence.
Partnering with a reliable EoR provider like CXC enables you to offload the HR and administrative aspects of international employment, such as payroll processing, tax handling, benefits administration, and ensuring regulatory compliance. Opting for an EoR solution not only mitigates risks but also presents a cost-effective alternative to the traditional entity setup process, which can be costly and time-consuming.
EoR services in India
Choosing a trusted EoR service provider in India can make or break your international expansion strategy. It requires careful consideration of various factors to protect your business from legal and financial risks. Key considerations include evaluating the provider’s substantial track record, depth of expertise in global employment, and the extent of their global reach.
With CXC, you gain a partner with over 32 years of experience in the global employment space. Our dedicated team of experts is well-versed in the intricacies of local labour laws and regulations, ready to support your expansion with informed, compliant hiring practices.
To help with your international expansion journey, we’ve created this full guide to help you gain valuable insights on how to utilise EoR services in India, including some hiring best practices, employment policies in the country, and other factors you need to keep in mind to compliantly hire talent in India.
Hiring in India
When hiring in India, there are several factors that international companies should consider ensuring a smooth and successful market entry, including:
- Compliance with local labour laws and regulations: You must understand and familiarise yourself with India’s employment laws and regulations, particularly on labour contracts, termination rules, wages, and working hours. Adhering to these laws protects your business against potential legal and financial risks.
- Understanding cultural nuance: India is known to have a rich and diverse cultural landscape. Companies hiring in India must respect local customs and practices to enhance team engagement and foster a harmonious and positive work environment.
- Skill levels: India has a vast pool of highly educated and skilled professionals, especially in sectors like finance, IT, and engineering. Partnering with a reliable EoR provider can guide you in talent acquisition.
- Compensation and benefits: Foreign companies hiring in India should build competitive compensation packages tailored to the Indian market to attract and retain top-tier talent. This means offering benefits beyond the statutory requirements and additional perks that align with industry standards.
- Leveraging digital recruitment: Technology plays an increasingly significant role in India’s recruitment landscape. Utilising digital platforms or online job portals to advertise vacancies, conduct preliminary interviews, and perform background checks streamlines the hiring process and broadens your reach to potential candidates.
- Remote working dynamics: Foreign companies hiring in India should establish clear remote work policies. Invest in technology and infrastructure that facilitate collaboration and productivity.
- Build a diverse and inclusive workforce: Prioritise creating an inclusive environment where diversity is valued. Embracing gender, cultural, and generational diversity can enhance creativity, innovation, and problem-solving within your team.
- Hiring independent contractors in India
To compliantly hire independent contractors in India, employers must adhere to a set of local labour laws and regulations, including: - Understanding the Contract Labour Act of 1970: This mandates the registration of establishments employing contract labour and the licensing of contractors to protect the health and well-being of contract workers. It highlights the importance of maintaining a formal agreement with contractors, which details the nature of work, payment terms, and the duration of the contract, to avoid any future discrepancies.
- Draft clear contracts: Devise comprehensive contracts that clearly outline the scope of work, deliverables, deadlines, payment terms, confidentiality agreements, and dispute resolution mechanisms. A well-structured contract serves as the foundation for transparent and accountable relationships.
- Understanding tax obligations: Independent contractors in India are responsible for filing their income tax returns annually. If your company is based outside of India, like in the US, you need to monitor the payments made to contractors and report them as necessary. This can be challenging when your internal team doesn’t have the experience and expertise to manage international talent. To bypass this challenge, you can outsource your payroll or partner with a reliable EoR provider like CXC.
- Conduct thorough vetting: Perform meticulous background checks and assess the qualifications and experience of potential contractors. This due diligence reduces the risk of substandard performance and helps in establishing collaborations with professionals whose expertise aligns with your project requirements.
- Maintain accurate records: Keep detailed and organised records of all engagements with contractors. Precise documentation is not only critical for financial reporting and auditing but also serves as a reference in case of any misunderstandings or legal queries.
Background check in India
While there is no specific legislation that governs employee background checks in India, certain legal frameworks critically influence how these checks must be conducted in order to ensure both compliance and ethical practice, including:
- Information Technology Act, 2000: Amended in 2008, this law addresses the handling and processing of electronic data, including personal information gathered during the employee background check process. Under the IT Act’s Reasonable Security Practices and Procedures and Sensitive Personal Data or Information Rules (2011), it is mandatory for all entities managing sensitive personal data — such as financial, medical, or biometric information — to prioritise the privacy and security of such data. This includes obtaining written consent from the individual before collecting any sensitive information to ensure confidentiality during processing.
As a best practice, companies conducting employee background checks in India should:
- Secure consent: Always seek written permission from a candidate before initiating any background checks. This upholds transparency and trust.
- Partner with credible background check agencies in India: Collaborate with reputable firms for background verification to ensure the accuracy, reliability, and legality of the data collection and analysis processes.
- Remain non-discriminatory: Use the information solely for the purpose of employment validation, with no prejudice or bias influencing hiring decisions.
- Maintain confidentiality: Protect collected data rigorously to prevent any unauthorised access or leaks, thereby reinforcing candidate trust and compliance.
How do companies do background check in India
In India, companies conduct background checks to ensure the authenticity of potential employees’ information and to mitigate risks. The process typically involves several key steps, including:
- Identity verification: Companies verify the candidate’s identity through their government-issued ID card, such as a passport, driving license, or Aadhaar card.
- Education verification: This helps companies confirm the candidate’s educational qualifications by checking the authenticity of degrees and certificates directly with the issuing educational institutions.
- Employment history: Many companies in India also verify previous employment details such as job title, tenure, and reason for leaving to confirm the candidate’s professional experience and conduct.
- Reference verification: Companies in India conduct reference verification by contacting previous employers, colleagues, or professional acquaintances to gather insights into the candidate’s capabilities, work ethics, and behaviour.
Criminal background check in India
In India, it is common to conduct criminal background checks, especially for positions that require high security or trust. This process is often part of a broader employee background verification process that companies conduct to assess the suitability of a candidate for a role.
A Police Clearance Certificate (PCC) is one of the documents that can be issued to Indian passport holders if they need proof of their criminal record status for employment, long-term visas, or immigration purposes. The PCC certifies that the individual has no criminal records within the duration specified by the authority issuing the certificate.
Moreover, employers can also utilise online platforms or portals that aggregate criminal record data.
Pre-hire checks for foreign nationals working in India
To ensure compliance and due diligence, companies in India conduct pre-hire checks for foreign nationals working in the country. Typically, performing a basic immigration check is essential to verifying the legal right of a foreign national to work in India. Employers are required to ensure that the worker obtains either a Business Visa (‘B’ Visa) for short stays involving activities like training or business meetings, or an Employment Visa (‘E’ Visa) for longer durations of employment in India. This must be obtained before the foreign national can legally commence work. If the planned period of stay exceeds 180 days, the employee must register with the Foreigners Regional Registration Office (FRRO) or local Foreigners Registration Offices (FRO) within 14 days of their arrival.
In addition to verifying visa status, comprehensive employment and educational background checks are common too.
Classification of workers in India
When hiring talent in India, there are various classifications of workers that you need to consider, such as:
Employees in India
In the India’s employment landscape, employees are primarily categorised into two groups: workmen and non-workmen.
Differences between employees and workmen in India
- India’s workmen, as defined in the Industrial Disputes Act, 1947, encompass individuals engaged in skilled or unskilled work, manual labour, technical services, and craftsmanship. The main distinction is the nature of the work, which is usually non-administrative and non-managerial. “Workmen” typically refers to roles such as factory workers, craftsmen, and operators who are directly involved in the production or service delivery process. The classification of an individual as a “workman” is significant as it grants specific legal protections, including dispute resolution mechanisms, termination processes, and union representation.
- Employees or non-workmen, on the other hand, are a broader category that can include managerial, administrative, and supervisory roles. This general classification spans various levels within an organisation, from junior staff to senior executives. Employees in these roles perform tasks that are predominantly intellectual, managerial, or supervisory in nature, often involving the exercise of discretion and judgment. Their monthly income usually exceeds 10,000 INR. This category also includes sales personnel, except for those in specified industries like pharmaceuticals.
These distinctions have significant legal implications. Workmen are protected under various labour laws that stipulate conditions regarding work hours, overtime compensation, and other workplace rights. On the other hand, employees in managerial or administrative roles may not face the same rigorous labour protections, yet they frequently benefit from increased flexibility and benefits linked to corporate policies.
Independent contractors in India
In India, an independent contractor is distinguished from an employee by the nature of the contractual relationship that exists between the parties involved. Essentially, a ‘contract of service’ pertains to an employment relationship, while a ‘contract for service’ identifies an independent contractor scenario. The key factor that distinguishes an independent contractor is the lack of a “master and servant” relationship typical of employment, which denotes an absence of obligation to follow orders in the work execution beyond specific task directives.
Businesses must correctly classify workers as independent contractors or employees to avoid misclassification, which can result in legal complexities and financial obligations, including providing employee benefits typically offered for permanent staff.
Moreover, the rise of gig and platform workers is redefining traditional employment structures in India. Under the Social Security (SS) Code, gig workers are identified as individuals engaging in work arrangements outside the conventional employer-employee relationship, earning from such activities. Similarly, platform workers operate through online platforms to provide specific services or solutions, which are also outside of the traditional employment model. The SS code mandates that gig and platform workers be registered.
Agency workers in India
Agency workers or contract labour in India are common across all industries and services. They are typically individuals employed by an agency to work temporarily for a company or organisation. The term “agency workers” is not explicitly defined in the Indian labour laws, but they closely relate to contract labour, defined under the Contract Labour (Regulation and Abolition) Act, 1970, as workmen hired in or in connection with the work of an establishment through a contractor.
These workers are provided to a client company, and the agency handles the worker’s remuneration, taxes, and other administrative aspects. While the workers are on the client’s premises and under their supervision, they are not directly employed by the client company. The regulatory framework for such arrangements includes ensuring workers’ rights and the terms of employment, which are governed by this specific act, as well as various other labour regulations in India.
Language requirements in India
While there is no specific language requirement for hiring talent across the board, employment contracts should be drafted in a language understood by both contracting parties, which is typically English. This is common in settings involving multinational corporations or foreign businesses operating in India. This practice ensures clear communication and mutual understanding of contractual obligations and rights.
Given the diversity of languages spoken across the country, English often serves as a common language spoken in professional environments, particularly in sectors that deal with international clients or partners. However, depending on the nature of the job and the geographical location within India, additional language proficiency (such as Hindi or other regional languages) might be necessary or beneficial to facilitate effective communication with the workforce, customers, and stakeholders.
Setting up payroll in India
International companies looking to hire talent in India must establish a legal presence in the country before they can directly hire workers. These businesses have the option to operate as sole proprietorships, partnerships, or incorporated entities.
To enter India’s market, foreign companies typically launch subsidiary organisations, create joint ventures with Indian or international partners, or establish offices such as liaison, branch, or project offices with the Reserve Bank of India’s permission. It is also imperative that these companies institute a meticulous payroll system to manage withholdings and deductions accurately.
Compliance with India’s labour regulations—enacted by both central and state authorities—requires employers to complete tasks such as securing registrations, maintaining detailed employee records and registers, posting required notices, and submitting periodic returns. These documents must be readily available for review by governmental inspectors.
To streamline this process and encourage a more business-friendly climate, the local government has introduced integrated registration platforms and self-certification schemes. Additionally, efforts to consolidate record-keeping and introduce electronic filing of returns are underway, simplifying adherence to labour laws. These initiatives are part of a broader strategy to ensure that doing business in India is a smooth and efficient experience for all involved.
How to do payroll in India
- Establish your business structure in India
Before initiating payroll, ensure your business is legally registered in India. You may opt for forming a subsidiary, a joint venture, or establishing a liaison, branch, or project office with approval from the Reserve Bank of India (RBI). The chosen structure will determine the regulatory framework applicable to your payroll operations. - Understand India’s payroll regulations
Familiarise yourself with India’s payroll regulations, including tax implications, minimum wage requirements, statutory benefits, and employee rights. India’s payroll landscape is governed by a combination of central and state legislation that you must comply with. - Register for necessary taxes and social security
Registration with India’s tax authorities and social security bodies is essential to compliantly hire and manage workers. This includes obtaining a Tax Deduction Account Number (TAN) for withholding taxes, registering with the Provident Fund Organisation (EPFO), and enrolling in the Employees’ State Insurance Scheme (ESI), if applicable. Compliance with these requirements ensures that employee taxes and contributions are lawfully deducted and remitted. - Implement a payroll software solution
Leverage technology to streamline your payroll processes. A robust payroll software system that’s compliant with Indian regulations can automate calculations, withholdings, and contributions, thus reducing errors and saving time. Opt for a solution that offers scalability, local regulatory compliance, and integration with your existing HR systems. - Manage employee data
Collect and maintain comprehensive records, including personal information, taxation details, and banking information for each employee. This ensures accuracy in salary disbursement and compliance with local data protection regulations. - Process payroll consistently
Ensure the timely and accurate processing of payroll. This includes calculating gross wages, making statutory and voluntary deductions, and accounting for any additional employee benefits. Regular consistency in payroll processing reinforces trust and reliability among your workforce. - File tax returns and maintain records
Regular filings with Indian tax authorities and maintenance of statutory records are mandatory. Taking a proactive approach to these requirements can prevent penalties and ensure smooth operations. It’s advisable to maintain meticulous records and stay updated with regulatory changes.
Seek expert guidance
Managing payroll in-house can be overwhelming, especially when you lack the expertise and experience to deal with India’s labour laws and regulations. You can bypass all these challenges by partnering with a reliable EoR provider like CXC. An EoR service takes care all the HR and administrative tasks associated with international hiring, including managing payroll and meeting your tax obligations. This frees up the time of your team, allowing them to focus on other important aspects of your business.
Simplify global expansion with CXC
As you expand your international workforce, we understand that navigating in country-specific labour laws and regulations can be overwhelming — requiring careful attention to maintain compliance and mitigate risks.
That is where CXC excels. With CXC, you can confidently find, hire, manage, and pay workers anywhere in the world, all while remaining fully compliant. By leveraging our Employer of Record (EoR) solution, you can bypass the complexities and expenses of setting up a legal entity, enabling you to focus on what truly matters: growing your business.
Compliantly hire employees anywhere with CXC
With our EoR solution, you can engage workers anywhere in the world, without putting your business at risk. No more worrying about local labour laws, tax legislation or payroll customs — we’ve got you covered.
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