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Employment policy in India
Contract terms and conditions in India
Extension of contract in India
Fixed-term contracts in India
Working hours in India
Remote work in India
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Employment contracts in India
When looking to expand your workforce in India, you need to make sure your employment contracts are compliant and legally enforceable.
In this full guide, we’ll cover various topics, including the details of employment contract laws in India, guidance on how to handle contract extensions, a breakdown of different types of employment contracts, and insights on navigating remote work in the country.
Employment contracts law in India
While India’s labour laws do not strictly mandate that an employment contract be in writing, it is a common and standard practice to have all terms and conditions of employment agreed upon and signed by both parties. Employers are recommended to formalise employment relationships through written contracts to outline crucial aspects such as job responsibilities, salary, benefits, working hours, termination conditions, and confidentiality agreements.
Some employment policies and regulations implemented by the Indian government include:
- Occupational Safety, Health, and Working Conditions Code (OSH Code): This mandates employers to provide new employees with comprehensive appointment letters in the format prescribed by relevant authorities.
- Recent adjustments to the Employee’s Compensation Act of 1923 (ECA) and the Maternity Benefit Act of 1961 (MBA): These changes have introduced a requirement for written communication to employees, detailing the benefits they are entitled to, enhancing clarity, and ensuring a well-informed workforce.
- Rights of Persons with Disabilities Act of 2016 (RPWD Act): This mandates employers to formulate and disclose an equal opportunity policy. This policy should elaborate on the job roles accessible to people with disabilities, the provisions made to facilitate their work, and the employment selection process for such candidates to ensure an inclusive work environment.
- Transgender Persons (Protection of Rights) Rules 2020: This employment regulation extends the ethos of inclusiveness, requiring employers to publish a detailed equal opportunity policy for transgender individuals, covering infrastructure, safety measures, and amenities, and advocating for a discrimination-free workplace.
- The Industrial Employment (Standing Orders) Act, 1946 (IE(SO)A): It specifically protects ‘workmen’ employees by standardising contractual terms, providing a layer of uniformity and security. Should employers wish to alter any essential working conditions potentially detrimental to workmen, a minimum of 21 days’ notice is mandated, safeguarding employee interests.
Probationary employment contract in India
In India, the probationary period serves as a trial phase for new employees, allowing employers to assess their suitability for the position. While not legally mandated, implementing a probationary period is a prevalent practice among Indian employers. Typically, probation periods in India range from three to six months, providing both parties—employer and employee—a fair opportunity to evaluate the job fit before confirming the employment on a permanent basis.
The employment contract or the company’s policies often outline the terms regarding the probation period, including its length and specific conditions. It’s crucial for both employers and employees to be well-acquainted with these terms to avoid any potential misunderstandings or legal issues.
Moreover, understanding the rights and obligations during the probationary period, such as leave policies and the conditions for termination or confirmation, is essential for maintaining a transparent and equitable workplace.
Employment policy in India
Adopting policies is generally at the discretion of the employer and can be adjusted as deemed necessary, provided they are well-drafted. However, employers must communicate any changes to specific service terms and conditions with a minimum of 21 days’ notice for employees classified as workmen.
Beyond the scope of employment contracts, employers often establish a set of employment policies to clearly outline the rights and responsibilities of their employees, including, but not limited to, policies on leave.
Third-party approval in India
When forming employment contracts, no external endorsements are needed, except for standing orders, which require validation by the labour department. According to the Industrial Relations Code, when an employer chooses to implement the model standing orders formulated by the government, such orders are automatically recognised as certified, streamlining compliance for the employer.
Aadhaar-based registration in India
Aadhaar-based registration, as mandated by Section 142 of the SS Code (Social Security Code), is a provision that requires every employee, unorganised worker, or other individual, including their family members or dependents, to use their Aadhaar number for registration purposes to access the benefits under the SS Code. While the entirety of the SS Code is not yet operational, the activation of Section 142 signifies a significant move towards integrating Aadhaar into the fabric of employment-related benefits and compliance.
In light of Section 142’s enforcement, the Employees’ Provident Fund Organisation (EPFO) has further specified that electronic challan-cum-return shall only be processed for those employee members whose Aadhaar numbers are both seeded and authenticated with their Universal Account Number (UAN).
The implementation of Aadhaar-based registration aligns with India’s broader aim to leverage Aadhaar for improving governance. It also represents a step forward in harnessing technology to foster transparency, reduce fraud, and ensure compliance and benefit distribution.
Employment of relatives’ policy in India
In India, the implementation of policies regarding the employment of relatives can vary by organisation. Generally, companies may adopt policies aimed at preventing conflicts of interest, favouritism, and other potential issues related to the employment of family members or relatives within the same company.
While there is not a universal law against hiring relatives in India, most companies in India have internal policies in place to ensure that employment decisions are made on merit and not on familial relationships, to maintain fairness and transparency in the workplace.
Contract terms and conditions in India
In India, employment relationships can be either expressly stated or implied. Generally, employment contracts in India are considered to be ‘unlimited term’ contracts, meaning they are valid until either termination or superannuation, unless specifically stated as ‘fixed term’ contracts.
Typical elements that should be included in an employment contract in India are:
- Job location, description, and title: Clearly state where the job is located and summarise the job role and title.
- Duration of employment: While many contracts have an “unlimited term,” if the contract has a “fixed term,” it should specify the duration.
- Salary or wages: Details on the compensation, including any performance-based bonuses or incentives.
- Benefits: Outline any benefits, such as health insurance, retirement plans, or any other company-specific benefits.
- Working hours: Clear terms about the daily or weekly working hours and any overtime compensation.
- Probation period: If applicable, specify the duration of the probation period.
- Termination conditions: How the employment can be ended by either party, including notice period requirements.
- Retirement age: The contract should specify if the company has a set retirement age, usually at 60.
- Dispute resolution: The means by which any disputes will be resolved, which can include arbitration or jurisdiction of local courts.
Some state-specific Shops and Establishments Acts may also require employers to record certain terms of employment, such as wages, designations, and work hours. It is important to note that once an employment contract is signed in India, the employee is protected under Indian labour laws, which means the contract must adhere to local regulations and statutory obligations.
Implied terms for employment contract in India
While many terms of an employment contract are explicitly stated, certain terms for contracts in India are implied and need not be recorded in writing. These include provisions relating to the payment of wages, bonuses, gratuity payments upon termination, and contributions towards employees’ provident fund and employees’ state insurance. Such provisions constitute implied terms of a contract of employment under the applicable labour laws in India.
Additionally, courts in India have recognised that principles of fidelity, good faith, including confidentiality, are ordinarily implied in contracts of employment. Terms can also be implied by practice or usage if an employer consistently follows a particular practice over time.
Unfair contract terms in India
Certain terms in employment contracts can be seen as unfair or biased towards the employer. These terms can create a significant imbalance in the rights and obligations between the employer and employee. Here are some examples of unfair contract terms:
- Unilateral termination rights: It can be considered unfair practice to grant the employer the right to terminate the contract at their sole discretion without granting the employee the same right or without a fair notice period.
- Non-compete clauses post-employment: While non-compete clauses are common, those that excessively restrict an employee’s right to seek employment or engage in a profession after leaving the company are generally unenforceable. The Indian Contract Act, 1872, considers agreements that restrain anyone from exercising a lawful profession, trade, or business to be void to the extent of such restrain.
Extension of contract in India
An employment contract in India is governed under the Indian Contract Act, 1872, which provides the foundational structure for employment contracts.
While there’s no specific legal cap on the number of times an employment contract can be renewed in India, any extension or renewal should be mutually agreed upon, documented, and in compliance with the laws applicable to the specific type of employment or industry sector. Companies and employees should consult the relevant state-specific laws and sector-specific guidelines to ensure compliance.
In general, Indian labour laws, such as the Industrial Employment (Standing Orders) Act, 1946, and the Shops and Establishments Act (applicable in various states), guide employment contracts but do not explicitly limit the number of times a contract can be renewed. The important factor employers should keep in mind is the mutual agreement between the employer and the employee and adherence to any applicable laws regulating employment terms for the sector in question. Extension of contract may also depend on:
- Performance evaluation: An employee’s performance is commonly a determining factor in the decision to offer an extension. Consistent performance, alignment with company goals, and critical contributions to projects are often rewarded with extended employment.
- Business needs: The continuity of employment can also depend on the strategic needs of the business, project timelines, expansions, and unforeseen circumstances.
- Policy and terms: Businesses must craft clear policies regarding contract extensions, which should be communicated during the hiring process and included within the initial employment documentation. The terms should present the process for extension evaluation, any necessary notice periods, and the conditions under which extensions are granted.
There may be more detailed guidelines and limitations for specialised employment categories, such as foreign nationals working in India under specific visa categories (e.g., H1B visas). For instance, while not directly about Indian national employment law, H1B visa holders, often employed in India in the tech sector, face statutory limitations on the duration of their stay and work, though certain exemptions allow for extensions beyond these limits in specific circumstances.
Fixed-term contracts in India
In India, a fixed-term employment contract is an agreement between an employer and employee, where the employee is hired for a specific period as predetermined by both parties.
The concept of fixed-term employment was significantly enhanced with the Industrial Employment (Standing Orders) Central (Amendment) Rules, 2018, which extended the provision for fixed-term employment across all sectors. Under this arrangement, employers can hire workers for short-term projects, seasonal work, or any specific task with a defined timeline, without the commitment required for permanent employees. This regulatory framework ensures that employees on fixed-term contracts are entitled to the same benefits as permanent workers, including pay scales, allowances, and other statutory benefits, ensuring equitable treatment in the labour force.
Fixed-term contract employment law in India
The legal provision for fixed-term employment was notably enhanced with the amendment of the Industrial Employment (Standing Orders) Central Rules in 2018. This amendment allows employers across all sectors to engage fixed-term employees, a move aimed at providing flexibility to employers and ensuring that fixed-term employees enjoy the same benefits as permanent employees, such as wages, allowances, and other statutory benefits.
The amendment portrays fixed-term employment as a fully recognised employment category under Indian labour laws. Before this amendment, the application of fixed-term employment was more limited, making the amendment a substantial turn towards more flexible employment practices within the Indian legal landscape.
Workers’ rights under a fixed-term contract in India
Workers under fixed-term contracts in India enjoy a breadth of rights designed to ensure equal treatment and protection in the workplace, similar to their permanent counterparts. Some of the key provisions are:
- Fixed-term employees should be treated on par with permanent employees in terms of wages, allowances, and other benefits.
- Fixed-term employees are also ensured comparable working hours, the number of holidays, and other terms of employment that are equivalent to those of permanent workers.
- Under the Industrial Employment (Standing Orders) Central (Amendment) Rules, 2018, workers under fixed-term contracts are eligible for gratuity on the condition that they serve for a period of one year or more under their contract. This provision marks a crucial benefit often reserved for long-term employees, now extended to fixed-term workers to ensure equitable treatment in acknowledgment of their service.
These regulations aim to provide businesses with the flexibility to handle varying project needs while protecting worker rights and preventing potential exploitation.
Working hours in India
Working hours law in India
The standard working hours are governed by the Fact and Establishment Act of 1948 and the Shops and Establishment Acts (SEA), which typically prescribe that the standard work hours should not exceed 9 working hours per day or 48 working hours per week. This usually includes a mandatory one-hour rest or meal break. Organisations in India usually follow 8 working hours per day.
Recent amendments to India’s labour codes have also brought some changes. The new Labour Codes, which are yet to be fully implemented nationwide as of early 2023, cap weekly and daily working hours at 48 and 12 hours, respectively. The new codes introduce the possibility of a 4-day work week, with 12 working hours for each of the 4 days. Additionally, the maximum allowable overtime for workers has been increased from 50 hours as per the Factories Act to 125 hours.
The implementation details for the new labour codes are still becoming more precise, and specific rules may differ slightly between states due to variations in state-level Shop and Establishment Acts.
Overtime in India
The overtime policy is primarily defined by the Factories Act, 1948, which states that workers are entitled to earn overtime pay at a rate of twice their normal wage for any work done beyond nine hours in a single day or 48 working hours a week. Additionally, the total number of overtime hours that a worker can work is capped at 50 hours for a quarter (a three-month period).
The provisions under Labour Laws also mandate rest intervals, where an employee cannot work for more than five hours without an interval, and the spread over (including interval period) cannot exceed 10.5 hours per day. When it comes to salaried employees, overtime may be calculated based on an implied hourly rate if their job is eligible for overtime, typically at 1.5 times the regular hourly rate for every hour worked beyond the standard 40-hour workweek.
Working week in India
Monday – Saturday
Remote work in India
When it comes to remote work policy, India does not have a dedicated law explicitly governing remote work. However, the Indian legal system does address flexible work practices such as work from home, remote working, and hybrid models of working through various laws and regulations, although there are no specific provisions that exclusively cover these formats. To implement a remote work policy in India, companies must consider the following:
- Legal compliance and taxation: Ensure your remote work policies adhere to the Indian legal framework, including labour laws, tax obligations, and data protection regulations. Your remote work policy should be aligned with the Shops and Establishments Act pertinent to each state where workers are based, and the Information Technology (Amendment) Act, 2008, for data privacy and protection. Facilitating proper contracts that specify the nature of remote work and expectations can mitigate legal risks.
- Infrastructure and technology support: Providing the necessary tools and technology is essential for a seamless remote working experience. This includes secure internet access, appropriate software, and hardware support. Implementing robust cybersecurity measures to protect company data, along with clear guidelines on its use and storage, assures both compliance and security.
- Clear communication channels: Establishing effective communication channels and regular check-ins fosters teamwork and ensures alignment with company goals. Utilising project management tools and collaborative platforms can enhance productivity and ensure that team members stay connected, regardless of their physical location.
- Performance and productivity measurement: Defining clear performance metrics suited to remote work environments is key. Setting tangible goals and outcomes, rather than focusing solely on activity or hours worked, can lead to more motivated employees and better results for your business.
Remote work visa in India
While India currently does not provide a designated Digital Nomad Visa, foreign nationals looking to work remotely within the country have viable visa alternatives at their disposal, subject to certain conditions. The tourist visa, which is relatively straightforward to secure, does not authorise formal employment, thereby limiting its suitability for digital nomads anticipating extended work periods. Digital nomads can also obtain multiple-entry business e-visa that allows them to stay in India for a year.
Tailored employment contracts in 100+ countries
Like any other country, India has its own set of regulations when it comes to employment contracts — and failing to adhere to these rules could land your company in hot water.
Thankfully, our dedicated team of experts is experienced in crafting tailored, compliant contracts in India (and more than 100 countries worldwide). That means that, when you partner with us, you won’t need to waste time worrying about compliance. Instead, you can focus on what matters most: growing your business.
Get in touch with us today and start building your global teams.
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