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Employer of Record (EOR) in India

Employer of Record in India

Hiring and payroll management for business expansion in India has never been easier than now, thanks to Skuad’s Employer of Record Solutions. Our unified and automated global Human Resource platform facilitates processes such as onboarding remote teams, managing payrolls, and employee benefits in compliance with local laws. All this without having to go through the time-consuming process of setting up a unique entity in India. 

Through our qualified international network, we assist organizations in streamlining their global expansion to focus on the bigger picture rather than getting caught in more minor decisions.

India at a Glance

Estimated Population: 1.39 billion

Currency: INR Indian Rupee

Capital: Delhi (National Capital Territory)

Number of officially recognized languages spoken: 22

Languages frequently used: Hindi, English

GDP: -10.29% (2020)

Employment In India

Indian labor laws include provisions for an employee’s provident fund, maternity benefits, state insurance, and issuance of bonuses and appraisals. These laws are put in place to protect the interests of the working section of the Indian population.

However, these laws are also applicable to foreign nationals working in India. Foreign nationals employed by Indian companies can also benefit from the Provident Fund law. This is dependent on the terms of the social security agreement between India and the home country of the foreign nationality worker.

Indian employers employed by Indian entities who have to serve abroad as part of their job come under the umbrella of Indian Labor laws. But this benefit does not extend to Indian employers employed by a foreign company.

Knowing these things will help an organization save a lot of time and effort in its expansion process. Hence, partnering with an EoR like Skuad proves to be an efficient option.

Some of the provisions of Employment Laws to note before hiring in India are:

Title Explanation

The Employees Provident Funds & Miscellaneous Provision Act, 1952

These provisions primarily cover post-retirement benefits or benefits for senior citizens when it is challenging to earn an income. The benefits include Social Security benefits via Provident Fund, Pension (Individual, Superannuation, and Family), and Deposit-linked insurance.

The Industrial Disputes Act, 1947

It is mainly applicable to manual, clerical, skilled, unskilled, technical, operational, or supervisory work, but not administrative or managerial positions. The Act protects workers from unfair layoffs and unfair trade practices. Also, it ensures compensation in case such a situation arises, such as when a company decides to shut down its operations.

The Maternity Benefit Act, 1961

It applies to all organizations with a strength of more than ten employees. Expecting mothers can claim up to 26 weeks of paid maternity leave after the 2017 amendment to the act. The organization must also provide a creche facility if it has more than 50 employees, depending on the nature of work and understanding. It can provide a work-from-home option after the 26 weeks are over.

Indian Contract Act, 1872

It is important to have a valid contract under Section 2(d) of this act to enforce the clauses of the contract when a company is working with contractors or freelancers. Provisions such as the Rights of Surety on Payment and performance implied promise to indemnify Surety, under this act can protect the rights of contract workers.

Timings, Holidays, And Leave Policies In India

Entitlements Explanation

Statutory Working Hours

A general workday in India consists of 8 working hours.

Job Specific Working Hours

Factories Act, 1948

Employees cannot work beyond nine working hours in a factory.

Shops and Commercial Establishments Act

48-hour workweek for employees in commercial establishments.

However, the Shops and Commercial Establishments Act is a state act, and the exact numbers may vary from state to state.

Rest Period

Between work days, a rest period of at least ten and a half hours is to be provided to Indian workers before returning to work.

Public Holidays

Indian employees are entitled to 10 public holidays annually, during which the company pays them. Compulsory Public Holidays:

  • Republic Day (26th January)
  • Independence Day (15th August)
  • Gandhi Jayanti (2nd October)

There is no exact rule when it comes to the selection of the other holidays. It depends on state customs and the discretion of the employer.

Maternity Leave

Twenty-six weeks of maternity leave for female employees as a part of the Maternity Benefit Act.

Annual Leave Accrual Entitlement

For Shops and Commercial Establishments The annual leave laws differ under each state’s law. The minimum number of annual leave days is 12, extending up to 30 days depending on the state a company is operating in. On average, most states mandate 15 days of leave for every working year.

Compensatory leaves

One granted per weekly allotted holiday or public holiday that an employee has worked. They can either be taken immediately, at a later date, or converted into an encashable option.

Contractors vs. Full-time Employees

The Indian education system has over 2.8 crore students enrolling annually in upward of 51 thousand higher education institutions.  A large number of these are knowledge workers engaged in creative and information technology-related pursuits. More than 27 lakh students choose to pursue super-specialization courses through a post-graduation program. Apprenticeships offered to this young workforce are governed by the Apprentices Act, 1961.

Recently, we saw an increase of remote workers three folds boosting the existing remote hiring system. Many knowledgeable workers now get hired virtually and occupy remote positions in companies irrespective of their current geographical locations. Remote working makes talent from across the country available to employers without bridging the location gap while increasing the talent pool availability. As companies are adopting digital work models, the popularity of remote working has been on the rise.

Different statutes protect different categories of workers in an organization. Indian legislation has a set of laws for both – workers and non-workers. Workers are involved in manual, unskilled, skilled, operational, technical, clerical, or supervisory work. Non-workers typically have managerial or administrative tasks at an organization.

Intermediate contractors can also help in hiring contract workers for an organization. Indian law recognizes this as a separate worker category from the ones mentioned above. This worker category is regulated by the Contract Labour (Regulation and Abolition) Act, 1970, and not the Industrial Disputes Act.

The Contract Labour Act helps secure minimum wage, health and safety, and basic insurance provisions. However, these workers don’t enjoy benefits like job protection, compensation, and union representation.

Though it is not mandatory, it is highly recommended to enter into a contract with all categories of employees in India where the terms of employment are clearly stated.

Scope of Negotiating Terms

The negotiation process in India may be different than what it is in other countries, given the societal structure. Like Indian families, companies also follow a hierarchical structure where each decision is taken in a top-down manner, possibly delaying the time taken to execute a decision.  Terms like ‘I will get back to you’ are also common as companies and candidates do not want to refuse any offer right away since it can be considered rude.

This hierarchical structure also means that job titles become very important for employees. They are almost as important as the monetary remuneration provided. This gives employers a critical bargaining tool in the negotiation process.

Salary structures in India are split between allowance types such as house rent, leave and travel allowance, phone allowance, special allowance, and other such allowances related to particular job roles. Many of these are a percentage of the principal salary sum. Employees might negotiate to work with some specific splits of their salary like Provident Fund, etc.

Hiring in India

The recruitment process in India is fairly straightforward. Once the hiring needs are identified, and the job description is put down, employers have to either use an internal team or partner agency to find suitable talent for the role.

Professional social networking apps such as LinkedIn are immensely popular with recruiters for finding talent in all kinds of roles. Several popular websites, such as Naukri, Shine, and Monster, also help fulfill this purpose.

Those who fulfill all the criteria mentioned in the job description go through an essential background screening before being shortlisted. The shortlisted candidates are interviewed through a series of panels, like technical and HR, to better evaluate their aptitude for the job and analyze if they are a perfect fit for the company and its culture.

After a final evaluation, the most suitable candidates are selected and offered a letter of intent or employment offer. Finally, upon successful negotiation and signing, the candidates onboard the team as rightful employees of the company.

Hiring through an employment website, social media posts, or advertisements in India has its advantages, such as the availability of many prospective candidates. It takes away the risk of not finding the right candidate or shortage of talents in the job pool. 

On the flip side, organizations may have to go through a tiresome procedure of filtering several applications and selecting prospective candidates who are most suitable for the job offer. It is a challenging process, especially the initial screening. It is impertinent that initial screening is done accurately. 

Apps like LinkedIn still have a limited reach in India and cannot be the sole platform to source talent from, especially if you need talented professionals.

Hiring talented employees in a short span is not an easy task. Partnering with an Employer of Record like Skuad in India is your best option, giving your organization enough time to focus on other aspects of international expansions like project management and inventory management. The EoR takes care of all the compliance and legal issues while helping you speed up hiring using their knowledge of domestic employment practices and virtual onboarding tools. Top EoRs also have provisions for the e-signing of documents to enable faster onboarding.

Not only does Skuad help in quick recruitment, but it assists in other Human Resources-related functions such as payroll management, time and expense management, security and compliance, and tax filing. These features add up to a faster, cheaper, and seamless experience for the organization and the candidates.

Probation & Termination

There are no specific Indian laws that address the duration of an employee’s probation period. However, it is generally between three to six months. It may even be extended up to a year in some cases if required. If any employee’s performance has not been ideal during this period, the employer can terminate their services, citing that as a reason.

There is no standard procedure that exists in India when it comes to the termination of employment. To terminate an employee, an employer must keep in mind the terms of the employee contract and the provisions of the respective Act related to the specific employee type.

However, an employer may be tried by the Indian Judiciary System for wrongful termination if their actions are not in compliance with the state’s Shops and Commercial Establishments Act. In general, an employee gets a written notice period of 30 days, or compensation for those 30 days, in some cases.

Contracted employees and freelancers protected by the Indian Contract Act can ask for compensation and, after that, initiate legal proceedings if there is a breach of contract as per Section 73.

Working with an EoR like Skuad helps organizations carry out such actions in compliance with local laws to avoid disputes in the future. Skuad can also help organizations draft reliable labor contracts.

EoR Solution

With so many benefits, such as doing away with the need to establish a new entity, freeing up time and resources to focus on other aspects of your expansion plans, and simplifying legal compliance, EoR is the best way to enter the Indian workspace. Skuad’s expertise allows for a cost-saving, faster-paced, and overall smoother approach to an organization’s expansion without the need for establishing a new entity to take care of all the employee management processes.

While organizations have the choice to set up an entity and take up the staffing, employee management, and payroll management activities by themselves, it can be time-consuming and run the risk of legal hurdles.

Outsourcing Employment Through An EoR in India

Choosing to work with an Employee of Record can save you valuable time that would otherwise go into setting up the entire hiring process, payroll management, tax management, and other such services.

Tailor-made contracts for your needs, establishing all processes in compliance with local laws, easy amendment of existing contracts, and convenient e-signing of documents are some additional benefits of working with an EoR of repute such as Skuad.

Types of Visas in India

Visa Category Explanation Duration

Employment Visa

Foreigners working in India under a registered organization require proof of employment, such as a drawn-out contract. It can be extended.

Up to 5 years or the period of contract

Business Visa

It is for foreign nationals conducting business or looking for business opportunities in India. Visa holders need to register with the Foreigners Regional Registration Office if they wish to stay beyond 180 days. They allow multiple entries. They require a letter which mentions the exact details of their business or idea.

Up to 5 years or the period of contract

Project Visa

Special Project Visas are only issued to highly skilled foreign professionals coming to India to work in the Power or Steel sectors. They are only valid till the project is operational. They require a letter stating the exact description of the project to be undertaken.

The actual duration of the project or up to a year

X Visa or Entry Visa

Valid for Indian origin or family members of foreign nationals holding a business, employment, or project visa. They require either a marriage, birth certificate, or letter of invitation, depending on the purpose of the visit.

Up to 5 years

Work Permits

Foreign nationals can apply for an employment visa in India by paying a fee between $125 and $1000 depending on their stay and country of origin. There are no work permits required after that unless the individual is from specified countries such as China, Afghanistan, or Pakistan.

Payroll & Taxes in India

To set up payrolls in India, you have to be aware of the local rules and the acts governing those rules. Knowing your employee profile is of utmost importance since it will help you understand which act you have to refer to. 

Taxation is also a necessary process you have to pay special attention to. Here too, working with an EoR will help save time and initial costs so that you can focus on the goals and objectives of the expansion.

Payroll Details

Process Details

Applying for a Tax Deduction Account Number or Tax Collection Account Number (TAN)

Companies need to either register online or at their nearest Tax Information Network Facilitation Centre. Processing fee and a Goods and Services Tax up to 18% is applicable.

Choosing a Payroll System

Payroll systems must be selected, keeping several factors in mind, such as accommodation of benefits like health insurance, the requirements, vision for the business’s growth, etc.

Provident Fund or Social Security is capped at 12% of the employee’s salary. It is important to note that employees need to fill out a withholding allowance certificate before collecting payroll deductions.

Note Down All Employee Information

Basic information, information related to wages and regular work hours for employees, are noted.

Using software or cloud-based service for this step will make it easier to enter and maintain the data.

Taxation in India

Tax Explanation

Income Tax applied on an employee’s salary (Two structures exist for this and employees can choose which one they want to follow)

Annual Taxable Income under new regime (4% cess added)

Up to 2,50,000

No Tax

Between 2,50,000 and 5,00,000

5% on income above 2,50,000

Between 5,00,000 and 7,50,000

10% on income above 5,00,000

Between 7,50,000 and 10,00,000

15% on income above 7,50,000

Between 10,00,000 and 12,50,000

20% on income above 10,00,000

Between 12,50,000 to 15,00,000

25% on income above 12,50,000

Greater than 15,00,000

30% on income above 15,00,000

Annual Taxable Income under old regime (3% cess added)

Up to 2,50,000

No Tax

Between 2,50,000 and 5,00,000

5% of (Total income – 2,50,000)

Between 5,00,000 and 10,00,000

25,000 + 20% of (Total income – 5,00,000)

Above 10,00,000

1,12,500 + 30% of (Total income – 10,00,000)

Tax rebate

Yes, for employees with Net taxable income less than or equal to Rs 5 lakh

Financial Year End date

31st March

Tax documents

Form 16, Form 10 BA, Form 2E

Corporate tax

Between 25% and 30% for domestic companies. At 40% for overseas companies.

Withholding Tax (For Non-residents)

Dividends: None

Interest: 20% of interest received from the Government of India or an Indian Concern.

10% interest on income from Indian bonds 5% on interest received on loans in foreign currency.

Royalties: 10%

Payroll Tax

It may be fixed or proportional to the income level of the employee

Sales Tax

State and Central GST ranging from 0% to 28%

Employer Contribution Towards Social Security

1.67% to 3.67% towards Employees’ Provident Fund Scheme.

8.33% towards Employee Pension Scheme.

0.5% towards Employees’ Deposit Linked Insurance.

Employees’ Contribution Towards Social Security

12% of specified salary

Reimbursements

Employees can avail of reimbursement up to ₹15,000 without any tax deduction on producing a scanned copy of the receipts.

Public Pension

Employees can avail themselves of Public Pension schemes such as PPF and EPF.

Financial Year End date

31st March

Medical Insurance

Company Health Insurance is compulsory from 2020 onwards.

Double Taxation Avoidance Agreement

Employees for overseas employers while staying in India can be classified as Resident or Ordinarily Resident. In such a case, it becomes essential to understand the provisions under the relevant Double Taxation Avoidance Agreement and short stay exceptions under the Income Tax Act, 1961.

Incorporation: How to Set Up a Subsidiary in India

There are four significant steps involved in the establishment of a subsidiary in India.

The first step involves filling out the Application for Reservation of Name or Form No INC-1. This step will help an organization name a subsidiary and ensure the name is available for use, meaning - another organization does not claim it.

On behalf of the Government of India, the Ministry of Corporate Affairs will help the organization in the second step, where an identification number or DIN is allocated along with the establishment of a Distributed Control System (DCS).

The third step involves the payment of registration costs and stamp duty after drafting and filing the Memorandum of Association and Articles of Association.

The final step is to fill Form INC-22 for tax purposes and DIR- 12 for appointment of directors and managerial personnel with the Registrar of Companies.

The above steps require a thorough knowledge of the entire process and an understanding of the workings of the local authorities to avoid any sort of reworks in the application process.

Companies providing EoR Solutions, such as Skuad, can be of great help in this case.

Professional Employer Organization (PEO)

A Professional Employer Organization (PEO) may provide a similar form of Human Resource expertise such as recruitment, payroll management, benefits management, and employee management. But the key area where it differs from an Employer of Record is that a PEO allows you to hire people who become your company’s employees instead of themselves being the legal employer. 

The final decisions in all Human Resource matters fall on the organization when working with a PEO. While this can be beneficial for reviewing every detail, it is also time-consuming, especially when it is in the middle of an expansion.

Skuad provides both PEO and EoR services. While working with Skuad as a PEO partner, organizations have more control over the decision-making processes. Skuad’s EoR solutions don’t require organizations to form an entity in the country of expansion. Skuad completely takes over the hassles of working through the various stages of documentation and employment contracts.

Conclusion: What Gives Skuad’s India Solutions an Edge?

The most important part of setting up a remote team in India with the business expansion is knowing the local laws and how they will affect all employment processes. Factors like the laws governing different kinds of employee types, differences in state laws, understanding the Indian negotiation process, setting up payrolls, and getting through the nuances of taxation can draw out the process of expansion.

However, instead of setting up a new entity and understanding the impact of every law on the employment process, it is much simpler to work with a trusted partner who can take care of your HR needs. It will also ensure that your HR practices are compliant with the local legal system and you are never on the wrong side of the law.

Skuad’s globally distributed teams and experience make it simple to hire exceptional talent in India while also managing your payroll, benefits and helping you with compliances and taxation using a Unified Employment Platform. Skuad has managed to build trust among some prominent remote employers and continues to look for ways to make your expansion plans smoother.

Contact Skuad today to give your business expansion plans the boost they need. 

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