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Employment Laws in India

Updated on:
16 Jan, 2024
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This article will help you better understand the employment laws in India. 

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The constitution of India is the supreme law governing the rights and conduct of the people of India. It primarily protects the Indian citizens and serves as the framework from which all regulations in India, including the laws that have to do with employment, are enacted. 

As one of the most populous countries on earth with a workforce of over 460 million people, the labor law system in India is quite complex. Navigating the 44 federal labor acts and over 200 ministry and state labor laws can be challenging. Fortunately, the Indian government has enacted policies to improve the ease of doing business in India.

This guide covers everything you need to know about the employment laws in India. The topics include:

  • Labor law compliance in India
  • Employment contracts
  • Employment contract minumums
  • Termination of employment
  • Employee benefits (Statutory employee protection rights)
  • Working conditions
  • Social contributions and income tax
  • Foreign employees employment requirements
  • Anti-discrimination laws in India
  • Pre employment considerations

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Labor Law Compliance in India

Labor law compliances are clear terms and guidelines that govern employment practices in India. As organizations cannot function without their workforce, it becomes necessary that employees have their fundamental rights protected from malicious exploitation from the organization that benefits from their services.

Stipulated by both the state and central government in India, the labor law compliance include the minimum wages act, the contract labor acts, payment of wages act, etc. These laws are created to avoid discrepancies. Therefore, non-compliance with the regulatory labor law compliance will lead to penalties for the organization.

Labor Legislation in India

The labor legislation has a 125-year history in India. It covers all the laws in India responsible for regulating better working conditions, industrial relations, trade union registrations, wages payment, social security, and the welfare of Indian employees. 

It exists to provide a wireframe where employers and employees can interact regarding work-related issues. The labor legislation also fulfills a crucial role in establishing a proper legal framework and system that encourages better employment relationships. In addition, the labor legislation provides clarity and creates a system where there are penalties for actions that infringe on employees’ rights. 

In India, the types of labor legislation are Protective and Employment Legislation, Social Security Legislation, and Regulatory Legislation.

Protective and Employment Legislation

The protective and employment legislation are acts whose primary purpose is to protect employee rights and ensure the organization adheres to the labor standards as stipulated in the FA Act, Industrial Employment Act, etc. The laws under this category are meant to improve the working conditions for individuals and enact the minimum labor standards to ensure workplace safety.

Social Security Legislation

The Social Security legislation comprises laws that ensure that employees are provided with their statutory social benefits and entitlements. The laws under this category protect employees in India.

Regulatory Legislation

The laws under the Regulatory Legislation regulate the relationship and rights between employers and their employees. It also contains laws that address disputes and the relationship between trade unions and workers. 

Labor Laws in India

The list of the labor laws in India are as follows:

  • The Payment of Wages Act, 1936
  • The Payment of Bonus Act, 1935
  • The Trade Unions Act, 1926
  • The Employees Compensation (Amendment) Act, 2017
  • The Minimum Wages Act, 1948
  • The Industrial Disputes Act, 1947
  • The Industrial Employment (Standing Orders) Act, 1946
  • The Employees’ State Insurance Act, 1948
  • The Employees’ Provident Funds and Miscellaneous Provisions Act, 1956
  • The Maternity Benefit (Amendment) Act, 2017
  • The Beedi and Cigar Workers (Conditions of Employment) Act, 1966
  • The Payment of Gratuity Act, 1972
  • The Contract Labor (Regulation and Abolition) Act, 1970
  • The Equal Remuneration Act, 196
  • The Sales Promotion Employees Act, 1976
  • The Child and Adolescent Labor (Prohibition and Regulation) Act, 1986
  • The Inter-State Migrant Workmen (Regulations of Employment and Conditions of Service) Act, 1976
  • The Unorganized Workers’ Social Security Act, 2008.

New Developments

Recently, four new labor codes were enacted by the Indian government. The labor codes are, 

  • the Industrial Relations Code, 
  • the Wages Code, 
  • the Occupational Safety, Health and Working Conditions Code (OSH Code), and 
  • the Code on Social Security. 

While these are not laws yet, they have been approved by the Indian legislature and are expected to become laws soon.

These approved labor codes consolidate about 13 existing Labor Laws, thereby simplifying the processes of company registration and compliance for organizations.

Employment Contracts

While it is not mandatory to have a written employment contract in India (except in a few states), it is standard to have all the employment specifications. It is also necessary to have the terms and conditions drafted out, agreed upon, and signed by both the employer and employee. 

The Contract Labor Act governs employment contracts in India. The law governs the contract's validity and ensures that the two parties are competent enough to enter a contract.

Types of Employment Contracts

In India, four main types of employment contracts exist. They are as follows:

Permanent Employment Contracts

A permanent employment contract is arguably the most widely used employment document in India. This type of document is given to employees working regular hours, which could be either full-time or part-time. Their employment with the organization has no stipulated end date. It is ongoing until either the employer terminates the contract or the employee decides to leave the organization. 

Employees offered this type of employment contract is usually entitled to all forms of statutory benefits. 

Fixed-Term/Open-Ended Contracts

Fixed-term contracts are common amongst contractors and freelancers. This type of employment contract usually has a stipulated end date. The contract outlines the start and end date, the salary details, and the rights the contractors and freelancers will be entitled to while working for the organization. 

Casual Employment Contracts

A casual employment contract is like a hybrid of both permanent contract and fixed-term employment contract. It resembles the permanent contract in that the working hours are fixed and similar to the fixed-term contract in that there is an agreed duration (or end date) for work. 

For example, the contract could state that the employee works for 72 hours, but the employee is solely in charge of determining when these hours will be. 

Zero-Hour Worker Contracts

A zero-hour work contract is used to describe the employment contract where the employer is not obligated to provide a stipulated number of working hours to the employee. This type of contract means the employee is not obliged to work exclusively for a particular organization.

Employment for Residents

All laws regulating employment apply to all residents in India. Employees carrying the Indian passport have unlimited rights to work with no need to tender any form of work permit. 

Employment for Non-residents

Foreigners are required to have employment visas to work in India. During their employment duration, their taxes are paid to the Indian government. While the employment visa validity is just for one year, the foreigner can renew or have the organization fix a longer duration of employment in the employment contract.

Employment Contract Minimums

Labor contract and required documentation

In India, employment or labor contracts are considered valid until termination unless stated to be a Fixed-Term Contract.

Written employment contracts in India usually contain;

  • The employment terms and conditions
  • The employee's job description and role
  • Compensation including statutory benefits, bonuses, etc.
  • Working hours
  • Dispute resolution provisions
  • Restrictive covenants

There are usually specific implied terms in the labor contract. These terms include;

  • Duty of confidentiality
  • Duty of fidelity
  • Duty towards the protection of the employer’s property.

Trial/Probation period

The Industrial Employment (Standing Orders) Act, 1946, stipulates a probationary period of 3 months. While this law does not apply to all organizations in India, it is broadly accepted and followed by many Indian companies. The general trend in India is to have a probation period of 3 to 6 months. 

Notice period

The Indian law recognizes two types of dismissal - dismissal for cause and ordinary dismissal.

When an employer dismisses an employee for a cause, such as in the case of misconduct, no notice period is required provided the misconduct has been proven and acknowledged by the inquiry committee.

On the other hand, the notice period for ordinary dismissal is usually one month. A retrenchment compensation is expected to be paid to the employee.

Termination of employment

Grounds for termination

An employer may terminate an employment contract if the employee is involved in one of the following:

  • Gross misconduct
  • Incompetence or consistent poor performance in their given job role
  • Consistent absenteeism
  • Breach of employment contract
  • An employee found guilty of committing a criminal offense.

Collective dismissals

Collective dismissals occur when the employment of several employees is terminated, usually on the grounds of economic or structural reasons. The Indian law permits collective dismissals of employees in some instances, but only after some conditions have been met. The two forms of collective dismissals are retrenchment or lay-offs.

Retrenchment: Retrenchment refers to the employment termination of workers for causes such as the voluntary retirement of an employee, mutual contract termination due to ill health, etc. It involves the termination of an employment contract for reasons other than a disciplinary action consequence.  When employers enforce the collective dismissal of employees on the grounds of retrenchment, they must obtain approval from the labor department. Also, the employers must provide a notice of one to three months to the employees and provide compensation (usually 15 days salary per the number of years the employee offered their services).

Lay-offs: Lay-offs occur when the employer is cannot provide compensation for their employees on account of a breakdown in the business, thereby causing the employer to relieve the employees of their employment. When lay-offs occur in India, prior approval from the government is required, and the due compensation would have to be paid.

Individual dismissals

Individual dismissals follow the route of conventional employment termination. Organizations can dismiss an individual based on a breach of the employment contract. If otherwise, the employer is obliged to provide a notice period of 1 to 3 months with the corresponding compensation.

Severance pay

When the employer or employee terminates the employment contract, the party involved must serve a notice period. The employer is obligated to make certain payments as part of the severance pay. The severance pay includes:

  • Gratuity payment
  • Outstanding and accumulated wages
  • Any other outstanding benefits.

Separation agreements

A separation agreement is a written document that captures the terms of an employee’s separation of employment. According to the Indian employment laws, a separation agreement is not mandatory. However, organizations in India regularly draft and follow separation agreements. It is best practice to accurately capture the terms of a separation in a separation agreement. These terms include the actions to be taken regarding intellectual property rights during the course of employment, the employee’s agreement to confidentiality adherence, actions taken regarding the possession of company property, etc. 

Whistleblower laws

The Whistleblowers Protection Act, 2014 protects individuals who make public disclosures regarding financial crimes, acts of corruption, and alleged wrongdoings in office places and government bodies. Unfortunately, since this code received its assent in 2014, it has not been enforced in India. However, under the India Companies Act, 2013, specific categories of organizations are expected to establish a vigil mechanism to report suspected corruption and fraudulent activities.

Employee Benefits (Statutory employee protection rights)

Social Security

The Indian social security system includes the employees’ provident fund, pension scheme, and insurance scheme. While the social security in India may not be as vast as many developed nations, there are vital legislations that govern employee benefits in the country. These acts include:

Employees’ State Insurance (ESI) Act, 1948

The ESI act enforces employers to make a 4.75% contribution of the employee’s monthly salary and 1.75% of the employee’s monthly salary to the Insurance fund. The ESI Act applies to organizations with more than ten employees, specifically for employees earning $300 or less. The contribution from the employer and employee to the Insurance Fund qualifies the employees for some medical benefits such as sickness benefits and medical care. 

Employees’ Provident Fund (EPF) Act, 1952

The benefits under this Act apply to organizations with more than 20 employees. The benefits are compulsory for employees earning less than $215. However, the employees earning above $215 have the option to not participate in the scheme depending on some given conditions. 

Under the EPF Act, there exist three schemes that are framed under it;

  • The Employees’ Pension Scheme, 1995
  • The Employees’ Provident Fund Scheme, 1952
  • The Employees’ Deposit Linked Insurance Scheme, 1976

Payment of Gratuity Act, 1972

The Payment of Gratuity Act handles the payment of gratuity to all employees in organizations with workforce strength of more than ten people. An employee becomes entitled to this compensation if they have worked for more than five years. Due to accidents, the organization will pay the gratuity upon superannuation, retirement, resignation, or death. 

Healthcare and Insurance

Employees covered by the Employees’ State Insurance Act are entitled to medical benefits and medical care assistance that the insurance scheme provides. Also, the Employees’ Compensation Act compels employers to pay compensation to the employees in cases of death or disablement due to sustained injuries in the workplace. 

Aside from the insurance policies above, recently, the Indian government launched a general health scheme that provides insurance of about INR 500,000 per family unit every year. This health scheme is basically for the poor to receive health care. 

Holidays and Annual Leave

Weekly Holiday

The Shop and Establishment Act in India proposes closing establishments and businesses at least one day a week. In India, Sundays are usually closed for business operations.

The national/public holidays in India are: 

  • Republic Day - 26 January
  • Rama Navami - 10 April**
  • Ambedkar Jayanti - 14 April**
  • Good Friday - 15 April
  • Eid al-Fitri - 2-3 May**
  • Eid al-Adha - 9-10 Jul**
  • Indian Independence Day - 15 August
  • Gandhi Jayanti - 2 October**
  • Dussehra - 5 October
  • Prophet’s Birthday - 8-9 October**
  • Diwali - 24 October
  • Christmas Day - 25 December

**Holidays are decided by religious calendars. Hence, the dates are subject to changes.

Privileged Leave/Earned Leave

In some Indian states, employees are entitled to privileged leave after working for the organization for a specific period, usually three months to one year. When an employee fails to utilize their privileged leave in a year, the Shop and Establishment Act enables them to carry it forward the following year.

Maternity/Paternity Leave

The Maternity Benefit Act enables female employees who have worked in an organization for more than 80 days to take a maternity leave preceding the delivery of their child. The leave spans for a period of up to 12 weeks, of which not more than six weeks can precede the due date of delivery. During this period, the employee is entitled to her statutory monthly salary compensation.

The Indian law does not recognize paternity leave. However, organizations make provisions for their male employees to observe this leave which is chalked up under the concerned leave policy.

Sickness Leave

Organizations generally allow for sick leave in the event of an employee’s illness. However, employees cannot encash the sick leave.

Disability Leave

The Indian law does not have any stipulation regarding disability leave. It is not recognized in India.

Pensions: Mandatory and Typically Provided

Employees covered under the Employees’ Provident Fund Act are entitled to monthly pension compensation in compliance with the pension scheme in India.

Working Conditions

Minimum working conditions

The minimum working conditions refer to every support system the organization puts in place to ensure a convenient working environment.

In India, various acts govern the minimum working conditions. These acts include the Shop and Establishment Act, Factories Act, Industrial Employment Standing Order Act, and the CLRA Act.

The Shop and Establishment Act have established codes relating to working hours, overtime periods, and the organization’s duty to provide basic amenities.

The Factories Act has established stipulations relating to the health and safety of employees in the organizations and compliance relating to employees’ welfare. The Act makes provisions for employees such that it caters to the state of the employees’ working environment. For example, in an organization with more than 250 employees, the organization must make provisions for a cafeteria. Where there are more than 150 employees, the organization must provide restrooms, drinking water facilities, and lunchrooms. Organizations with more than 30 women employees must be equipped with a creche and nurseries for kids. The Factories Act also ensures that organizations have safety equipment against dangers such as fire outbreaks or gas explosions.


According to Income Tax Law, the salary is defined as the total taxable income received by an employee. In India, the salary is covered under different acts such as the EPF act and the Wages Act.

According to the Wages Act, the wage is any money paid to an employee when the conditions of employment are fulfilled, and it includes,

  • Any amount paid under agreed terms between the employer and the employee
  • Any remuneration the employee receives covers overtime, leave allowances, or any holiday benefits.
  • Any extra sum paid in terms of bonuses, and
  • Any amount paid by reason of termination.

Some exclusions of the terms of the wage are:

  • Contributions made on behalf of the employee towards pension or provident fund
  • Travel allowances and special expenses incurred by the employee on behalf of the organization
  • Gratuities

Maximum working week

The maximum work hours in India are 9 hours per day and 48 hours per week. Anything above this will be considered overtime.


Overtime refers to any work hours beyond the maximum working hours. Employees are be compensated with wages twice their ordinary rate of wage payments.

Health and safety in the workplace

The Factories Act mandates that every organization in India make adequate provisions for the health and safety of workers in their organization. According to the Act, the organizations are to put everything in place to ensure maximum cleanliness in the workplace environment, waste disposal systems, and drinking water and toilet facilities. The Factories  Act also stipulates that organizations put in place safety equipment and precautionary measures against fire outbreaks, gas explosions, etc. Any organization that is discovered not to comply with the FA Acts will attract fines and penalties.

Social Contributions and Income Tax

Corporate social contributions and income tax

Organizations resident in India are taxed based on their global income. However, organizations outside India are taxed based on what is received or accrued. 

The corporate income tax rate for Indian organizations and foreign corporations are as follows:

Income CIT Rate (%)
Turnover does not increase INR 4 billion in FY 2019/20 For other domestic companies Foreign companies
Basic Effective Basic Effective Basic Effective
Less than INR 10 million 25 26 30 31.20 40 41.60
More than INR 10 million but less than INR 100 million 25 27.82 30 33.38 40 42.43
More than INR 100 million 25 29.12 30 34.94 40 43.68

Individual social contributions and income tax

Individuals are taxed in India based on their residential status in the tax year in review. 

Under the Indian Tax Laws, Residents in India are taxed based on their global income, wherever received. In contrast, non-residents are taxed based on income that accrues/arises or is deemed to arise from India.

The personal income tax rate for Indians are as follows.

Taxable income (INR) Tax on column 1 (INR) Tax on excess (%)
Over (column 1) Not over
0 250,000 - 0
250,000 500,000 - 5
500,000 1,000,000 12,500 20
1,000,000 112,500 30

Social security contributions

Employees working in an Indian organization are required to make a provident fund contribution of 12% of their salary, while the employer is to match the contribution and pay towards the employee’s provident fund. Out of the employee’s 12% contribution, 8.33% of the amount goes to the employee’s pension fund.

Foreign Employees Employment Requirements

When foreign organizations set up an entity in India, it is common to find other foreign nationals handling specific roles. However, for organizations to have foreign nationals managing the organization in India, there are requirements that they must fulfill. These requirements are:

  • Social security contributions,
  • Visas, and
  • Income tax regulations.

Social security contributions

The EPF Act makes provisions for foreigners working in India. According to the Act, they are referred to as International Workers(IW). An IW is generally anyone working in India with a passport other than the Indian passport. All International Workers are required to make contributions to the EPF unless they are ‘excluded employees.’ These excluded employees are the international workers whose country has a social security agreement with India. 


Two kinds of visas are given to foreign nationals who intend to work in India - Business visas and Employment visas.

Business visas are given solely for the purpose of carrying out business operations in India, such as sales or representing a foreign organization in India. However, the business visa cannot be utilized for any direct revenue-generating activities or employment in India.

Unlike business visas, employment visas are for foreigners who are employed in an Indian organization. Its validity is usually for one year or the duration of the employment contract. However, The employment visa has a few conditions, which are;

  • The foreign national’s salary must be more than US$25,000 per annum
  • Suppose the foreign national and their family intend to stay in India beyond 180 days, they must register with the Foreign Regional Registration Office (FRRO) within two weeks of their arrival in India.

Income tax regulations

The transfer of employees to an organization’s subsidiary in India must be handled in compliance with the Indian employment laws to avoid any form of discrepancies with the Indian authorities. 

The tax position of the transferred employees must be examined correctly based on their residential tax status according to the Income Tax Act (ITA). According to the Income Tax Act, a foreigner becomes an Indian resident if they have spent more than 180 days in the country. Therefore, they are subject to remitting their tax in India based on their global income. Alternatively, non-residents are subject to tax based on income received in India.

Anti-discrimination laws in India


While the Indian legislation does not comprehensively cover workplace discrimination, many organizations in India cover several discriminatory subjects as part of their internal policies. The Indian legislation has sexual harassment, discrimination against people with disabilities, and HIV. It is also important to note that the Industrial Disputes Act forbids unfair labor practices such as discrimination against employees for filing charges against their employers.

Protection against harassment

Concerning women, the Equal Remuneration Act, 1976, enacts that male and female employees who perform similar tasks must be compensated with the same wages. The Act also mandates that employers are forbidden from discriminating against women regarding promotions, job offers, and transfers. 

Regarding sexual harassment complaints, employers are mandated to create an Internal Complaints Committee to inquire about the complaints. The organization’s internal policies basically govern cases of general harassment that are not essentially criminal offenses. The internal policies dictate what could be termed harassment, the inquiry process, and the disciplinary actions to be undertaken.

Anti-discrimination laws

The following are laws that govern anti-discrimination in India;

  • Equal Remuneration Act, 1976 - Ensures equal pay for similar work for men and women.
  • Mental Healthcare Act, 2017 - Forbids the refusal of access to mental healthcare facilities or services for people based on race, gender, place of birth, religion, etc.
  • Transgender Persons Act, 2019 - Prohibits discrimination and hate crimes against people based on their gender identity.
  • Rights of Persons with Disabilities Act, 2016 - Forbids the discrimination against people with physical or mental disabilities
  • HIV and AIDS Act, 2017 - Prohibits the discrimination against people living with HIV/AIDS
  • Indian Penal Code, 1860 - Criminalizes the use of languages that causes discrimination or violence against people based on race, religion, sexual orientation, etc.

Pre-Employment Considerations

It is standard practice for the HR team of any organization to carry out assessments to determine if a talent will be a good fit in the organization. An extensive background check includes the candidate’s criminal records, references confirmation, valuable information from their previous workplace, and medical checks. 

While the background checks mentioned above are crucial, other factors influence the recruitment process. These considerations include:


Experience is essential to consider before hiring talent, especially for a technical role. The candidate needs to be proficient in the role they are applying for, and a proven track record of expertise gives the candidate an upper hand.

Hard skills

Hard skills are the abilities that let you handle the responsibilities of a specific job. The tangible skills acquired through experience, knowledge acquisition, and training make a candidate qualified for a particular role. Just as experience is essential, having the right skills is equally important.

Cultural fit

If a candidate is experienced and possesses the right skills, but is not a good fit for the organization’s culture, it might affect the productivity of the talent. It is essential to hire talent whose ethos aligns with the organization’s practices to ensure a smooth and easy work relationship.


For organizations planning to build a team in India, establishing a subsidiary and complying with the employment laws in India is essential. This process is challenging, time-consuming and expensive. However, Skuad simplifies the process of building a team by automating the entire employment lifecycle and ensuring full compliance with the employment laws. 

Skuad’s Global HR Platform takes away the pain of building a team in India by acting as the legal employer and enabling organizations to hire and onboard talent without setting up an entity. To know more about Skuad, book a demo today.

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