Other BriefingsHiring Employees in India: A 2025 Guide for Global Businesses
India is prioritizing workforce formalization and digital governance in 2025, bringing new rules and regulations around employment. For both foreign and domestic employers, a clear understanding of hiring employees—across sectors, contract types, and legal jurisdictions—is essential to ensure compliance and maintain profitability.
Choosing the right hiring structure in India
Before hiring employees, companies need to decide on their mode of operation in India. They can either establish their own legal entity or collaborate with an Employer of Record (EoR).
Setting up a legal entity in India
Establishing a subsidiary, typically as a private or public limited company, remains a common route for foreign businesses long-term operations in India. The setup involves securing several approvals, such as the following:
- Director identification number (DIN);
- Digital signature certificate (DSC);
- Company name approval from the Registrar of Companies;
- Certificate of incorporation and memorandum of association;
- Permanent Account Number (PAN) registration;
- Registration with the Employees’ Provident Fund Organization (EPFO);
- Goods and Services Tax (GST) registration; and
- Medical insurance compliance.
Hiring through an EoR
An alternative route to hiring an employee in India is through an EoR, also known as a Professional Employment Organization (PEO). An EoR allows companies to legally hire employees in India without setting up a local entity in the country. The EoR serves as the legal employer, handling all statutory obligations, like tax and payroll, on behalf of the client.
This route is especially appealing for businesses conducting short-term projects or testing new markets.
Types of employment contracts in India
India recognizes several employment contract types under its labor laws. While written contracts are not legally mandatory, they are strongly recommended and often required by state-specific regulations.
Employers in India typically use permanent, fixed-term, or temporary contracts. Permanent contracts are the most common and do not specify an end date. Fixed-term contracts, while limited in duration, offer the same statutory benefits as permanent contracts.
Temporary or contract workers are often hired through third-party contractors under the Contract Labor (Regulation and Abolition) Act, 1970. A less common route of employee hiring in India is Zero-hour contracts, which allow flexibility in work allocation without obligating minimum hours, provided workers receive statutory rights like minimum wage and paid leave.
Each employment agreement must clearly define roles, responsibilities, salary structures, notice periods, and dispute resolution mechanisms.
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Zero-hour contracts in India allow flexibility in work allocation without obligating minimum hours. Employees are called in by employers based on demand and can accept or decline shifts. They get paid only for hours worked. This model suits sectors with changing staffing needs, like hospitality, healthcare, and event management.
Understanding India’s employment law framework
Employers must comply with a wide range of central and state-level labor laws that regulate wages, social contributions, employee welfare, and workplace rights. For instance, the Code on Wages regulates minimum wages and payment practices, while the Maternity Benefit Act, 1961, governs paid leave entitlements for expecting mothers.
Employers are also subject to requirements under the Employees’ Provident Funds and Miscellaneous Provisions Act, which mandates retirement benefits, and the Employees’ State Insurance Act, which deals with health-related contributions. Gratuity and bonus payments also form part of long-term employee benefits. There are state-specific laws too, like the Shops and Establishments Act, which regulates working hours, leave entitlements, and closures, especially for smaller establishments.
Meeting tax and contribution obligations
Businesses need to fulfill mandatory tax withholding and social security contribution obligations for their employees. The Employee Provident Fund (EPF) requires employers to contribute 12 percent of the employee’s basic salary. For eligible employees, there’s also the Employees’ State Insurance (ESI) scheme, which demands contributions from both employer and employee based on specific wage ceilings.
Employers have to deduct tax at source (TDS) under the Income Tax Act, 1961, deposit it with the authorities, and issue annual tax statements to their employees. Gratuity to employees is payable after five years of continuous service, and severance may apply in termination cases, depending on contract terms and laws.
Employee classification under Indian law
Hiring decisions must also factor in how employees are classified under Indian law, as rights and protections differ between categories.
Workmen and non-workmen
The Industrial Disputes Act distinguishes between workmen (non-supervisory, manual, technical, or clerical roles) and non-workmen (typically managerial or supervisory positions). The classification can affect rights concerning termination, forming unions, and grievance redressal.
Full-time, part-time, and contract workers
Full-time employees are entitled to full statutory benefits such as leave, health insurance, and provident fund contributions. Part-time workers receive these benefits on their work time, quality, and contribution basis. Contract workers, legally employed by third-party contractors, are entitled to basic labor protections, and employers need to ensure contractors follow wage and welfare standards.
Termination procedures and employee exit regulations
Termination of employment in India must follow legal and contractual norms. For permanent staff, notice periods typically range from one to three months, depending on the employment contract and state legislation. If the termination is due to disciplinary issues, employers must issue a show-cause notice and conduct an internal inquiry, ensuring the process is documented. Employees may be entitled to statutory payments like gratuity or retrenchment compensation if they are being terminated.
Layoff obligations and closures for employers in India
Employees who have completed at least one year of continuous service are entitled to receive a written notice of termination from the company. This period can range from one to three months, depending on the employment contract and applicable state laws. Alternatively, employers may provide a payout equivalent to the notice period’s wages.
In addition to notice or payout, such employees must receive retrenchment compensation amounting to 15 days’ average pay for each completed year of service.
For larger business establishments—employing over 100 workers, or 300 workers in certain states such as Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Jharkhand, Karnataka, Madhya Pradesh, Meghalaya, Odisha, and Rajasthan—employers are required to obtain prior approval from the state labor department before carrying out layoffs or retrenchments.
Failure to comply with these requirements can lead to legal consequences, including orders for reinstatement of employees, payment of back wages, and financial penalties.
Hiring foreign employees on employment visa
Foreign nationals seeking to work in India must obtain an employment visa, typically issued for one year and renewable for up to five years, depending on the contract and nature of the assignment.
This visa is primarily granted for managerial, executive, or highly skilled technical roles, and applicants must meet a minimum annual salary threshold of US$25,000. (Exceptions may apply to certain categories such as ethnic cooks, language teachers, or staff working for foreign diplomatic missions.)
To qualify, applicants must submit a formal employment contract outlining job responsibilities, duration, and compensation. For an employer, it must submit a detailed justification for hiring a foreign national for a job position in India. This includes specifying skills and experience required for the role that cannot be found within the Indian workforce. This typically involves a thorough assessment of the job requirements, a search for qualified Indian candidates, and a clear explanation of why those candidates did not meet the specific needs of the role.
Foreign employees planning to stay for over 180 days must register with the Foreigner Regional Registration Office (FRRO) within 14 days of their arrival in the country.
Failure to comply with visa or registration rules may lead to penalties, including visa cancellation or deportation.
CLICK HERE: Key Considerations for Expatriates in India: Jobs, Location Costs, and Tax
Ensure non-discrimination and data protection at workplace
Indian employment laws actively prohibit discrimination on the grounds of gender, disability, caste, or HIV status. Employers must implement internal mechanisms to prevent workplace bias and ensure equal pay for equal work, in accordance with the Equal Remuneration Act, 1976.
Additionally, any organization with more than 10 employees must establish an Internal Committee (IC) to address sexual harassment complaints as prescribed under the Sexual Harassment of Women at Workplace Act, 2013. Employers are also legally required to conduct regular training sessions, run awareness programs, and communicate anti-harassment policies effectively.
Currently, India enforces data protection through the Information Technology Act. However, the Digital Personal Data Protection Act, 2023 is set to provide a more comprehensive legal framework and is expected to become fully operational soon.
Conclusion
Hiring in India in 2025 means more than just accessing a large talent pool. It requires rigorous compliance, understanding of wage regulations, and a proper approach to tax and immigration obligations. Businesses must factor in both central and state-level regulations, which often differ based on location, sector, and workforce size.
Engaging experienced advisors, legal consultants, or payroll partners can streamline this process. Whether through a professional entity or via an EoR, companies must stay updated on evolving regulations, especially in the face of rapid global trade and regulatory changes.
For more information and advice for foreign firms on doing business in India, please feel free to email us at india@dezshira.com.
About Us
India Briefing is one of five regional publications under the Asia Briefing brand. It is supported by Dezan Shira & Associates, a pan-Asia, multi-disciplinary professional services firm that assists foreign investors throughout Asia, including through offices in Delhi, Mumbai, and Bengaluru in India. Readers may write to india@dezshira.com for support on doing business in India. For a complimentary subscription to India Briefing’s content products, please click here.
Dezan Shira & Associates also maintains offices or has alliance partners assisting foreign investors in China, Hong Kong SAR, Dubai (UAE), Indonesia, Singapore, Vietnam, Philippines, Malaysia, Thailand, Bangladesh, Italy, Germany, the United States, and Australia.
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