India requires employers to manage Provident Fund (PF) contributions (12% employer + 12% employee), Employee State Insurance (ESI) for lower-salary workers, professional tax (state-level), and gratuity after 5 years of service. Employment is governed by both central and state-level legislation. An EOR handles all compliance layers, enabling hiring within 2–4 weeks.
Statutory contributions
India's employer obligations include: Provident Fund (PF) — 12% employer contribution on basic salary + DA (dearness allowance), capped at ₹15,000 basic. Employee State Insurance (ESI) — 3.25% employer contribution for employees earning up to ₹21,000/month. Professional Tax — a state-level tax deducted from salary (₹200/month maximum). Labour Welfare Fund — nominal contributions vary by state.
Gratuity is payable after 5 years of continuous service: 15 days' wages per year of service. This is a significant exit cost for long-term employees.
The complexity in India comes from layered regulation — central acts, state-specific rules, and establishment-level registrations. Each state has its own shops and establishments act, professional tax rates, and labour welfare rules. The EOR manages registrations and compliance across all applicable jurisdictions.
Employment contracts and labour law
India doesn't mandate a specific contract format, but best practice (and EOR standard) is a detailed offer letter and employment agreement covering: compensation structure, notice period, leave policy, intellectual property assignment, and confidentiality.
Notice periods are contractual (typically 1–3 months) and can include garden leave provisions. Termination is relatively flexible for non-workmen employees, but severance norms and proper documentation are important to avoid disputes.
The new Labour Codes (consolidating 29 existing laws into 4 codes) are enacted but implementation timelines vary by state. These will simplify compliance but also change calculation methods for PF, gratuity, and social security. Your EOR should be tracking implementation and adjusting accordingly.
Practical considerations
India payroll runs monthly, with salary typically credited by the last working day of the month. TDS (tax deducted at source) is withheld by the employer based on the employee's declared investments and tax regime.
CTC (Cost to Company) is the standard way compensation is communicated in India — it includes all employer contributions and benefits. The difference between CTC and take-home pay can be significant (30–40% gap for higher salaries) due to PF, tax, and other deductions.
For foreign companies hiring in India via EOR, the main benefits are: no need for Indian entity registration, no GST registration requirement, no permanent establishment risk (if structured correctly), and immediate access to India's large talent pool.