How to hire contractors in India

India is one of the biggest and fastest-growing markets in the world, and Indian contractors are hungry for opportunity, creating the perfect opportunity for savvy businesses. 

Hire contractors in India, and you can tap into this high-potential talent pool. Contract workers are flexible resources you can use to scale your operations while keeping employment costs down. And with a partner like Payoneer Workforce Management (WFM) by your side, you can do so efficiently and compliantly with India’s local laws. 

Here’s how to hire and pay contractors in India.

How to hire contractors in India

To hire contractors in India, you must classify your workers appropriately, employees and contractors have different legal statuses and responsibilities. This is covered in India’s local labor laws, which you’ll need to understand. Only then will you be ready to find and hire contract workers in India.

1. Understand contractor vs. employee classification

India’s Contract Labour Act 1970 defines an independent contractor as a worker engaged in activities to produce a specific result. Of course, employees are also hired to deliver results. So let’s dig a little deeper to tease out the differences according to Indian law:

• Working patterns: Indian employers control where and when Indian employees work. Indian contractors, however, have more freedom over their place of work and the hours they “log on”.
• Benefits: In India, employees are entitled to paid leave and health care, but these benefits don’t extend to contract workers.
• Contract duration: An employment contract is usually open-ended, while a contractor is hired for a single fixed term or to assist project-by-project.
• Tax: While employers have tax responsibilities to their employees, a contractor is responsible for calculating and paying their own taxes.

It’s easy to get your wires crossed when classifying a worker. In India, this is a legal offense and can lead to legal disputes and financial consequences. Here’s a simple rule of thumb: if a worker is independent of your organization, that is, if they more or less have the freedom to decide their working pattern and have agreed to manage their tax, then they’re a “contract” worker.

2. Understand local labor laws

India’s labor laws stipulate the following requirements:

• Minimum wage: India’s minimum wage system is complicated, and wages vary based on location and industry. The minimum wage you can pay an employee in India is INR 178 per day or INR 5,340 per month (~$ 2 per day and ~$65 per month).
• Maximum working hours: A standard workweek in India is 48 hours, and some office jobs run Monday to Saturday. There are some exceptions, such as software companies, which tend to adopt a 5-day, Monday to Friday, working week.
• Public holidays: India observes three national public holidays annually, with the remaining holidays varying by state. Depending on where employees or contractors live in India, they may expect an average of 25 public holidays per year.
• Annual leave entitlement: Employees are entitled to 15 days of annual leave, but only once they’ve worked 240 days in that year.
• Termination rules: Employees must be provided with a valid reason and documentation for termination, plus a 30- to 90-day notice period.
• Employee rights and legal protection: Several labor laws protect employees in India. In addition to the above, some employees may be entitled to severance pay when a contract is terminated.
• Contract terms: An employment contract is legally binding in India, providing protection for both parties. Written contracts are recommended, though not required by law.

If you hire a contractor in India, many of these requirements won’t apply. Under local law, Indian contractors must be paid a set fee for their services rather than an hourly or daily rate. A contractor may also charge more than an employee, as a trade-off for not receiving benefits. You can expect to pay the equivalent of INR 1,281/hr ($14/hr) for a highly-skilled contractor in India. 

You may find that contractors expect certain standards, including maximum working hours and the option to take public holidays off. This, and other details, should be outlined in the employment contract you both sign. 

Learn more about the regulations around hiring contractors in India.

3. Find and hire contractors in India

Given the size and energy of India’s self-employment market, the number of different job boards and platforms available should come as no surprise. Popular options for contractors in India include Toptal, Freelance India, Upwork, Flexc Work, Indeed, ClickIndia, and WorkIndia.

When posting your job ad, include clear requirements and detail the scope of work. Stating upfront that you’re looking to hire contractors in India will help deter applicants looking for full-time employment, saving you time and effort.

Once you’ve shortlisted your candidates, we recommend writing and signing a contract. While this isn’t a legal requirement in India, it provides clarity and puts both parties at ease. It also proves that you’ve done your job as the employer to outline the worker’s classification.

How to pay contractors in India

To pay a contractor in India, first determine how you’ll pay your Indian contractors, then empower them with the information required to settle their tax liabilities, and, finally, settle their invoices.

1. Determine how to pay

There are several ways to pay a contractor in India, including:

• Direct deposit into a bank account. India’s biggest banks include HDFC Bank, ICICI Bank, and State Bank of India (SBI)
• Check
• Money orders
• Virtual wallets
• Online platforms like Payoneer Workforce Management (WFM)

Watch out for currency conversion fees when considering your options. Traditional banks often charge hefty fees for converting currency, while digital wallets like PayPal and Wise might have more competitive costs. 

A dedicated online platform like Payoneer WFM is a great solution for managing the hiring and paying of global talent from one place. It facilitates fast and easy payments in a contractor’s local currency via their local banking system.

Learn more about the best-practice approach to paying international contractors.

2. Ensure your Indian contractors have the right tax information

Your organization won’t be responsible for a contractor’s tax, insurance, or other payment contributions.

To bring you up to speed, in case any applicants ask:

• India’s tax year runs from 1st April to 30th March
• Self-employment tax returns in India are due on 31st July
• The tax brackets are:
  • 0% for earnings of INR 0 – 250,000
  • 5% for earnings of INR >250,000 – 500,000
  • 20% for earnings of INR >500,000 – 1,000,000
  • 30% for earnings exceeding INR 1,000,000.

3. Pay your Indian contractors

Given the many different options for paying a contractor in India, why not offer just one solution to everyone? Otherwise, you may pay some contractors by check, others by direct deposit, others via payment platforms and your cost-effective hiring strategy quickly becomes a burden!

The time spent hiring, paying, and managing international contractors is just one hidden cost. Currency conversion fees are the other.

You don’t need to worry about either if you work with Payoneer WFM. 

Why Payoneer WFM is the easiest way to hire and pay contractors in India

Payoneer WFM helps organizations hire and pay independent contractors and full-time employees in 160+ countries, including India, without needing to establish a local entity.

Our unified platform facilities:

• Easy and compliant onboarding of new full-time and flexible hires
• Secure, single-click global payroll 
• Automated contractor invoice payments
• Up-to-date information regarding local laws and regulations
• Simple management of taxes, benefits, work permits, timesheets, background checks, and more.

From speedy hiring to multi-currency payroll, Payoneer WFM has everything a business needs to hire, pay, and manage a global team. 

India contractors FAQs

Who is a contractor in India?

In India, a contractor is not governed by the employer in terms of location or hours of work. An Indian contractor must be paid a set fee per project or deliverable. They cannot be paid by the day, week, or month. Additionally, their work must not exceed 240 calendar days.

How much does a contractor earn in India?

The cost of hiring a contractor in India can vary depending on skillset, location, and project requirements. You should expect to pay around INR 1,281/hr ($14/hr) for a highly experienced contractor.

Can I hire a contractor in India? 

Yes. You can hire a contractor in India by establishing a legal entity or hiring through an Employer of Record (EOR). Learn more about EORs in India in our dedicated guide.