Employment laws in India

When hiring in India, employers need to be aware of the country’s local employment laws, which are complex and often vary by state. One misstep can result in costly legal and compliance penalties. 

Hiring through an Employer of Record (EOR) may offer support to build and manage local talent with compliance support as per employment laws in India. 

A trusted EOR like Payoneer Workforce Management may allow you to employ full-time workers and independent contractors in India, without setting up a local entity.

Key labor laws in India

Here are some of the key labor laws and regulations employers should be aware of when hiring in India:

• Laws relating to minimum wages, payment of wages, bonus payments, and equal remuneration
• Laws covering trade union recognition, dispute resolution, and conditions for layoffs, retrenchments, and closures
• Laws related to provident fund (EPF), employee state insurance (ESI), maternity benefits, gratuity, and other social welfare schemes
• Regulation related to workplace safety, working hours, leave entitlements, and employee health standards

Essential contract elements

Employment laws in India don’t always require a contract between employees and employers. However, they are strongly recommended, especially for full-time employees, to set expectations and protect all parties.

Here are the key elements that should be included in an employment contract in India:

• Job title and description: Clearly define the role, responsibilities, and location of work (eg, on-site, hybrid, or remote).
• Compensation and benefits: Specify the salary in Indian Rupees, and include any benefits, performance bonuses, or incentive pay. Also include any applicable allowances (e.g., housing, travel).
• Retirement and social contributions: For full-time employees, it’s common to reference statutory retirement contributions such as the Employees’ Provident Fund (EPF).
• Working hours: Standard working hours are typically 40 hours a week, with an 8-hour workday according to employment laws in India. Also include information on policies for overtime, paid holidays, and leave entitlements.
• Duration of employment: For permanent positions, include a specified start date. For fixed-term contracts, include both the start and end dates.
• Terms of employment: State whether the position is permanent, fixed-term, or probationary. Include termination notice period requirements, grounds for termination, and any severance pay or other entitlements.
• Confidentiality and non-disclosure agreements: Many employment contracts may include confidentiality agreements or NDAs, particularly for roles where workers may handle sensitive information. 

Minimum wage in India

India does not have a single national minimum wage. Instead, it varies by state, skill level, position, and location. Typically, the minimum wage in India is INR 14,637 per month.

Employers must comply with the relevant state’s minimum wage notification where the employee is based.

Working hours in India

While specifics may vary slightly depending on the applicable labor laws for sectors and states, here’s what you need to know before hiring in India:

• The typical workday in India is 8 hours, with a maximum of 40 hours per week, up to 48 hours including breaks.
• Employees are entitled to at least 1 or 2 days of rest per week, typically Saturday and Sunday.

Employees are also entitled to various types of leave. Here’s an overview:

• Employees typically earn 1.5 days of paid leave per month, which ends up being around 18 days per year. 
• Most companies offer an average of 7 days of sick leave annually.
• India recognizes a minimum of 8 public holidays per year, depending on the region. Three national holidays (Republic Day, Independence Day, and Gandhi Jayanti) are mandated days off. 

Read more in our guide to Indian leave policy.

Mandatory benefits

When employing full-time workers in India, employers are required to provide the following statutory benefits:

• Gratuity payment: A one-time payment to employees who complete 4 years and 240 days of continuous service, calculated based on their last drawn salary.
• Employees’ Provident Fund (EPF): Employers must contribute 12% of the basic salary to the retirement savings fund for eligible employees.
• Employees’ State Insurance (ESI): Mandatory for employees earning a certain threshold (currently INR 21,000 per month or less), covering healthcare, maternity, and disability benefits.
• Minimum wage compliance: Salaries must meet or exceed the state-specific minimum wage for the role and location.
• Maternity benefits: Up to 26 weeks of paid maternity leave for eligible female employees who have worked at least 80 days in the last 12 months under the Maternity Benefit Act.
• Mandatory leave: Includes earned leave, sick leave, and public holidays, based on central and state labor regulations.

Learn more about mandatory benefits and how to pay employees in India in our guide to Indian payroll.

Employment termination law in India

Employment termination law in India dictates that employers must follow fair procedures and comply with local regulations to avoid legal disputes. Here’s what you need to know about India’s employment termination laws:

• Grounds for dismissal: Employees may be dismissed for misconduct, poor performance, or breach of contract, but due process (such as a formal inquiry) is typically required.

• Redundancy: Termination due to role redundancy is allowed but must be justified and documented. 

• Severance package: In most cases, employees are entitled to compensation under employment termination law in India. This is often 15 days’ wages for each completed year of service.

• Notice period: Standard notice is typically 7 to 30 days, depending on the employment contract and company policy. 

Navigate employment laws in India with trusted support

India offers employers access to a large, skilled workforce, but its labor laws are complex and highly regulated. From contracts and minimum wages to termination rules and contribution compliance, it gets challenging.

Working with an Employer of Record (EOR) partner like Payoneer Workforce Management helps simplify the process by offering expert guidance. We assist with onboarding, payroll, benefits, HR administration, and compliance support, without setting up a local entity.

Book a demo today!

FAQs

1) What statutory benefits must I provide to full‑time employees in India?

When hiring employees in India, common statutory benefits include Employee Provident Fund (EPF), Employee State Insurance (ESI), gratuity, and mandatory leave entitlements.

2) What are the leave entitlements for employees in India?

Leave entitlements for employees in India include annual leave, sick leave, maternity leave, paternity leave, wedding leave, bereavement leave, and sabbatical leave.

3) What are the working hours in India?

The standard working hours in India are 8 hours per day, with a maximum of 48 hours per week, including breaks. Employees are also entitled to at least 2 rest days per week, typically Saturday and Sunday.