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Hiring an Employee in India: A Guide for US Employers

US employers that are considering hiring employees in India will be entering an unfamiliar legal and regulatory environment, with distinct differences from the US.  If your company is entering the hiring process with either locals or expats, you will need to address a few key questions first:

Do you have a legal entity set up in India to run payroll and withhold taxes?

If not, have you looked into other options using third party services?

How much will you compensate your employees, and in what currency?

Once you have recruited your employee, then it will be time to learn the differences from hiring in the US, or find in country experts to do it for you.  This will apply equally if you are hiring remote workers in India for your US company to fill technical roles in a remote team.

Because the details and terminology of Indian employment laws may be new to US HR professionals, we have compiled a reference guide comparing key terms between the two countries.

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Labor Laws | India vs US

US employers are used to various labor laws against discrimination, harassment or unfair hiring practices.  Some of these same protections are available in India, in addition to equal renumeration and non-discrimination among genders in the workplace.

Employment Contracts | India vs US

Just like in the US, employment contracts are commonly used in India but not required by statute.  Due the complexity of Indian employment law, it is recommended to have an employment contract drafted with expert guidance to ensure its validity and compliance with Indian law.

Pension Funds | India vs US

The National Pension System (NPS) which is funded through employee and employer contributions is required for all foreign businesses with more than 20 employees in India.  This differs from the US 401K which is not a mandatory benefit and the amounts of employer contribution may only be ‘matched’ to employee contributions.  However, the annual contribution and withdrawal limits are set by IRS tax statutes.

Paid Time Off | India vs US

Indian employment laws require 12 days of PTO for every 240 days worked, which is roughly the same as the US.

Paid time off in the US is up to the employer, with two weeks being standard for vacation plus public holidays.  Other types of leave time are negotiated in the employment contract or set by company policy.

Corporate Tax | India vs US

The corporate tax rate for non-resident companies is a stunning 40% plus a surcharge of 1.2%.  This may take some US companies by surprise given the new 21% corporate tax rate in the US.

Payroll Tax | India vs US

There is no payroll tax per se in India, but both employer and employee make contributions to the Provident Fund of 12% each.  It is used to fund the NPS which is similar to social security in the US.

This contribution amount is more than the national FICA payroll tax in the US which is fixed at 15.4% and paid in equal shares by the employer and employee.

Termination and Severance Pay | India vs US

The US has an ‘at will’ employment policy, and employees can be terminated without notice and for any reason.  This is not the case in India where 30 days’ notice must be given (or payment in lieu), and the termination must be for a justifiable cause such as non-performance or misconduct.

Severance pay in the US is not statutory and is usually a part of the employment agreement if offered at all.  Severance pay is required in India, and is equal to 15 days of wages for every year of employment.

Work Visas | India vs US

If you are sending an expat on assignment to India, they will need a work visa.  The primary type is the Employment (E) Visa, granted for either one year or the term of the contract up to 5 years.  This is similar to the H1B visa in the US, but the criteria may less stringent.

Shield GEO Solution

As you consider the full range of steps required for your US company to hire employees in India, it may seem overwhelming.  If you are just entering the Indian market for the first time you may be wondering how to find the assistance you need.

Unless you are planning a long term business presence in India, it may not be worth it to set up your own legal entity or branch just to hire employees.  This is where we can help, using our Indian employer of record to hire and onboard your employees in full compliance with Indian laws.

The Shield GEO service is end-to-end, and takes care of payroll, tax withholding, making NPS contributions and sponsoring work permits when needed.  We make international employment simple for your US company entering the Indian marketplace.

Looking to Hire an Employee in India? Get in Touch

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