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How Do You Terminate An Overseas Employee in India?

When you hire employees overseas it is easy to overlook that there may be different rules for termination than in your home country.  This is especially true for US employers who are used to ‘at will’ employment, with no minimum statutory notice, justifiable cause or severance payments.

In India, you will find highly detailed termination laws that vary depending on the situation, and even the state of employment.  There is a strong pro-worker policy in India, and it is not uncommon for employees to appeal what they see as wrongful termination.

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We had a client who was hiring a new employee in India. He asked for an overview of all the federal termination rules, and how they would be applied to their employees.

Termination Process in India

Any termination has to comply with state and federal laws, and termination clauses in the employment contract will be invalid if they don’t meet the minimum statutory rights.  Even if the contract is for a fixed term, notice periods and qualified severance payments should be offered upon expiration.

The whole process for termination, notice and payments can take from 30-45 days to finalize.

Termination for Cause in India: 

There is a list of offences and misconduct that allow an employer to terminate an employee for a justifiable cause immediately, without any notice period.

Ordinary Termination in India: 

This can be done with 30 days notice, or one month salary paid in lieu of notice.

Severance Payment in India:

Following ordinary termination, a severance payment is made to the employee if they have been employed for more than one year.

Statutory Notice Periods for Termination in India:  With and Without Cause

Here is a summary of the notice periods in India:

Statutory Employer Notice:

  • With Cause – None

The employer has to establish that there was misconduct to justify the termination, such as poor performance, fraud, theft or breach of the employment terms.

  • Without Cause – 30 days

One month is standard, unless there is longer period stated in the contract.

Statutory Employee Notice (resignation):

  • With Cause – stated in the employment contract
  • Without Cause – stated in the employment contract

Cost of Termination in India

The cost of termination in India may include several different types of payments to the employee, such as severance or other termination payments, as well as payment in lieu of notice.  Some of these costs may be reduced if there is a dismissal with cause that affects payments.

Statutory and Contractual Severance Pay

Termination benefits, or severance, are offered as follows:

Severance payment

  • Fifteen days average pay for every year of service (or part of a year more than six months)

Leave encashment

  • Payment for days of accrued and unused leave days as of the date of termination.

Gratuity payment

  • The Gratuity Act entitles an employee with more than five years of continuous service to an additional gratuity payment equal to 15 days wages for every year of service in excess of six months. It is subject to a cap of INR 1,000,000.

Employment Contract Terms

  • Any other payments or renumeration in the terms of the contract that exceed the statutory amounts.

Do you need more information about India?

The Indian termination process and rules are fairly specific, and you may need more information such as:

What are the rules for terminating an employee while they’re on leave?

Is the expiration of an employment contract sufficient for notice?

How are the post-termination payments processed, and are they still included in payroll with all withholding and contributions?

We can help you answer all of these questions for your employees, as well as running payroll, meeting immigration rules and withholding tax and contributions.  We make international employment simple.

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