For US companies seeking employees abroad, India is increasingly a top choice. Not only is India’s workforce set to become the largest in the world within the next thirty years, surpassing even that of China — but shared language, cultural affinities, and political alliances between India and the US have also accelerated the number of American companies hiring in India, especially for IT.
If you’re looking to secure talent in India, it’s important to become familiar with employment laws and best practices beforehand. In this guide, you’ll learn about Indian labor laws, employee designations, contracts, benefits, wages, working conditions, and trade unions—all the topics you’ll need to prioritize for a smooth hiring, onboarding, and retention process abroad.
Understanding employee and worker designations 👷🏽♀️
Indian employment law is determined by the Indian Constitution and the Concurrent List (Seventh Schedule). These documents give the state governments and central government permission to implement additional legislation that impacts employment.
Indian law distinguishes between two types of employers—all employers are understood to be either factories or establishments.
Workers and employees
In India, there are multiple categories for workers and employees. The term “worker,” according to the Factories Act of 1948, refers specifically to a person working in manufacturing, either directly or with an agency (including a contractor). Employees of any kind can be referred to as “employees,” regardless of the statuses listed below or their particular role.
According to the Industrial Disputes Act, employees in India are distinguished in the following way: workmen vs. non-workmen. A workman is defined as “any person (including an apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward.” The Industrial Employment (Standing Orders) Central Rules of 1946 state that workmen may be employed in any of the following types of roles: permanent, temporary, apprentice, probationer, or badlis (a substitute).
Temporary, part-time and fixed-term workers
All labor statutes and most protections for full-time workers are applicable to non-permanent employees, including temporary workers, part-time workers, and those on a fixed-term contract, with the exception of termination provisions specific to full-time.
Gig and platform workers
Gig and platform workers are a designation of laborer newly recognized by The Code on Social Security, 2020. This legislation amends health and safety coverage, social security, and wage laws for these groups. Gig workers perform roles that fall outside of a “traditional employer-employee relationship”—their work is often hourly or part-time, and temporary. Gig workers can include independent contractors, freelancers, and even part-time professors. Platform workers generally work for organizations providing services through an online platform directly to consumers—like Uber drivers, for example.
Contractors and contract workers
India recognizes contract employment—it is regulated by The Contract Labor (Regulation and Abolition) Act 1970. A contractor is a workman and person employed to “produce a given result for the establishment” (beyond merely supplying manufactured goods) by providing labor or subcontracting labor. A contract worker (also called a contract laborer, contractual laborer, contractual worker, or agency worker) is a workman engaged in contract labor, employed either by a contractor or indirectly by an establishment or company employing more than 20 workers on a contractual basis. This article provides a helpful breakdown of contract labor law in India.
Non-workmen include the following individuals: those employed in a managerial or administrative capacity, those working in a supervisory capacity, military personnel, police and prison officers, and individuals earning more than 10,000 INR (Indian rupee) per month. Although all sales promotion employees are considered non-workmen, some employees in specific industries are protected under the Sales Promotion Employees (Condition of Service) Act 1976.
Employer best practices ✓
To manage the process of hiring employees in India and to ensure a successful employment relationship, it’s important to understand the contract process, employee benefits, wages, and expected working conditions.
Employment contracts 📃
A written employment contract is generally not required in India in order to establish an employer-employee relationship. Exceptions to this include specific contract requirements in Karnataka and Delhi, and some local statutes pertaining to businesses. Although you may not have to, creating a written contract for hiring in India is highly advisable.
Not only are these contracts useful in potential disputes, but they also provide clarity for all parties. Plus, industrial employers of 100 or more workmen need to signal compliance with regulations from the Industrial Employment (Standing Orders) Act 1946. The latter requires terms including working hours, attendance, leave, productivity goals, work conditions, dismissal procedures, and worker classifications, approved by a government body.
Written employment contracts will most often include standard information like employee role and responsibilities, pay, holidays, term and termination, and dispute resolution policy. While it is also common for employers in India to include restrictive covenants like non-compete, non-solicitation, and confidentiality in a contract, Section 27 of the Indian Contract Act makes these provisions technically unenforceable. This article provides further details on contract law in India. Please note that India’s labor laws supersede provisions included in employment contracts—be sure to check all policies and clauses you include against the law.
Employee benefits 🏖
Employment contracts in India include so-called implied terms—these are terms and conditions of service regulated by statutes. In addition to provisions related to the payment of basic wages, benefits like those listed below are considered implied terms of employment in India.
Paid leave in India includes public holidays, leave related to sickness and injury, casual leave, and annual leave. Entitlements vary based on industry, state government, local statutes, and specific policy set forth in an employment contract.
For public holidays, most employees are entitled to observe between eight to 12 days per year. Sick leave and casual leave generally range between five to 12 days per year. Employees making less than 21,000 per month INR can be covered under the Employees’ State Insurance and claim sickness or disablement benefits paid by the government. In the majority of states, annual leave includes one day for every 20 worked (usually resulting in 12-15 days per year)—this leave can be carried over to the next year for roughly 30 to 45 days.
The Factories Act of 1948 and the Shops and Establishment Act of 1960 guarantees 15 days paid vacation leave and 10 paid sick days to employees who have worked in a factory for 240 days within a calendar year.
Social security benefits 🔐
Social security in India includes multiple programs and so-called “schemes.” Schemes cover pension, health insurance, and maternity benefits. The Code on Social Security of 2020 has passed the Indian Parliament, but as of January 2022, has not yet been implemented. The Code includes universal social security and will allow the government to combine existing social security provisions into a single code.
Under the Employees’ Provident Fund and Miscellaneous Provisions Act of 1952, every employer of 20 or more employees must contribute to the provident fund for all employees making less than 15,000 INR monthly. For employees earning more than this, the employer contribution is voluntary. The employer contribution is 3.67% of monthly payroll plus 0.5% administration cost, and 8.33% of monthly payroll for employees age 58 and older. Employees contribute 12% of basic wages to the provident fund.
For employers with fewer than 20 employees or who meet specific qualifications, the total contribution rate for employee and employer is limited to 10%. As of 2021, only 8% of the workforce in India received retirement or pension through these provisions.
Indian citizens are eligible for free inpatient and outpatient care at government facilities. However, these facilities are often unable to provide adequate care and many people will seek services on their own, through insurance or out-of-pocket.
As a result of COVID-19 and as of April 2020, employers (understood as “all industrial and commercial establishments, work places, offices” per a government circular) are required to provide group health insurance to employees. Prior to this, some workers in India could receive employer health insurance through the Employees' State Insurance Act 1948. The Act covers factories and establishments with 10 or more employees and applies only to employees earning 21,000 INR per month or less.
Amendments to the Maternity Benefit Act of 1961 that became law in 2017 increased maternity leave from 12 to 26 weeks for the first two children, provided the mother-to-be has been employed for 80 days. For the birth of additional children, as well as surrogacy and adoption, female employees are entitled to 12 weeks of paid leave. Additional paid leave is available for miscarriage or medical termination, as well as a tubectomy operation.
And although it is not recognized under employment law, paternity leave is becoming more common in India.
Minimum Wage 💲
Minimum wages vary across India as a result of the Minimum Wages Act of 1948 which allows local governments to set wage rates. Once implemented, the Code on Wages of 2019 will establish a standard minimum wage for all employees, set by the Indian government based on factors such as employee living standards and geographic region.
Working conditions 🧯
Indian law aims to protect employees and workers through legislation on employee safety, child labor, harassment, discrimination, and privacy.
In India, employee safety is regulated by the Factories Act of 1948 and local Shops and Establishments statutes—covered topics include the cleanliness of premises, disposal of waste, ventilation, and safety precautions. Employers are required to pay compensation when death or disablement results from workplace injuries. The Occupational Safety, Health, and Working Conditions Code of 2020, when enacted, will streamline existing labor codes and compliance measures related to these issues.
Child labor is an ongoing problem in India. The Child Labour Amendment (Prohibition and Regulation) Act of 2016 regulates the employment of children—children under 14 may not be employed with the exception of child artists and family businesses. Per the The Child Labour (Prevention and Regulation) Amendment Act, children aged 14 to 18 are not allowed to work in hazardous occupations or processes. The Constitution of India also offers protection for children: Article 24 prohibits children under 14 from working in a factory, mine, or other hazardous employment, and Article 23 prohibits forced labor.
The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redress) Act of 2013 prohibits sexual harassment in the workplace. The Act requires employers of 10 or more to establish a process for addressing sexual harassment complaints involving an internal complaints committee. Employers must also raise awareness about the Act with regular employee programs.
India law forbids multiple kinds of discrimination, including discrimination towards those with a disability, women who are pregnant, individuals with HIV/AIDS, and transgender persons. The oldest protection of this kind is the Equal Remuneration Act of 1976, which prohibits discrimination in recruitment or employment based on gender.
The Industrial Disputes Act of 1947 requires that all terminations of workmen resulting from causes other than misconduct are considered retrenchment (or downsizing). These terminations require 30 to 90 days written notice, as well as 15 days pay for every year of continuous service the employee has provided.
For terminations related to misconduct by workmen, no written notice or notice period is required but so-called natural justice is — this means the concerned employee must be made aware of allegations and given the opportunity to defend themselves before an unbiased committee. If an employer fails to provide necessary cause, this termination will be deemed invalid.
Employers with more than 100 workmen are required to obtain prior permission from the appropriate government before dismissal. Termination of non-workmen is subject only to terms of any employee contract.
The Trade Unions Act of 1926 governs trade unions (also called labor unions). There are over 16,000 trade unions in India which include around 10 million laborers.
The Industrial Relations Code of 2020 introduces the idea of a negotiating union (a trade union with employee representation of 51% or more members), requiring employers to recognize the right of this group to collectively negotiate and bargain.
Navigating labor laws abroad 🧭
Indian employment law can be complex and policy updates can have a big impact on your business. As previously mentioned, four recent labor codes will modify existing codes as soon as they are implemented — these include the Code on Social Security of 2020, as well as the Code on Wages of 2019, the Occupational Safety, Health, and Working Conditions Code of 2020, and the Industrial Relations Code of 2020.
Fortunately, you don’t have to navigate the system alone. Pilot specializes in remote payroll, benefits, and compliance for US-based companies hiring globally. We can help ensure that you're staying up-to-day and compliant with regulations in India. Our team of HR and legal experts is happy to help you navigate any questions as you build your international team.
Interested in learning more about Pilot? Schedule a demo with one of our experts.
⚖️ Legal Disclaimer: The information contained in this site is provided for informational purposes only, and should not be construed as legal advice on any subject matter.