Reading Time: 9 minutes
India is the second-most populous country in the world and, as a developing market economy, is an attractive place for many international companies looking to expand or hire remote employees. If you’re considering building a team or even just hiring one person, our guide to hiring employees in India will help you navigate this process.
What to Know Before Hiring in India
Before you start hiring in a new country, you should understand the general landscape of the country’s workforce and the employment regulations you’ll have to abide by. Let’s look at some key information you should understand before you start recruiting in India.
1. Workforce skills in India
On a national level, India’s workforce has struggled with a lack of education and skills. This may seem like a barrier for international companies looking to hire Indian employees. However, due to India’s population of over 1.33 billion, you cannot approach statistics the same way you would in a less populous country. This is true of India’s education rates.
Though enrollment in higher education institutions (HEIs) has increased four-fold since 2001, India’s gross enrollment ratio (GER) — the percentage of people aged 16-23 who are enrolled in tertiary education — is just 26.3 percent. This percentage may seem dismal, as it does fall short of the Ministry of Human Resource Development’s 2020 goal of 30 percent. However, by multiplying this percentage by the Indian population in this age group, we see there are approximately 48.8 million young adults in India attending an HEI. For perspective, this is more than the entire population of Spain.
The reality is that you can find many highly educated candidates to join your company in India. Some of India’s most prominent and developing industries include industrial production, technology, information technology (IT) and business services outsourcing, retail, financial services, healthcare, and tourism. In 2018, the agricultural sector was the largest employer, employing over 42 percent of the Indian workforce. The services sector and manufacturing sector were the second and third largest employers, respectively.
2. Job hopping
Another thing to note about India’s workforce is that many Indian employees — especially younger ones — are very comfortable with switching jobs. One survey found that 56 percent of Indian workers have chosen to switch jobs after a short time. The most common reasons workers gave for job hopping include being offered a better position elsewhere or that their current job was disappointing or involved a negative work environment.
The survey also found that many workers see job hopping as a way to broaden their skill set and to improve their resumé or prospects. This attitude may be advantageous for employers since your candidate pool isn’t limited to unemployed job seekers. However, it also means you’ll need to make a concentrated effort to retain top talent. To keep your employees, you may need to increase their wages and even adjust their titles each year.
3. Salary packages
Negotiating compensation packages is an involved process in India due to all the allowances many employees receive on top of their basic pay. These allowances can equate to so much that an employee’s basic salary constitutes just 40 percent of their total compensation. These allowances may include:
- Performance-based bonuses
- Children education allowance
- Children hostel allowance
- House rent allowance (HRA)
- Vehicle allowance
- Telephone or mobile phone Allowance
- Leave travel allowance or concession (LTA/LTC)
- Special allowance
Some of these allowances are taxable, while others are tax-exempt up to a certain point. Determining the right amounts to include in an employee’s compensation package is a complex task, which is why international employers may want to consider outsourcing HR for their Indian employees. Employees will look for a certain salary and a compensation package that is structured in the most tax-efficient way possible.
Note that India does not have a national minimum wage but does give local governments the authority to establish minimum wage rates. The rates differ depending on location, industry, the nature of employment, and the employee’s age.
4. Taxes and social security contributions
Navigating India’s tax laws can be another source of complexity for international employers. India recently introduced a new tax regime that eliminates 70 tax exemptions but offers lower tax rates. This new regime coexists with the old one, and employees can choose which system they want to follow. Both systems are progressive, so employees will fall within a certain slab based on their income. Employees making below a certain threshold don’t have to pay income tax at all.
India also has a social security system, which is administered by the Employees’ Provident Fund Organization (EPFO). Employers and employees contribute to the Employees Provident Fund (EPF), which is a retirement savings scheme. Employees make the bulk of this contribution. However, employers alone must cover contributions to other types of social insurances.
5. Guaranteed benefits
India does not have a clear list of statutory benefits that apply to all workers. Instead, you have to see if any legislation applies to your sector in particular. For example, commercial activities fall under the local shops and establishments statutes, and factories must follow the Factories Act.
Look for relevant rules that set limits on working hours or provide rest breaks. Requirements for paid time off can range from 12 to 21 days per year. Employees may be entitled to sick leave, maternity leave, and other types of leave. Employees may also be entitled to public holidays off, but these holidays differ from region to region. Be sure to find out which holidays are celebrated in the region where you are hiring.
Though health insurance is not a mandatory benefit, many employers offer their employees a private health insurance policy to supplement the public benefits employees are entitled to in India. Figuring out appropriate benefits packages is another complex task you can forgo when you outsource your international HR.
6. Languages in India
India is home to many ethnic groups, and these groups speak hundreds of languages. The Indian constitution mentions 22 of these languages. The most widely spoken language in India, by far, is Hindi. Approximately 41 percent of Indians speak Hindi as their first language. Bengali is the second most common at approximately 8 percent.
This linguistic diversity can be intimidating to international businesses, but English-speaking companies should note that English often functions as a lingua franca in India. A 2019 survey found that about 88 percent of Indians in urban areas spoke English. In stark contrast, just 3 percent of rural respondents said they speak English. As long as you establish your company in a metropolitan center, you should have no trouble recruiting employees who speak English.
The Cost of Hiring an Employee in India
Hiring new employees is a significant financial undertaking. The main consideration is the cost of labor, which can be complicated to calculate in India due to the way compensation packages are structured. In addition to determining the amount each new employee will cost your company, you also need to consider the costs of the recruiting process. These costs may entail the following:
- Registration costs for setting up your Indian entity
- Lawyers and accountants to help you follow Indian employment and tax law
- HR recruiter and manager’s time spent on hiring tasks
- Fees for a hiring agency if you choose to outsource
- Cost to host or attend hiring events
- Job advertisement costs
- Travel costs for any recruiters traveling to India
- Relocation costs for new hires if applicable
- Cost to conduct background checks through a third-party provider
Keeping in mind many Indian employees’ propensity for job hopping, you want to make sure you choose employees who will be an ideal fit, and then do your best to retain them. Otherwise, you’ll repeat many of these costs again to replace these employees.
What Does a Company Need to Hire Employees in India?
To hire new employees in India, you can establish your company as an employer or work with an Employer of Record (EOR), also known as a professional employment organization (PEO).
An EOR will already have everything in place needed to start hiring new employees in India, so you can begin right away if you choose this option. Plus, EORs are well-versed on India’s employment laws and how to structure competitive salary and benefits packages. This means working with an EOR allows you to forgo establishing your own entity in India and handling complex HR tasks for your Indian employees.
Passing off these HR responsibilities also means you’re passing off the risk of noncompliance. Globalization Partners has local, in-country specialists in India who know how to remain legally compliant in every aspect of Indian workers’ employment.
The alternative to partnering with an EOR is to establish your own company branch or subsidiary in India and handle the logistics of hiring and other HR tasks internally. To set up a subsidiary in India, you must start by researching the regulations that apply to your sector. Incorporating a company in India can be a complicated, costly, and time-consuming process.
Most international companies that establish a subsidiary in India choose either a private or public limited liability company structure. To establish your subsidiary and start hiring someone in India, you must have obtained the following:
- Director Identification Number (DIN)
- Digital Signature Certificate (DSC)
- Business name approved by the Registrar of Companies
- Memorandum and Articles of Association
- Incorporation application
- Certificate to commence operations
- Company seal
- Permanent Account Number (PAN)
- Employees’ Provident Fund Organization filing
- Value-added tax (VAT) registration
- Medical insurance application
You may also need to obtain special permits or other permissions depending on your industry or location. Allow plenty of time to make sure you have every requirement in place before you start recruiting.
The Steps to Hiring in India
Hiring practices in India are, overall, likely similar to the practices you’re used to in your home country. However, there are some country-specific considerations you should factor into the process. Let’s look at the process of how to hire in India, along with some of our tips for finding your ideal candidates.
1. Write and publish job ads
Start by writing job ads that outline the position duties and the qualities and qualifications you’re looking for in an ideal candidate. Then, find the best place to post or publish these ads, which will depend on the industry and location where you’re hiring. If you’re hiring remote employees, you’ll likely want to focus on online job boards and networking sites like LinkedIn — over 50 million professionals in India have LinkedIn profiles.
Advertising online is a popular strategy. India’s overall internet penetration rate is at 50 percent, so if you want to reach people who may have limited internet access, you should also consider publishing ads in print newspapers.
2. Review applications
Indian professionals are generally used to submitting a cover letter and a curriculum vitae (CV) for job applications. Resumes and CVs can differ from country to country. Indian CVs may include more personal details than some international employers are used to seeing in resumes or CVs in their home country. For example, the applicant may list their gender, age, nationality, and marital status and may include a photo of themselves.
3. Conduct interviews
If you’re hiring remote employees in India, consider conducting interviews via an online video call. Make sure you schedule these virtual interviews for a time that makes sense in India Standard Time (IST) as well as your home time zone. For example, if a New York-based company schedules an interview for 1:30 p.m. EST, it will be midnight for their Indian interviewees.
If you’re establishing an office in India, you can interview candidates in person. Interviews in India should mirror the interviews you’re used to in your home country. However, you may need to gauge an interviewee’s language ability and have a translator on hand to assist with the interview if you’re willing to hire employees who are not fluent in your language.
4. Extend job offers
Either after one or multiple rounds of interviews, you should extend job offers to the most qualified candidates. Because of the complexities and ambiguities in India’s employment laws, it’s wise to create a detailed employment contract that will serve as a clear set of expectations for your new employees. A thorough contract will also ensure candidates understand what they’re entitled to as your employees.
Include the employee’s compensation, listed in Indian rupees, along with allowances and benefits. You should also include procedures for termination. Have the employee review their contract and confirm their agreement to the terms with a signature. While this is not a legal requirement, it can be a helpful measure for employers in India.
5. Onboard your new hire
Now, you can onboard your new employees. This step involves paperwork for establishing payroll and adding the employee to your internal systems. During the onboarding process, share other details regarding company culture, such as a dress code. You may also need to provide training to help workers get started in their new roles.
If you choose to work with Globalization Partners as your EOR, we will handle the technicalities of the onboarding process for your new employees, so you can focus on preparing them to excel in their positions.
Expand to India With Globalization Partners
Globalization Partners has a presence in 187 countries across the globe, including India. We help you hire employees in India quickly without having to establish an entity or deal with India’s complex tax and employment laws. We’ll handle those logistics so you can focus on running your company. Your Indian employees will still complete work for your business, making this a valuable solution for employers that want to expand but don’t want the headaches that can come with global hiring.
Learn more about our EOR solution in India to get started.