As your company grows, you may start hiring globally to meet your goals. Working with independent contractors can be a valuable resource to your company, but it requires knowledge of various laws to ensure that all contractor relationships are fair and legal.
Hiring independent contractors in India
Independent contractors can offer specialized skills for completing projects, but you need to understand the classification to keep the arrangement fair and legal.
Independent contractors vs. employees
The defining difference between independent contractors and employees is the presence of an employer-employee relationship. Independent contracting does not include this dynamic. The prima facie test is a control test that the Supreme Court of India uses to determine if such a relationship exists. Factors that define this relationship may vary between companies.
Generally, the factors that set an independent contractor apart include:
- Using personal equipment rather than employer-provided equipment
- Freedom in work processes and approach to project completion
Governing authorities may also refer to the integration test to classify workers. This test aims to determine if an individual is fully integrated into a workplace and the employer’s care or remains independent of this care, as a contractor should. Contractor relationships that last more than 240 days also suggest employee status.
Penalties for misclassification
If governing authorities identify a misclassified independent contractor, your company can face a range of penalties. Possible consequences include:
- Hefty fines
- Prison time
- Damaged reputation
How to hire independent contractors in India
The contractor hiring process should involve three key steps.
1. Carefully conduct interviews
When hiring employees, the interviewer may include questions about character or how the candidate may contribute to company culture. When hiring independent contractors, you should avoid questions like these, as they may point to full integration in the workplace. Interviews should emphasize skills and experience that can contribute to project completion. Think of contractor interviews as business transactions.
It’s also useful to clearly define your hiring goals in the job advertisement. Make it clear that you’re looking for an independent contractor, describe the project, and outline any skills required.
2. Create a service agreement
Instead of a contract of service, employers must create a contract for service. This service agreement will lay out any terms of the professional relationship and ensure clarity between both parties. Terms to include are:
- Pay rate and arrangements
- Project description
- Contract duration
- Termination requirements
3. Introduce necessities
Any type of in-depth training may imply that you — as an employer — are telling your contractor how to do their job. This implication can lead to misclassification. Keep any training and introductions brief. These may include introducing key players and explaining the workflow for the specific project.
How to pay independent contractors in India
The distinction between independent contractor pay and employee pay is the payment model. Employees receive salaries, which may be based on annual earnings or an hourly wage calculation. Independent contractors receive a fee for service. Typically, contractors will receive these fees as a lump sum upon project completion, but other terms may be identified in the contract for service.
Employers are not required to withhold taxes and social security contributions from fees for service. Independent contractors will handle these processes themselves.
Terminating independent contractors
Your contract for service should define the reasons for termination and any payment owed in the event of termination. There are no labor laws regarding minimum requirements for terminating independent contractors.
Turn to Globalization Partners when hiring independent contractors in India
As an extension of Globalization Partners’ Global Employment Platform™, G-P Contractor allows companies to hire anyone, anywhere, for both short- and long-term projects. Whether you’re hiring employees or contractors, we streamline the process with a single solution for your global workforce. Contact us to learn more.
THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL OR TAX ADVICE. You should always consult with and rely on your own legal and/or tax advisor(s). Globalization Partners does not provide legal or tax advice and the information is not tailored to the specific situations of your company or your workforce. Globalization Partners makes no representations or warranties concerning the accuracy, completeness or timeliness of this information. Globalization Partners shall have no liability arising out of, or in connection with, the information, including any loss caused by use of, or reliance on, the information.