Establish your presence globally with Neeyamo as we help you go beyond borders to manage your global payroll and hire new talent in India.
India, a diverse and dynamic nation in South Asia, presents an enticing prospect for global expansion. Its vast and growing market and skilled workforce offer numerous advantages for businesses, but processing payroll in India can be a labyrinth of complexities. The nation's intricate labor laws, convoluted tax structure, and various compliance requirements make payroll management challenging for international companies.
Managing intricacies like employee benefits, statutory reporting, and specialized local payroll software requirements can be a formidable task. Hence, in light of India's promising potential for global expansion, businesses must exercise due diligence in their approach to payroll.
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Are your organization's expansion initiatives calling for recruiting personnel in India? Do you need a physical presence in the country, a crucial prerequisite for engaging local talent? Neeyamo assists organizations worldwide with onboarding and managing employees in India - processing payroll, managing local compliance requirements, benefits, and more.
Tools And Instances
Facts And Stats
01 April (preceding year) - 31 March (current year)
Country Calling Code
English (Indian Constitution recognizes 22 official languages as per the state)
India Standard Time (UTC +5:30)
What is Payroll?
Payroll means the list of compensation to be paid to employees of a company or organization for a set period or date.
Handling payroll for a widespread workforce can pose a significant challenge for any organization, and the added complication of compliance can make things worse. If companies spend more time processing payroll, it directly impacts day-to-day operations and their overall productivity. The solution to this problem is payroll outsourcing.
Payroll taxes are a fixed percentage deducted from an employee's earnings, directed toward government investments for the well-being of the general populace. These taxes are mandated by law and apply to both employers and employees. Employers also make supplementary statutory contributions to provide their workforce with various short-term and long-term benefits.
The employee taxes in India are computed as follows:
1.75% - ESI Contribution (The employees whose monthly gross salary is up to Rs. 21,000 are covered this scheme)
12% - Employee's Provident Fund and Employee's Pension Scheme
Employee Income tax contribution
|2,50,001 - 5,00,000||5%|
|5,00,001 - 7,50,000||10%|
|7,50,001 - 10,00,000||15%|
|10,00,001 - 12,50,000||20%|
|12,50,001 - 15,00,000||25%|
Changes in the income tax rates for the financial year 2023-24
- In the new tax regime, individuals earning up to INR 700,000 are exempt from paying income tax.
- The extension of certain allowed deductions under the old regime so that they are also available under the new regime, including the standard deduction of INR 50,000 for salaried individuals, and the deduction from family pensions up to INR 15,000.
- Under the new tax regime, the highest surcharge rate is reduced from 37% to 25%.
- The tax exemption limit on leave encashment on retirement for non-government salaried employees has been raised to INR 25, 00,000.
The employer taxes in India are computed as follows:
- 4.75% - ESI Contribution (Compulsory for employers with more than 10 employees)
- 12.00% - Employee’s Provident Fund (EPF) and Employee’s Pension Scheme (EPS)
With effect from April 1, 2023.
- In the state of Maharashtra, women with a monthly salary of up to Rs. 25,000 will not have to pay any Profession Tax.
- This proposed amendment will not only enable inclusion of more number of disabled persons to be eligible for Profession Tax exemption, but also simplify the present process of taking exemption. Refer Annexure-1 for Persons to be included in Person with disabilities as per Profession Tax Act now.
- In the state of Karnataka, exemption on Professional Tax for employees whose salary or wages for a month is below ₹ 25,0000.
- For employees whose salary or wages for a month is ₹ 25,000 or above, the professional tax will be paid at the rate of ₹200 per month.
Non-government employees would receive higher tax exemptions on leave encashment amount received at the time of retirement.
Certainly, payroll stands as a pivotal procedure within any organization. In India, the term "pay cycle" pertains to the duration for which an organization disburses salaries to its employees, and this timeframe may fluctuate based on the chosen pay frequency of the organization.
The payroll cycle in India is generally monthly, with wages paid on or after the 28th of each month.
13th Month Cycle
The 13th salary in India is usually mandatory, paid as a percentage of the annual salary and within eight months of the end of the financial year.
What is EOR?
An Employer of Record service provider (EOR) helps you eliminate the hassle of handling complexities while onboarding a new employee in an international location. They help bridge the gap that otherwise mandates organizations to have a local registered entity and a local bank account, prior to making a job offer to an international hire.
ALSO READ | What is an Employer of Record(EOR)?
An EOR service provider acts as a legal employer, facilitates salary payments, and manages other statutory requirements such as health insurance, payroll taxes, and employee benefits ensuring compliance with local tax laws and regulations.
This allows organizations to focus on collaborating with the employee in India for operational tasks, with the knowledge that they have a cost-effective solution support their global payroll & HR requirements, as they continue their global expansion.
Neeyamo strives to provide its customers with a seamless employee management experience and offers employer of record as well as payroll services with our Global Payroll Technology Stack.
HR Mandates and Practices
The national minimum wage in India is fixed by the respective state governments. It uses a complex method of setting minimum wages that defines thousands of different jobs for unskilled workers and over 400 categories of employment, with a minimum daily wage for each type of job.
Under the Factories Act, an employee who works for more than 9 hours per day or 48 hours per week is said to perform overtime work. Total working hours including overtime should not exceed 60 hours in a week and total overtime hours in a quarter should not exceed 50 hours. Workers who work overtime are compensated at double the rate of ordinary wages.
Under the Shops and Establishments Act of respective states, an employee who works for more than 8 hours / 9 hours per day or 48 hours per week is considered to perform overtime work. Employees who work overtime are compensated at double the rate of ordinary wages.
Data Retention Policy
- In India, employee records are preserved in original or electronic form. Records related to pay must be retained for at least three years following the taxable year.
- Taxpayers must retain their income tax forms for at least eight years.
- Employees are responsible for retaining the TDS certificate issued to them by their employers.
- Employees can also keep track of, appeal and correct their own records through Form No. 26AS, which maintains their tax credit status and their TDS withholding amounts
Hiring and Onboarding Requirements
There is no general requirement under Indian employment laws for organisations in the private sector to give preference in hiring to a particular category or set of people. Employers in the private sector are prohibited from discriminating on the basis of gender, disability and HIV status.
In India, the following details are required for onboarding an employee:
- Candidate Full Name
- Phone Number
- Email Address
- Birth Date
- Marital Status
- Adhar Number
- PAN Details
- Resignation copy from the last employer
- Experience Certificate
- Letter of latest appraisal/salary revision with the last employer
- Academic Qualification Certificate
- Bank Account details
- PF Account details
In India, probation periods generally differ based on the employee’s role and their seniority, being between 3 and 6 months. During the probation period, the employer will usually have the right to terminate the employment without providing any notice (subject to certain conditions). Terms with respect to an employee’s probation period should be adequately captured in his/her employment agreement/appointment letter.
From Government point of view, the public holiday schedule in India is divided across three classifications: gazetted, restricted, as well as state and union territory.
Generally, the companies in India offer 10 to 14 public holidays depending upon the company’s past practices and industry norms, as well as the discretion of the concerned states.
The Companies in India close offices on the gazetted holidays and provide optional holidays to the employees based on the regional preferences. But few companies adopt the holiday schedule observed by the management of their office building.The gazetted holidays as per 2023 is as follows:
- 26 January: Republic Day
- 18 February: Maha Shivratri
- 8 March: Holi
- 4 April: Mahavir Jayanti
- 7 April: Good Friday
- 22 April: Eid-ul-Fitr
- 5 May: Buddha Purnima
- 29 June: Eid-al-Adha
- 29 July: Muharram
- 15 August: Indepenence Day
- 6 September: Janmashtami
- 27 September: Birthday of Prophet Mohammad
- 2 October: Mahatma Gandhi Birthday
- 24 October: Dussehra
- 12 November: Diwali
- 27 November: Guru Nanak Birthday
- 25 December: Christmas
Sick and Casual leave is generally governed by the State’s specific Shops and Establishments Act. Not all separately define casual and sick leave, and the number of days of such leave to which employees are entitled varies from 7 to 12 depending on the state in which the workplace is located. Most states provide up to 10 days of sick leave while some states provide casual leave entitlement of up to 10 days.
Most states provide up to 10 days of sick leave while some states provide casual leave entitlement of up to 10 days.A female employee shall be entitled to paid leave for a period of 6 weeks immediately following the date of miscarriage or medical termination of pregnancy.
Such leaves are not mandated by law and employment rules. But some companies practice a couple of weeks for paternity leave for men.
- Study Leave/Sabbatical Leave - A sabbatical leave is a period in which an employee takes an extended break from work. The reasons for taking a sabbatical can vary from pursuing a degree or working on a personal project to volunteering, traveling the world, or spending more time with family.
- Compensatory Leave - These leaves are provided to those employees who have worked overtime or worked during the holidays. These leaves are generally termed as “comp off”.
- Annual Leave - Employees are paid their usual daily wage rates for the days of earned leave. Daily wages are the average of a worker’s total full-time earnings for the day on which the employee worked during the months immediately preceding the annual leave. Annual leave may be carried over to the succeeding calendar year, however, the total amount of leave that can be carried forward should not exceed 30 days. However, a worker who was refused annual leave shall be allowed to carry forward the leave refused without any limit.
- Adoption Leave - A female employee who adopts a child under the age of 3 months is entitled to 12 weeks of leave applicable from the date the child is handed over to the employee.
- Bereavement Leave - It provides the employee with the time to grieve their loss, manage any responsibilities they may have due to the death of a family member.
Employers must pay employees who are terminated their earned wages before the end of the second working day after employment ends.
Employers must provide a one-month notice to employees when terminating, or two-weeks' notice if paid more frequently. Employees with at least one year of service are entitled to severance pay equivalent to 15 days of wages for each completed year of service for the employer if terminated due to downsizing.
In practice, Indian labor law requires employers attempting to terminate employees to hold a hearing prior to dismissal. This can either be a written complaint or full hearing. However, workers charged with serious misconduct are not guaranteed a hearing or prior notice but will be entitled to a hearing if dismissed on disciplinary grounds. The provident fund provides benefits for employees who are terminated by their employer.
Employees with at least one year of service are entitled to severance pay equivalent to 15 days of wages for each completed year of service for the employer if terminated due to downsizing.
All foreign nationals in India must have both a national passport and a valid visa. Employment visas (EV) are granted to foreign nationals who want to come to India for the purpose of employment by the consulate / embassy of India in the respective countries of origin of these foreign nationals.
Following are few main points:
- Employment Visa are granted for jobs which require a specific skill or experience
- Generally, employment visa are not granted for which a large number of qualified Indians are available to fill the position or for routine, ordinary, secretarial or clerical jobs.
- Employment Visa is granted to a foreign national if his or her salary exceeds INR1,625,000 per year.
- A change of employer in India is generally not permitted during the duration of the EV except with the same organisation due to re-structing or such other reasons.
Foreign nationals visiting India must register themselves with Foreigners’ Regional Registration Officers (FRRO) within 14 days of their arrival in the country. FRRO issue residential permits to such foreign nationals on their submitting the prescribed documents; applicable in following cases:
- visas are valid for longer than 180 days or
- visa stamp specifically requires this registration.
Registration is generally valid for the term of the visa or for one year, whichever is less, and may be further extended on application.
A registration certificate is issued on the completion of the registration with FRRO/FRO.
Any change in personal particulars such as passport details, address and any other such information must be informed to the FRRO/FRO.
The Government of India has digitized the process of FRRO registration by introducing an e-FRRO portal in certain Indian cities to provide faceless, cashless, and paperless services to foreign nationals.
Visas are issued to accompanying dependent family members of individuals holding valid business or employment visas, respectively.
Dependent family members must obtain separate employment visas to be employed in India.
Separate registration is required for the family members at the local registration office.
Employee Background Checks
Legal and Background Checks
There is no legal prohibition on conducting background checks in India as long as the entity conducting the background check adheres to applicable data protection laws.
The storage, transfer and processing of sensitive personal data or information belonging to persons located in India are regulated by the Information Technology Rules, 2011 (Sensitive Information Rules) enacted under the Information Technology Act, 2000.
The Sensitive Information Rules require that the information processor adheres to certain requirements in relation to the collection, storage and transfer of electronic data that is classified as sensitive personal data or information, including:
- financial information (eg, bank accounts, details of credit or debit cards or other payment instruments);
- physical, physiological, and mental health conditions;
- sexual orientation;
- medical records and history; and
- biometric information
The Sensitive Information Rules also require that the information processor obtain the consent of the information provider regarding the purpose of usage of the information that is collected, the intended recipients of the information, and the name and address of the entity storing the information. The Sensitive Information Rules also require the company to formulate and publish policies regarding privacy and the disclosure of information.
Last updated on August 4, 2023.
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