A Handy and Comprehensive Guide to Start Recruiting in India
India has finally made to your list for a place for doing business. You and your team are finalizing the company set up in India. Now, your next move is to start hiring people. You decide to employ a mix of local and expatriate as employees of your company in India. But what you might be clueless is that there are plenty of regulations for hiring staff in India. Here is a guide to hiring staff in India.
The Indian Employee
Given that India churns out thousands of educated and employable graduates, finding skilled workers will be a breeze. The only headache you might encounter is the legality of hiring staff in India. As a new government, India designs employment and labour law to protect employees as professional as possible. Hence, labour law in India may not differ much than in your native country. But there are absolute labour laws that only happens in India. Indians also hold dear to cultural and religious customs. Therefore, it is wise to learn all about the culture, traditions and customs to avoid conflicting ideas. Indian employees also prefer permanent jobs with a clear career progression.
Foreign-owned businesses hiring employees in India should pay attention to the Industrial Disputes Act and the Shops and Establishments Act. The latter Act administers the hours of work, payment of wages, leave, holidays, terms of service and other conditions. There are also wages and remuneration acts that regulate the salaries, bonuses (if any) and equal pay between the genders. When hiring employees, standard practice is to have an employment contract between employer and employee. For hiring employees in India, the best way to get this done is to draft it together with a local expert. This is to ensure the contract is valid and it complies with the Indian labour law.
Social Security and Pension Fund
India makes it compulsory for employer and employees to contribute to the national social security system. Within the system is the Employee Provident Fund (EPF) and Employee Pension Fund (EPS). Do take note that contributions to both these funds are mandatory for local and expatriate employees. The amount of contribution is 12% of wages for employees and employers. This amount is allocated between EPF and EPS. Employer and employee contribution are based on a total salary which includes all regular and holiday pay and allowances. Housing allowances (if any), overtime, bonuses and commissions are excluded from full wage. Upon retirement and other possible reasons to leave India, an employee may withdraw their EPF. If a company is found not contributing to these mandatory funds, there will be a host of penalties and even possible criminal charges against them. Hence, all businesses in India need to comply with Pension Fund requirements to avoid consequences.
Personal Income Tax
India’s tax rates for personal income is between ten to thirty per cent of the total amount of compensation. It is based on the annual income estimate after deductions reconciled at each year-end. Taxes are withheld from the paycheck monthly. Companies with expatriate employees are advised to check with the native country if there is any tax treaty with India. At the very least, as a business owner, you can avoid double taxation issues. There are components of the salary that is taxable in India. Some of the basic taxable items are the basic employee salary, compensatory city allowance (CCA), incentives and leave encashment. If an employee’s income is less than Rs250,000.00 per annum, it is exempted from tax. This is called the basic exemption limit (BEL). After this limit the rate is as the following:
- Rs250,000 – Rs500,000 = 10%
- 500,001 – 1,000,000 = 20%
- 1,000,000 – 10,000,000 = 30%
Foreign companies with Indian employees must pay corporate tax at the rate of 40% on corporate income. Additionally, there is a further two to three per cent surcharge at higher income levels. This applies to profits acquired in India. Recently, there is a new tax regime with reduced tax rates. The new tax system is still optional and will co-exist with the current tax rates. The new income tax rates have come into effect from 1st April 2020.
For every assessment year, employers will file for tax. Tax filing in India can be trying for both employer and employee. An employee can only begin tax filing after receiving their salary certificate. Employers should hand out salary certificates or Form 16 to employees after filing for annual tax report by 15th June. At some point, employees prefer to wait and download their Form 16 from the Income Tax Department website when it is ready. The Form 16 or salary certificate comprehensively lists all tax deduction at source (TDS) information from the employee’s salary.
Employee Layoff and Termination
Here is another segment of the Indian labour law that is very significant in this country. By the law, companies with at least 100 employees must get government approval for employee layoff. In the case of employee termination, the company must provide 30 days’ notice or payment in lieu to the employee. An employee in India will also get severance pay of fifteen days of wages for every year of employment.
So you or your management will be in India for company operations. As a foreigner, India requires an employment visa or work visa. The expatriate intending to work in India must apply for an employment visa in their home country, before visiting India. Such an employee can obtain a one-year work visa or a maximum of five years visa. This type of visa is a long term visa as it applies to visa holders of more than 180 days of stay. Foreigners to stay for more than 180 days in India must register with the Foreigner’s Regional Registration Office. They need to register within 14 days of arrival.
Getting the Local Expert Help
As you can see, there are several absolute laws for hiring staff in India. This is an essential guide to hiring staff in India. If you have done your research and yet still have queries, it is best to hire local expert help in hiring staff in India for your company. Every minute and penny vested will be worth with proper human resource assistance for hiring staff in India.