Global HR Compliance in India

India is a magnet for international employers: the workforce is vast, technically strong, and available at scale. But the legal and compliance environment is anything but straightforward. Indian employment law is fragmented and constantly changing — national, state, and local rules overlap, with little tolerance for shortcuts or non-compliance. What works for hiring in Mumbai may expose you to risk in Bangalore or Pune.

Mistakes in contracts, payroll, or benefits are rarely forgiven. Disputes can drag on for years. If you misclassify a worker, miss a statutory payment, or fail to register with the right authority, you are exposed to claims, back pay, and regulatory action. Local practices often outweigh global assumptions, India is not a market where you can copy-paste policies from elsewhere.

Why Employers Hire in India

India’s appeal is clear: it offers talent in IT, engineering, finance, R&D, and business services—often at a fraction of the cost found in Western markets. English is widely spoken at the professional level. Global employers use India for product development, customer support, data analysis, and offshore delivery, as well as to diversify risk away from other markets.

For most businesses, the logic is simple:

High skill, low cost
Scale and flexibility
Increasingly business-friendly regulation in key sectors

However, these advantages are only realised if you have a grip on compliance, local payroll, employee benefits administration, and regulatory filings down to the state and city level. Without this, operational costs can quickly rise, and reputational risk becomes real.

Employment Agreements in India

Employment relationships in India are governed by a patchwork of federal and state laws, with no single statute regulating all employees. The terms of engagement, worker classification, and even the content of employment contracts are subject to local practice and sectoral regulation.

Workmen vs. Non-Workmen

Indian law distinguishes between “workmen” (generally blue-collar, clerical, or technical staff) and those in management, supervisory, or administrative roles (“non-workmen”). This distinction affects termination rights, dispute resolution, and eligibility for statutory protections. Misclassification can lead to claims for reinstatement, back pay, and statutory benefits.

Permanent, Fixed-Term, and Temporary Contracts

Permanent contracts are the default, often open-ended, and confer maximum statutory protection. These require careful drafting, including notice periods, grounds for termination, benefits, and dispute resolution.
Fixed-term contracts are permitted for project-specific or time-bound roles, but must include clear end dates and conditions. Employees on fixed-term contracts are generally entitled to the same statutory benefits as permanent staff.
Temporary and casual contracts are common, but “temporary” status does not remove statutory entitlements for leave, social security, or termination payments. Case law frequently sides with the employee if there is ambiguity.

Employment Contract Requirements

Employment contracts should include:

Role description, job title, and location
Start date and duration (permanent or fixed-term)
Details of any probationary period
Working hours, leave, and holiday entitlements
Salary and benefits structure
Termination conditions and notice periods
Restrictive covenants and confidentiality terms
Governing law and dispute resolution

By law, some terms of employment contracts can be implied by local practice or collective agreements, even if not written. All contracts should be drafted in clear, unambiguous English, and reviewed for local compliance in the relevant state.

Documentation and Onboarding

In addition to a signed contract, employers must provide statutory notices, register employees with the relevant authorities (for example, Provident Fund, Employee State Insurance, and labour department), and maintain detailed employment records from day one.

Failure to provide compliant documentation or statutory registration at onboarding is a common source of claims and can expose the company to penalties, back payments, or operational delays.

Termination and Severance in India

Terminating employment in India is not a straightforward process—regardless of contract terms, statutory protections for employees are extensive and strictly enforced. There is no concept of “at-will” employment. Dismissals must be for reasonable cause and must follow due process.

Grounds and Process for Termination

Employers can terminate employment on grounds such as misconduct, poor performance, redundancy, or business closure. Each ground requires supporting documentation and strict adherence to statutory procedure. For “workmen,” the Industrial Disputes Act (IDA) sets out a formal process including notice, severance, and, in many cases, government approval or notification.

A typical termination process includes:

Issuing a written notice stating the reasons for dismissal.
Providing an opportunity for the employee to respond to allegations of misconduct.
Observing statutory notice periods, generally one month for “workmen” after a year of service, or payment in lieu.
Recording all steps taken, as labour authorities often request documentation in the event of a dispute.

Termination for misconduct (after a proper internal inquiry) may exempt the employer from paying notice or retrenchment compensation. However, the legal threshold is high, and procedural errors are frequently challenged in court.

Severance Pay

For most “workmen,” severance is mandatory and calculated at 15 days’ wages for every completed year of service (or any part exceeding six months). Retrenchment, closure, or redundancy typically triggers this entitlement. State-specific rules or collective agreements may increase severance obligations.

Voluntary resignation, retirement on superannuation, non-renewal of a fixed-term contract, or termination for gross misconduct do not generally require severance, provided the correct process is followed.

Legal Challenges and Risk

There is no limitation period for claims under the IDA, and employees routinely challenge dismissals in the labour courts or tribunals. Outcomes can include reinstatement, back wages, damages, or accrued statutory benefits. Individual contract disputes must usually be raised within three years.

International employers should expect procedural scrutiny. Detailed records, clear documentation, and legal review of every termination are essential to minimise risk.

Benefits, Contributions, and Working Hours in India

Statutory Benefits and Social Security

Employers in India must comply with a range of social security obligations. Key schemes include:

Employees’ Provident Fund (EPF): Mandatory for establishments with 20 or more employees (threshold likely to be reduced to 10). Both employer and employee contribute a defined percentage of wages.
Employees’ State Insurance (ESI): Provides medical and disability coverage for employees earning below a specified threshold. Applicable to establishments with 10 or more employees (state variations may apply).
Employees’ Compensation Act: Requires employers to compensate workers or their families for injury, death, or occupational disease arising out of employment.
Other statutory schemes: These may include gratuity, maternity benefits, and contributions under state-specific labour welfare funds.

Failure to register employees or make timely payments exposes employers to penalties, back payments, and litigation.

Working Hours and Overtime

Working hours in India are regulated by both federal and state law:

Factories Act: Maximum of nine hours per day and 48 hours per week for adult workers. Overtime is paid at double the ordinary wage for any work beyond these limits.
Shops and Establishments Acts: These state laws apply to non-factory workplaces and specify working hours, weekly rest days, opening and closing hours, and overtime rates. Requirements vary significantly between states.

Employers must track actual hours worked, provide statutory rest intervals, and pay overtime where due. Non-compliance with these rules is a frequent cause of labour disputes and government inspection.

Annual, Sick, and Parental Leave

Annual leave: Most employees are entitled to paid annual leave, typically one day for every 20 days worked. Unused leave may be carried forward up to a statutory maximum.
Sick leave: Provisions vary by state. Some require paid sick leave; others group it with casual leave.
Maternity leave: Female employees are entitled to up to 26 weeks of paid maternity leave for the first two children, and 12 weeks for the third and subsequent children, provided eligibility criteria are met.
Paternity leave: Not mandated by law, but some companies and public sector employers offer it as part of their internal policy.

Probationary Periods

Probationary periods are commonly used but are not regulated by specific national legislation. Typical periods range from three to six months, with shorter notice periods during probation. Terms must be clearly stated in the contract.

Contractor Engagement, Misclassification, and Intellectual Property Risks in India

Contractor vs Employee Status

Engaging contractors or freelancers is a common strategy for foreign companies entering India, but Indian authorities take a broad view of employment relationships. If a contractor’s working conditions resemble those of a direct employee—regular working hours, integration with company teams, or economic dependence—the relationship can be reclassified as employment. Courts focus on the substance of the arrangement, not just contract language.

Misclassification exposes employers to retroactive social security payments, wage entitlements, and penalties. Workers found to be de facto employees may also claim protection under Indian labour laws, including notice, severance, and statutory benefits.

Intellectual Property Ownership Risks

IP ownership is a critical concern for companies engaging contractors in India. Indian law does not automatically vest rights in intellectual property with the engaging company—unless the contract explicitly states so and clearly defines “work made for hire.” Without precise, locally compliant contracts, contractors may retain rights to code, inventions, creative works, or data produced during their engagement.

The risk is heightened if a worker is later deemed an employee, as IP created “in the course of employment” is generally owned by the employer, but this can be disputed if classification was unclear or documentation is weak.

Practical Guidance

Use detailed, India-compliant contracts that specify IP assignment and confidentiality for all contractors and employees.
Regularly audit working arrangements to ensure contractors are not being treated as employees.
Seek local legal review before onboarding contractors for any core or ongoing business roles.

Failing to address these issues at the outset can lead to prolonged disputes over both employment status and IP ownership, with direct impact on business operations and valuation.

Acumen International: Supporting Employers in India

India’s employment landscape demands constant attention to legal change, local nuance, and compliance risk. For international companies, assembling a compliant workforce in India—whether direct employees or contractors—can quickly become unmanageable without expert local support.

Acumen International enables employers to navigate Indian HR, payroll, and compliance with confidence:

Service Scope

Employ and payroll staff in India without the need for a local legal entity.
Draft, issue, and manage compliant employment contracts for all categories of workers.
Oversee onboarding, registrations, payroll, benefits, and statutory contributions.

Employer Responsibilities

Assume local employer obligations, including statutory filings and interface with authorities.
Stay ahead of legal changes at federal and state level, adapting processes and documentation to keep clients protected.

Immigration and Global Mobility

Advise on lawful onboarding of expatriates, including work permits and required filings in India.
Manage cross-border employment arrangements for multinational teams based in India.

Risk and Compliance Management

Reduce misclassification, payroll, and termination risks through continuous monitoring and robust, locally informed practices.
Ensure proper handling of intellectual property, confidentiality, and data protection across all engagements.

Typical Use Cases

Rapid, compliant hiring for project launches, new market entry, or startup operations in India.
Transitioning contractors and freelancers to direct employment to mitigate misclassification and protect intellectual property.
Scalable workforce solutions for VC- and PE-backed companies expanding in India.
Supporting multinational employers with ongoing operations, remote teams, or regional hubs.
Seamless integration of acquired teams and workforce restructuring during M&A transactions.

Acumen’s global and local experts support clients throughout the employment lifecycle, so you can focus on scaling your business, not on navigating regulatory complexity.