As a US-based small business, expanding your operations into international markets like India can be both exciting and challenging. One of these challenges is understanding and effectively handling the intricacies of Indian payroll. This guide aims to provide you with an in-depth understanding of the process, ensuring accurate and timely payment for your employees abroad.
Use these seven steps as a guide on how to do payroll in India—or, if you prefer a payroll service to handle most of the heavy lifting, expand the section below for a look at our top picks.
We’ve found that Papaya Global is the best overall option for international payroll services, but in case another provider may be a better fit for you, we’ve provided other great options in the table below.
| Starter Monthly Pricing for Global Payroll* | Starter Monthly Pricing for EOR** | Special Contractor Management Plan | Onboarding or Setup Fees | |
|---|---|---|---|---|
 | Call for a quote | Call for a quote | Call for a quote | Onboarding fees(Call for a quote) |
| Visit Papaya Global | ||||
 | $20 per employee*** | $599 per employee*** | $20 per employee per month*** | ✕ |
| Visit Rippling | ||||
 | Custom-priced | $599 per employee | Starts at $49 per employee per month | ✕ |
| Visit Deel | ||||
 | Custom-priced | $699 per employee | $29 per contractor monthly | ✕ |
| Visit Remote | ||||
 | ✕ | $599 per employee | Starts at $29 per worker monthly | ✕ |
| Visit Oyster | ||||
 | Starts at $20 per employee | $400 per employee | $40 per worker monthly | ✕ |
| Visit Multiplier | ||||
 | Custom-priced | Custom-priced | Starts at $49 per contractor monthly | ✓(Setup fees included in quote) |
| Visit Globalization Partners | ||||
| *Global payroll only includes pay processing tools**EOR covers international hiring and payroll services***Pricing is based on a quote we received | ||||
*Pricing is based on a quote we received
Learn more about each provider and how each one compares in our guide to the best international payroll services.
Step 1: Set Up Your Business as an Employer
To pay employees in India, you must have an established legal entity with the Ministry of Corporate Affairs. This is a complex process and will include some of the following:
- Getting a Director Identification Number (DIN) by filing an online application
- Reserve company name
- Pay stamp duties
- Make a seal
- Physically visit a government office to obtain a Permanent Account Number
- Get a tax account number
- Register with the employee Provident Fund Organization
- For employers with at least 10 employees, register for Employees’ State Insurance Scheme
Step 2: Establish Your Payroll Process & Policies
You’ll want to create a structured process to follow so that you don’t miss any vital payroll steps. Consider the following:
- Pay schedule: How frequently will you pay employees? Monthly is most common in India, but you can also pay weekly, every other week, or twice monthly.
- Type of employees: Full time vs part time?
- Tracking time: How will you track employee hours, and how will it be reported to you?
- Benefits: What benefits will you offer beyond the required benefits? Who pays for them? How will you manage the payroll deductions?
- Taxes: How often will you need to pay taxes? What tax rates will you pay? How often do you need to remit taxes, and to what agencies?
- Payroll processing and calculations: Will you calculate payroll by hand, Excel, or use a payroll service or software?
- Paychecks: Will you write manual checks, use pay cards, pay via direct deposit, or pay in cash?
Take note that the typical Indian workweek is Monday through Friday, 8 a.m. to 5 p.m. There are no maximum working hours restrictions.
To ensure your company processes payroll in India effectively, you should also have policies on:
- Benefits: What benefits are required, and how do you remit payments?
- Leaves: What leaves are required to be paid vs unpaid, and at what rates?
- Overtime: At what rate do you need to pay employees’ overtime, and for how many hours?
- Absences: How do you track absences and know whether they’re paid or unpaid, excused or unexcused?
- Holidays: What holidays are paid and at what rate?
Step 3: Determine Salaries & Ensure Compliance
The cost of living in India is substantially less than in the US, currently about 81% less expensive. The average annual salary in India is about 383,000 INR per year ($4,650). Many businesses choose to outsource work to India because the overhead is drastically less. However, you still need to pay workers a competitive wage. Consider this when determining what you’re going to pay your Indian workers, including their experience and skills, in addition to the cost of living.
Payroll & Employment Law Compliance
India has similar employment and payroll compliance laws to the US and requires employers to provide certain benefits and protections to workers. In some cases, Indian employment law goes further than US labor laws, providing additional protections to workers.
Every employee in India must have an employment contract or be covered by a collective bargaining agreement. Here’s what must be included in this document:
- Company full name and address
- Employee full name and address
- Date employment commenced
- Type of working relationship
- Working hours
- Rate of pay calculation and frequency of pay
- If a contract is for a fixed term, the end date must be clearly stated
- Termination process
Employee classification is extremely important in India. If a company requires a person to work certain hours, offers a regular salary, or supervises their work, they’ll most likely be considered an employee.
Penalties for misclassification in India are steep. Companies could face fines, back pay, and be barred from conducting business in India.
To be clear, you can partner with an Indian independent contractor, just make sure they’re actually a contractor and not an employee.
The minimum wage in India varies based on the employee’s location. Each state government sets its own minimum wage using a complex method of reviewing hundreds of different jobs. Currently, the minimum wage ranges from 160 INR to 423 INR per day. That’s about $2.40 to $6.35 per day.
Any work done over 48 hours in a single week must be paid as overtime. The overtime rate is regulated by the employment contract and is generally paid at twice the employee’s regular rate of pay.
In India, paid time off is called earned leave, and it is governed by the state where your business is established, not where the employee works. Earned leave is typically 15 days per year, and it can roll over to the next year, if unused. Employers can offer unlimited time off but must track it to make sure employees are using at least the minimum amount each year.
The 13th month salary is not common in the US, but it is in many other countries, including India. It is mandatory for low-income workers and is paid as a percentage of their annual salary. This benefit can be paid to any employee, as well.
Public holidays in India are mostly regional instead of national. Because of this, it’s common for Indian employers to provide 10 days of paid holiday leave for employees to use as they see fit.
Maternity leave is a requirement in India. Employees are eligible for paid maternity leave after working for at least 80 days in the last 12 months. The minimum amount of leave required is 26 weeks. Mothers may take this leave up to eight weeks before their due date and may use the rest until the child is 15 months old.
There is no requirement to provide paternity leave. However, many employers have begun offering this as a perk to attract high-quality workers.
Employees are entitled to 12 days of paid sick leave per year to cover the illness of the employee or a loved one. Sick leave can also be used for bereavement. If an employee uses more than three days of sick leave in a row for their own illness, their employer may ask for a doctor’s note.
Unlike the US, India does not adhere to at-will employment. This means employers must have cause for termination of an employee. Unless an employer can provide sufficient evidence that an employee was terminated due to misconduct, disobedience, lack of required skill, neglect of duties, or excessive absences, at least 30 days’ notice of termination is mandatory.
Severance may also be required. If an employee is terminated because of redundancy, they’re entitled to 15 days’ pay for every year of continuous service. Employers may also be required to pay an equal amount to the government for worker re-skilling.
Step 4: Collect Employee Data & Forms
As with US-based employees, you’ll need to collect certain data from your Indian employees. This often includes:
- Employee’s full name
- Employee’s permanent address in India
- Identification proving the employee’s identity
- Copy of the employee contract or collective bargaining agreement
- Bank account information
Step 5: Collect Time Sheets & Calculate Payroll
When a business first launches, it often use paper time sheets. We don’t recommend this as it’s ripe for errors and misuse. The best and most effective way to keep track of employee hours is to use time tracking software. Your employees clock in and out electronically, and your managers can review and approve timesheets before they get to your payroll team for processing.
Once payroll gets the time sheets, they should still review them for accuracy. A second set of eyes to spot any glaring errors is crucial to ensuring your company runs payroll correctly each time. It’s easier to fix these errors before running payroll, and it creates a smoother process for everyone involved.
When calculating your Indian payroll, you’ll need to account for payroll taxes. Missing these will leave you out of compliance and could cause costly fines and penalties from Indian government agencies.
| Tax | Employer Share | Employee Share |
|---|---|---|
| Employee’s Provident Fund and Employees Pension Scheme | 12% | 12.33% |
| Employee’s State Insurance | 4.75% | 1.75% |
| Health and Education | 0% | 4% |
Besides these payroll taxes, you’ll also need to withhold appropriate income tax from your employee’s paychecks. Indian income taxes are fairly straightforward.
| Income | Tax Rate |
|---|---|
| Up to 300,000 INR | 0% |
| 300,001 to 600,000 INR | 5% |
| 600,001 to 900,000 INR | 10% |
| 900,001 to 1,200,000 INR | 15% |
| 1,200,001 to 1,500,000 INR | 20% |
| Over 1,500,000 INR | 30% |
Step 6: Pay Employees
Now that you’ve reached the point of calculating your payroll, it’s time to pay your employees. Make sure you’re following the pay schedule you’ve previously outlined.
If you have just a single or a handful of employees in India, you may want to outsource your payroll to a local provider. They will be licensed and familiar with Indian payroll laws and processes. While you’ll pay them a fee, it’ll likely be worth your time for just a few workers.
However, if you have more employees or plan on dramatically expanding your Indian workforce, you may want to do payroll in-house. Make sure you or your payroll team are familiar with Indian payroll laws and deductions to ensure you’re making the right deductions from an employee’s paycheck and sending tax payments to the right Indian government authorities.
Step 7: Document & Store Your Payroll Records
Payroll records in India must be kept for at least three years after employment ends. Your payroll records should include, at a minimum:
- The dates of employment and rate of pay
- The frequency of pay
- Deductions
- Employee’s name and address
- Total regular and overtime pay
- Net employee pay
- Copy of employment contract or collective bargaining agreement
- Leave taken
Bottom Line
Mastering the intricacies of payroll in India is no small feat, but with the right knowledge and tools, it’s achievable. This guide provides you with a roadmap to navigate this complex landscape. By ensuring timely and accurate payments, you are investing in your team’s morale and productivity, ultimately driving your business forward.
If your business is hiring more than a few workers in India, consider using an international payroll service. These providers can navigate these complexities for you, ensuring compliance with Indian payroll laws and regulations.
