6 Steps for Hiring Employees in India

Partnering with independent contractors or hiring employees in India gives you a much wider pool of talent. You’ll want to consider if it is right for your businesses based on your needs—India is best known for information technology (IT) workers, although you can find just about any type of worker. Once you’ve decided to move forward, you’ll create a job description and determine the salary, post and interview for the job, check references, and make an offer.

When hiring workers remotely, you’ll need to deal with specific payroll deductions and understand local employment laws to stay compliant. An international payroll provider like Papaya Global can handle those complexities for you and pay your international workforce. Sign up today.

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Step 1: Determine if Hiring From India Is Right for Your Small Business

One of the biggest reasons US small businesses hire workers from India is the reduced overhead; the cost of living in India is about 65% less than the US. The average salary in India is between $400–$500 per month, and even in specialized positions, you could see a reduction in overhead costs.

While you may save money by paying a lower salary than you would by hiring someone in the US, there are certainly other factors to consider when hiring an international employee in India. They are not afraid to job hop—about half of all workers have left a job shortly after starting. They do this to improve their skills and salary, which means you don’t have to look for only unemployed workers.

Setting Up a Legal Entity in India

It is illegal for you to begin hiring employees in India without being a legal entity. However, opening an office location or creating a legal entity can be a time-consuming and costly process.

To establish a legal entity in India, you need the following:

Director Identification Number
Digital Signature Certificate
Business name approved and registered with the Registrar of Companies
Memorandum and Articles of Association
Permanent Account Number
Employees’ Provident Fund Organization filing
Value-added tax (VAT) registration
Medical insurance application
Incorporation application
Certificate to commence operations

You may, however, hire through an employer of record licensed to work in India. It can save you enormous amounts of time, cost, and headache.

Common Types of Work Outsourced to India

With about 400 million workers in India, you can find someone to do just about any job. However, there are some jobs more commonly outsourced to India. These jobs and industries include:

IT
Web design
Web development
Software design
Cybersecurity
Data analytics
DevOps
Cloud infrastructure
QA Testers
Call center/customer service

The overwhelming majority of workers in India are in IT and computer sciences. There are specialized universities that teach people the skills needed for all kinds of IT work, making India a dominant source of skilled IT workers. Many companies in the US are tapping into the Indian workforce to save costs over domestic workers with similar skills commanding much higher salaries.

US companies with clients around the world can also use Indian customer support and call center representatives. If your small business has this need, you can get people who can work business hours to support your Indian and Asian clients and speak the same language.

Cultural Differences

The cultural differences between the US and India are not as significant as you might assume. For example, Hindi is the official language of India, but English is an official sub-language. Many people living in India speak conversational English.

Where cultures differ more is around business hours. In India, the workday starts later, usually around 10 a.m. and stops about 6 p.m. Workers in India are used to working US hours or staggered shifts, so don’t let this deter you from hiring employees in India. Be aware, however, that you may need to be more flexible with shift start and end times.

Job titles are very important to Indian workers, as is recognition for loyalty. It’s not uncommon for a company to reward employee loyalty with substantial raises of 10% or more each year, in addition to a promotion.

Time Difference

Even though India spans three geographic time zones, it adheres to a single time zone. Called India Standard Time, it’s five and a half hours ahead of Greenwich Mean Time (GMT) and nine and a half hours ahead of US Eastern Time. Because India decided to have just one time zone instead of two or three, they compromised and split the difference, creating a single fractional time zone (which is where the 30 minutes comes from).

This extreme time difference can make it difficult to collaborate with your Indian employees. Your US-based staff may have to work earlier some days, while your Indian team may have to work later. Some companies require Indian workers to work US hours all the time. While that means they’re working overnight and you’ll probably need to pay them a little more, it can benefit your company by having every employee on the same schedule.

Employee vs Contractor

You have options for the type of worker you hire: full time, part time, seasonal, or temporary. And since setting up a legal entity in India is a good idea only if you plan on expanding your business there or hiring many employees, you may just choose to partner with an independent contractor if you just need one worker.

This can save the headache of setting up a legal entity and reduce your overhead, but you will have less control over the work done and will face stiff fines and penalties for misclassification if the worker really functions as an employee.

India, like the US, has regulations around misclassifying independent contractors. If you partner with an independent contractor in India, make sure you keep the worker’s status as a contractor by:

Signing an independent contractor agreement
Not making the contractor work solely for your company or sign a non-compete agreement
Letting the contractor work their own hours
Ensuring that the contractor has their own equipment to do their work
Not providing the contractor with any employment benefits

The fines and penalties your company may be subjected to if you’re deemed to have misclassified an Indian worker include:

Back pay and back taxes
Government fines
Jail time

The upside is that many Indian workers are used to working on an independent contractor basis. So if your company only needs to hire one or two people, this may be the best way forward. Just make sure you have a strong independent contractor agreement in place and don’t take any actions that could make a contractor an employee.

Step 2: Craft the Job Description & Determine Salary and Benefits

When writing job descriptions, be clear and include the skills and prerequisites necessary to perform the job well. Whether you’re hiring an employee or working with an independent contractor, ensure you specify the expectations you have of the person taking on the job.

Expect salary negotiations to occur. Companies often include additional benefits, which are highly valued by Indian workers. According to the Payment of Bonus Act of 1965, companies must pay bonuses to employees if the company employs at least 20 staff and an employee earns less than 10,000 Indian rupees (about $130) per month. The required bonus ranges based on the salary.

Ensure Payroll & Employment Law Compliance

There is no payroll schedule requirement, but most Indian workers are used to being paid at least monthly. If you’re partnering with an independent contractor, see to it that you have a completed IRS Form W-8BEN or W-8BEN-E from them to verify you’re paying them correctly and withholding appropriate taxes.

When hiring from India, there are important labor laws and taxes you need to know.

Minimum Wage: India’s minimum wage is adjusted frequently by taking into account over 2,000 job types. It’s currently set at 176 rupees per day (about $2.30). Many municipalities have higher minimum wages broken down by different zones and industries.
Overtime: Employees receive twice their base pay for any work over 48 hours in one week.
13th Month Pay: With few exceptions, this is a mandatory bonus paid as a percentage of the employee’s annual salary at the end of the year.
Employer Payroll Contributions: These are mandatory deductions from an employee’s paycheck:

Benefit	Employee Share	Employer Share
Employee’s Provident Fund	12%	12%
Employee’s State Insurance	1.75%	4.75%
Health and Education Cess	4%	0%

Paid Time Off: Indian workers must receive at least 15 paid days off following 240 days of employment. While this is the minimum, most employers offer more time off to attract top talent.
Sick Leave: Any employee who has been employed for three months or more continuously is entitled to 15 paid sick days per year. Sick days are paid at 70% of the employee’s regular rate of pay.
Parental Leave:
- Maternity: 26 weeks of 100% paid maternity leave for their first two children and 12 weeks for any additional children
- Paternity: No leave required
Holiday Leave: There are many national holidays and local holidays in India where employees commonly take time off or where companies close. Employers are only required to give paid time off for employees during the following national holidays:
- Republic Day
- Independence Day
- Gandhi Jayanti

Hiring international employees requires compliance with laws in two countries, which can be overwhelming for small businesses. That’s why we recommend using a compliance partner like Papaya Global. Its services can help you pay your Indian workers correctly and ensure compliance with both US and Indian laws.

Step 3: Post the Job Ad

Your job ad needs to describe the duties and responsibilities of the position and the work hours. Whether you decide to have your Indian staff work their local hours or your hours, spell out what you expect. This will help you narrow your candidate pool down quickly.

Post your job ad on job boards Indian workers will see. Some of the most common job sites include:

Step 4: Review Candidates & Conduct Interviews

To help you conduct applicant screening effectively, make a must-haves list for the role. The best talent should be able to match with your handful of must-haves.

Conducting interviews across time zones will present some challenges, though this is an opportunity for you to see how the applicant communicates given the obstacle, especially if you need them to work your hours. Set up a video interview with the half dozen most qualified—this, instead of a voice call, will ensure you can trust their internet connection.

Also, prepare structured interview questions for each applicant. This lets you rate candidates based on their answers to the same questions, allowing you to narrow the pool down to just one.

Step 5: Conduct Reference Checks

After you have targeted the candidate you want to hire, ask for references—and speak with at least two supervisory references. This will give you insight into the applicant’s work ethic and the skills they possess. A supervisory reference will also paint a picture of what it’s like to manage the individual.

While we recommend all employee reference checks be completed via a phone call, it might be too cumbersome to do so internationally. Communicating with a reference through email is acceptable if it is necessary. Ask references direct and follow-up questions to gauge whether the candidate will be successful in the role.

Step 6: Make an Offer

When making a job offer, connect with the person to discuss it and any other details. Once you’ve agreed on all the terms, present them with a formal employment contract, which is not a requirement in India but extremely common practice. Ensure it includes:

Salary and pay frequency
Job title
Start date
Specific working hours
Benefits

Insert the job description for the candidate to sign off on, as well, so that you can hold them accountable if they do not meet your expectations. Give them at least a week to review the proposed employment contract and return it to you.

If you choose to work with an independent contractor, send an independent contractor agreement. It should lay out similar details and include the scope of work for the job. While you have less control over their daily work, you can avoid the legal complexities associated with hiring an international employee.

Bottom Line

Hiring employees in India—or partnering with an international independent contractor—may present international challenges, but you can streamline the process by following our guide. You may also want to get advice from an international employment lawyer to ensure your company stays in compliance.