Expanding your business by hiring workers from India opens the door to a vast pool of skilled professionals, especially in information technology (IT) and other specialized fields. But before diving in, you need to decide if you’re going to hire an employee or partner with an independent contractor.
For small businesses with limited hiring needs, independent contractors often make the most sense. If you’re planning to bring on several team members, establishing a local presence or using an Employer of Record (EOR) could be the better move. We’ve broken down the steps for hiring both contractors and employees in India so you can make an informed decision.
Key Takeaways:
- Indian workers have marketable skills and often require lower wages making it an attractive solution for some businesses
- Foreign companies can only hire employees in India by establishing a local entity or partnering with an EOR
- Can be costly, time-consuming, and a compliance minefield
- US companies may also partner with Indian independent contractors
- You have to ensure they meet the definition of a contractor or you’ll face penalties
- You have more limited control over how they do their work
Hiring Independent Contractors in India
If you just need a few employees, hiring an independent Indian contractor can help you reduce your overhead costs and dispense the need to create a legal entity. Even better, many remote employees from India are used to working on an independent contractor basis. However, take note that you will have less control over the work done and may face stiff fines and penalties for misclassification.
Hiring independent contractors from India generally follows the same process as listed in our guide to hiring international contractors (creating a job ad, reviewing candidates, etc.). Here, we’ve indicated some of the considerations specific to hiring contractors in India.
Step 1: Review India’s Labor Laws
India’s independent contractor law, Contract Labour Act 1970, defines an independent contractor as a worker engaged in producing a given result. Essentially, this is similar to how the US defines an independent contractor as someone working for a company on a by-project basis.
India allows independent contractors to work for multiple companies if they so choose. The workers may also include temporary, fixed-term, and gig workers.
Compliance Note: If you plan to hire more than 20 independent contractors, you must become a principal employer in India. This is a registration certificate that will require you to jump through several bureaucratic hoops.
What to Know About Gig Workers in India
Because gig work has become so popular recently, let’s dive in a little further. “Gig workers” are actually a new worker designation under The Code on Social Security, 2020. These workers are generally more short-term than normal independent contractors, though you could still use gig workers for projects you need to complete.
What’s important to note about this law, however, is that a gig worker must contribute to the Social Security program in India. They will contribute 1% to 2% of their annual gig worker income. Your company will need to be aware of this provision, but you won’t likely be required to withhold this income on the independent contractor’s behalf.
Misclassifying Independent Contractors in India
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 noncompete 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
Employee (W2 Workers) and Independent Contractor (1099 Worker) are starkly different worker classifications that you’ll have to understand to avoid penalties. Learn more about it in our 1099 vs W2 article—though targeted for the US workforce, it is quite similar to India’s definition of these types of workers.
Step 2: Determine Withholding Taxes & Collect W-8BEN Forms
If the independent contractor you work with lives and does all their work for you inside India, then you don’t have to withhold taxes.
However, if the independent Indian contractor ever comes to the US and does work for you while in the US, then the time you compensate them for work done will be taxed by the US. That’s why it’s vital that you have the independent contractor complete Form W-8BEN or W-8BEN-E.
These forms must be completed by the foreign independent contractor and retained by your business—you don’t file them with any government agency. The purpose of these forms is to ensure you don’t have to withhold taxes—or, if you do, you withhold at the appropriate rate.
Step 3: Use an Independent Contractor Agreement
When partnering with international contractors, instead of providing a job offer, you’ll both sign an independent contractor agreement. Indian law does not require you to use one—except in Delhi and Karnataka—but we highly recommend doing so. This agreement will lay out the terms and conditions of your relationship, stating clearly what you need the independent contractor to do and that there is no employer-employee relationship.
Your agreement should include:
- Specific description of the project, including a term or duration if known
- Payment rate, terms, and an administrative fee of not less than 10% of the total contract amount
For an easier time, use our independent contractor agreement template when hiring from India.
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Step 4: Determine How to Pay the Indian Independent Contractor
You’ll need to set up a regular payment system to pay the Indian independent contractor. You can pay by wire transfer, but that may come with cost-prohibitive charges, especially if you’re paying more than once per month. Learn the basics of paying independent contractors in India in our guide on how to pay international contractors.
Independent contractors in India are used to being paid just once per month, so you may use that timetable for your payments. Because of its simplicity, many companies prefer to use the Society for Worldwide Interbank Financial Telecommunications (SWIFT) for payments to India. You’ll be charged a fee, but SWIFT makes it easy to make your payment in US dollars and have the foreign worker receive the payment in their currency.
Hiring Employees in India
Setting up a legal entity in India is a good idea if you plan on expanding your business there or are hiring over 20 employees. Hiring an employee from India will follow the same steps as outlined in our guide to hiring international employees, including determining the type of worker you hire (full time, part time, seasonal, or temporary) and writing your job description.
Here are the main differences you’ll need to watch out for when hiring in India.
Step 1: Set Up a Legal Entity in India
It is illegal for you to begin hiring employees in India without establishing 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
Step 2: Determine Salary & Benefits and Understand Compliance
Because the cost of living in India is about 82% less than in the US, an average salary is about $400 per month. In fact, even in specialized positions, you could see a reduction in overhead costs.
While that may be the case, 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 but must be at least 8.33% of wages. If you’re having trouble figuring out bonuses, check out our article on how to calculate bonuses for employees.
Payroll & Employment Law Compliance in India
There is no payroll schedule requirement, but most Indian workers are used to being paid at least monthly. There are important labor laws and taxes you need to know, which are:
- Minimum wage: India’s minimum wage is adjusted frequently by taking into account over 2,000 job types. It’s currently set at 178 rupees per day (about $2.12). 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, as indicated in the table below.
Benefit | Employee Share | Employer Share |
|---|---|---|
Employee’s Provident Fund | 12% | 12% |
Employee’s State Insurance | 0.75% | 3.25% |
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, including unlimited PTO. Download our free PTO template policy or check out our guide on providing unlimited PTOs.
- Sick leave: Any employee who has been employed for three months or more continuously is entitled to 12 paid sick days per year. Sick days are paid at 70% of the employee’s regular rate of pay.
- Maternity leave: 26 weeks of 100% paid maternity leave for their first two children and 12 weeks for any additional children.
- Holiday leave: There are many national holidays and local holidays in India where employees commonly take time off or where companies close, usually between eight and 12 days. Employers are only required to give paid time off to employees during the following national holidays:
- Republic Day
- Independence Day
- Gandhi Jayanti
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 that Indian workers will see. Some of the most common job sites include:
Learn how to attract the best candidates in our guide to creating effective job advertisements.
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.
Remember to 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, the skills they possess, and what it’s like to manage the individual. Ask references direct and follow-up questions to gauge whether the candidate will be successful in the role.
While we recommend all employee reference checks be completed via a phone call, it might be too cumbersome to do so internationally. As such, communicating with a reference through email is often acceptable. You may use our curated list of employee reference check questions for some ideas on how to approach this process.
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. Although this is not a requirement in India, this is an extremely common practice and will protect you as the employer later on.
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.
What to Consider Before Hiring in India
One of the biggest reasons small businesses hire workers from India is the reduced overhead. However, while you may save more money than you would by hiring someone in the US, there are certainly other factors to consider when hiring in India.
For one, they are not afraid to job hop—about half of all workers want to change jobs by mid-2025. They do this to improve their skills and salary, which means you don’t have to look for only unemployed workers.
Here are some other things to consider before hiring in the country.
Employees vs Independent Contractors in India
Employee | Independent Contractor | |
|---|---|---|
Pay | Earn a regular salary or hourly wage | Paid based on specific tasks or projects pursuant to agreement |
Taxes | You’re responsible for withholding and paying various taxes | Contractors handle their own taxes |
Benefits | Employees receive benefits | Contractors do not receive benefits |
Training | Employees may receive training and development | Contractors are expected to come equipped with the necessary skills |
Control | Employees work under your direction and control | Contractors work independently |
Independence | You manage your employees’ daily tasks and projects | You manage the end result for contractors |
Exclusivity | Employees may work exclusively for your company | Contractors may work with many companies |
Expenses | You’re responsible for covering work-related expenses | Contractors cover their own expenses |
Termination | Ending employment may require a notice period and severance | Contractors end their engagement per the contract terms or notice period |
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.
Business & 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.
Here are a few differences that you’ll want to keep in mind.
Work Hours
Where cultures differ more is around business hours. In India, the workday starts later, usually around 10 a.m., and stops at about 6 p.m. However, workers in India are used to working US hours or staggered shifts, so don’t let this deter you from hiring employees in India. While that may be the case, you may still need to be more flexible with shift start and end times.
Factors in Communication: Respect & Hierarchy
Indian business culture places a strong emphasis on hierarchy and respect for authority. Formality in communication, especially with more seasoned and higher-level workers, is also important. Indian professionals may expect a certain level of deference and respect in how you address them, especially in written communication.
Business relationships in India often extend beyond mere transactions. They are often built on trust and mutual respect. Taking the time to develop a personal rapport with your Indian counterparts can lead to more successful collaborations.
Recognition and Its Role in Loyalty
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. This focus on loyalty and recognition means showing appreciation for your Indian workers’ dedication can significantly impact their job satisfaction and retention.
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 (ET). 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.
Hiring Directly vs Using an EOR
When hiring employees in India, you have two main options: hiring directly or using an EOR. Hiring directly means you handle everything yourself. This includes all duties from recruitment to payroll to compliance with local labor laws. This approach gives you full control over the hiring process but it involves a great deal of complexity, time, and cost.
An EOR is a third-party service that takes on the legal responsibilities of employing your workers in India. The EOR becomes the Employer of Record, handling everything from payroll to compliance, while you retain control over the daily tasks and responsibilities of the employees. This approach is beneficial if you’re looking to enter the Indian market quickly and without the administrative burden.
Ultimately, the decision between hiring Indian employees directly and using an EOR depends on your business’s size, resources, and long-term goals. If you’re looking for full control and have the resources to manage the complexities, hiring directly might be the way to go. However, if you want to minimize risk and simplify the process, an EOR could be a valuable partner in your expansion into India.
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Hiring Employees in India Frequently Asked Questions (FAQs)
Yes, and there are two main ways to do this: hiring directly or using an EOR. You can also partner with independent contractors, though you’ll have less control over their daily tasks and duties.
There are many job board websites that target Indian workers, including Naukri and Indeed. You can also partner with local recruitment agencies that specialize in your industry to find qualified talent. An EOR may also be able to help you locate suitable workers.
The cost of hiring an employee in India varies depending on factors like the role, experience level, and location. Salaries in India are generally lower than in the US, but these can still range widely. If you use an EOR, there will be additional fees for their services. If you’re hiring entirely yourself, without considering business setup costs—which can easily reach several thousand—you can hire for as little as a few hundred dollars. On the other end, it can cost tens of thousands for highly specialized roles when using an EOR or other outsourcing option.
