India has long been a hotbed for companies seeking to expand into growing markets. The country’s relatively youthful population coupled with high levels of education and familiarity with English makes it a great option for recruiting skilled employees.
Online there are numerous resources offering detailed information on Indian payroll taxes and employer obligations. In this article, we will summarize and highlight all relevant information that employers must know before hiring people in India.
Payroll Contributions
Employers in India are taxed via two methods. The first imposes a total employment cost of 16.75%. The Employee’s Provident Fund or Pension Scheme accounts for 12% of this sum, with this contribution mandatory for companies with more than 20 employees and a maximum monthly salary of 15,000 INR.
The remaining 4.75% is accounted for by the Employee’s State Insurance, also compulsory for employers with more than 10 employees. The second method levies 17.75% as total employee costs. The Provident Fund once again accounts for 12% but the State Insurance is 1.75%. The remaining 4% is charged towards a Health and Education Cess, levied on the amount of income tax plus surcharge.
Employees pay taxes based on their income, with slabs topping out at an annual salary of 1,000,000 INR (10 lakh INR.) Those earning less than INR 250,000 do not pay taxes while those earning up to 500,000 INR pay 5%. People earning up to 1,000,000 INR pay 20%, and those earning more than this figure pay 30%.
India levies VAT at 18% and 12%. The reduced VAT rate is 5%.
Wages and Payroll Cycles
Minimum wages in India are fixed by state governments. Typically, this is a complex task that involves categorizing modes of employment and job functions for unskilled workers. Each job is then given a particular minimum wage that employers must adhere to.
Wages are paid monthly in India with salaries typically paid on the 28th of each month. A 13th salary is usually mandatory and is paid as a percentage of the annual salary. This amount is paid within 8 months of the end of the financial year.
Working Hours and Leave
India follows a standard workweek of 48 hours, with each day extending up to 9 hours. All work conducted for more than 48 hours counts as overtime and is compensated at 200% of regular pay rates.
Paid time off periods are set in employee contracts, and workers are entitled to a minimum of 15 days of paid leave per year after completing 240 days of employment. Usually, the number of days and leave carryovers are stipulated in the employee’s contract. All requests must be applied for at least 15 days before the beginning of the leave period and must be approved by the employer and the manager in charge of the applicant.
Employees who have completed three months of service are entitled to 15 days of sick leave per year and must provide medical proof within 48 hours of the first day of sickness. Sick pay is fixed at 70% of regular pay. Expectant mothers are eligible to receive their full salary for 26 weeks for their first 2 children.
This period decreases to 12 weeks for subsequent children. Employees must have completed at least 80 days in the preceding 12 months before the due date to be eligible for these benefits. Government employees are eligible for 15 days of paternity leave but no such laws exist in the private sector. There are no statutory laws on parental leave either.
All other leaves are set by respective state governments.
Employee Work Eligibility and Termination
India offers a business visa and an employment visa. A business visa allows an employee to visit India for up to six months and conduct business for a foreign company. An employment visa is needed for foreigners looking to work in the country for more than six months. The term lasts for five years and can be extended.
Those with an employment visa can live and work in India on a more permanent basis. All applications must be made in the applicant’s country of residence. India follows a standard termination process, with notice periods in place to minimize disruption.
A notice period is not necessary if the employer can provide cause for dismissal such as misconduct, disobedience, lack of skill, neglecting duties, or unsanctioned absences. The notice period is typically 30 days.
Severance pay in India depends on the terms of the employee’s contract, their position, and the reason for termination. New employees typically have probation periods between six to eight months.
Comprehensive Rules
India follows the global pattern of setting comprehensive employment rules and assists employers in complying with them. Businesses looking to hire local talent will find that the laws assist them in their goals.
