Employer of Record in India

**Employment Contract Requirements**: All employment in India should have a written contract in English. The contract must specify: job title, duties, salary (gross and net), benefits, work schedule, leave policies, and termination clauses. The contract should reference applicable state labor laws. **Provident Fund (PF) Management**: The PF is mandatory when monthly salary exceeds ₹18,000 (~$216 USD). Both employer and employee contribute 12% of basic salary (plus 3.67% administration fee on employer side, typically ~15.67% total employer cost). The contribution goes into the employee's retirement account managed by the EPFO (Employees' Provident Fund Organisation). At retirement or job separation after 5 years, the employee withdraws the full balance. Example: A developer earning ₹50,000/month pays 12% (₹6,000), and the employer pays 12% + 3.67% fee (₹7,835). The EOR handles all PF calculations, deposits, and paperwork with the EPFO. **Employee State Insurance (ESI)**: When monthly salary is ₹21,000 or below, ESI is mandatory. The employer contributes 3.25% (employee contributes 0.75%). ESI provides medical and disability benefits, including hospitalization coverage, maternity benefits, and disability pensions. For a ₹50,000/month salary, ESI contribution is not mandatory, but many organizations provide ESI-equivalent health insurance. The EOR ensures compliance based on salary level. **Gratuity Calculation**: After 5 years of continuous service, employees are entitled to Gratuity: 15 days of salary per completed year of service. Gratuity is a one-time payment upon separation after 5+ years, or upon retirement. Example: A developer earning $50,000/year (₹42 lakhs annual) receives Gratuity of (42 lakhs ÷ 12 × 15 × 5) = ₹26.25 lakhs (~$31,500 USD) upon separation after 5 years. Companies should reserve 4.81% annually to cover this future liability. The EOR manages Gratuity accrual and calculation. **Tax Withholding (TDS)**: Income tax in India is progressive: 0% for income below ₹2.5 lakhs, 5% (₹2.5-5 lakhs), 20% (₹5-10 lakhs), and 30% (above ₹10 lakhs), plus surcharges and cess. The employer must withhold tax monthly based on the employee's expected annual income and submit to the Income Tax Department. Example: A ₹50,000/month employee (₹6 lakhs annual) would have approximately 10-15% TDS withheld. The EOR handles all TDS calculations, withholding, and quarterly filings with the government. **Leave Accrual and Statutory Leaves**: Earned Leave accrues at 1.75 days per month (21 days/year), capped at 30 days carry-over per year in most states. Earned Leave must be paid out at separation. Additionally, female employees are entitled to 26 weeks of maternity leave (non-negotiable). Sick Leave (typically 5-7 days/year) is separate and may or may not be payable depending on state laws. Casual Leave varies by state and is often forfeited if not taken. The EOR manages all accrual, tracking, and payout automatically. **Salary Structure**: Salaries are typically broken down as: Basic (40-50% of gross), HRA (House Rent Allowance, 20-40%), DA (Dearness Allowance), and other allowances. This structure is critical because PF is deducted only on Basic + DA, not on HRA or other allowances. The EOR ensures correct calculation based on tax regulations and company policy. **Contractor vs Employee**: India's Supreme Court and various state courts have expanded the definition of "employee." If a contractor has fixed hours, uses company equipment, reports to a supervisor, or performs core business work, courts are likely to reclassify as employment. This triggers back payments of PF (12% employer + 12% employee + 3.67% fee), Gratuity, and government penalties. Using an EOR avoids this risk entirely by ensuring proper employment classification from day one. **State Variations**: Labor laws vary by state (Rajasthan, Maharashtra, Karnataka, etc.). Minimum wages, leave policies, and professional taxes differ significantly. EOR providers maintain separate entities in major tech hubs (Bangalore, Hyderabad, Delhi, Pune) to ensure state-specific compliance. When hiring through an EOR, specify the employee's work location so the EOR applies correct regulations. **Overtime and Working Hours**: The standard workweek is 40-45 hours. Overtime is payable at 1.5x (time-and-a-half) for hours beyond the weekly limit, up to a maximum of 50 hours/week in most states. Remote work is now normalized post-pandemic, but companies should maintain time tracking for overtime compliance.