A guide to understanding to labor laws in India

Hiring in India? Start here!

Many businesses looking to expand their operations set their sights on India sooner or later. India is the seventh-largest country in the world by land area and the second-most populous, meaning it has a massive workforce from diverse backgrounds and with experience in countless industries.

However, it can be challenging to hire in India. This is especially true in recent years because labor laws in India are currently in a state of flux. The Indian government has passed legislation intended to reorganize, streamline, and recodify nearly a century’s worth of labor law, but the legislation has not yet become official, leaving many institutions navigating the murky waters of changing laws.

If your company is considering hiring employees in India, you’ll need to ensure compliance with these new laws while also continuing to abide by the current, older laws. You don’t want to risk the costly fines now associated with failing to comply with the new employment laws in India. 

That might sound like a lot, and it is, but Oyster is here to help. Our skilled teams are dedicated to helping businesses remain compliant while hiring a global workforce. This guide is just the tip of the iceberg when it comes to how Oyster can help your business grow into the Indian market and mitigate the risks of expanding globally.

Want to see the Oyster platform in action? Book a demo and we promise to show you all the features that’ll make your People Ops team go whoa.

The history of employee rights in India

Currently, labor law in India is governed by about 30 pieces of federal legislation, along with a number of local and state laws depending on where the employee is located. These laws were passed between 1926 and 2019 and cover topics including:

  • Trade unions
  • Child labor
  • Sexual harassment
  • Migrant work
  • Wages
  • Holidays

Because some of these pieces of legislation are nearly one hundred years old, while many others are only 40 years old, you can imagine that there are some pieces of extant law that are outdated, hard to follow, or simply not easily applicable to the scope of labor today.

To address this matter, the central government of India has set out to rework and reform the country’s labor law. In 2019 and 2020, the bulk of Indian employment law was consolidated into four main Codes:

  • The Code on Wages
  • The Occupational Safety, Health, and Working Conditions Code
  • The Industrial Relations Code
  • The Code on Social Security

These Codes have modernized and streamlined employment law in India, and they also promise to impose significantly steeper fines for noncompliance—up to 20 times higher in some cases.

While the codes have been approved by India’s federal government, some state governments have not yet fully accepted them, which has led to a yearslong delay in their implementation. At the time of writing, there isn’t a set date for when these new laws will take effect.

Current labor laws in India

Payment 

The national currency of India is the Indian rupee (INR). Minimum wage regulations are mandated by law but can differ from state to state and vary based on the type of employment. Skilled workers typically earn between INR 10,000 to INR 22,000 per month, depending on their location. For instance, in Karnataka, highly skilled workers are entitled to a minimum wage of INR 15,424 per month. These wage rates are governed by the Minimum Wages Act 1948, and are determined by the individual states.

The working day is not to exceed eight hours, and the workweek typically maxes out at 48 hours. Labor laws delineate several regulations and procedures regarding overtime, which may extend working hours from 10 to 11 hours per day, equating to an additional 1 to 3 hours beyond the standard daily limit. Any work performed in excess of the standard daily limit is overtime work, which should be paid at two times the base rate. If an employee is on a fixed-term or temporary contract, these terms may change. Independent contractors in India are typically hired for a set fee, rather than for a salary or hourly rate. Up to 33% of this fee may be paid upfront.

You can use Oyster’s free calculator to estimate the cost of hiring an employee in India.

Leave

India recognizes around 10 national holidays per year, and states and municipalities may also require further holidays. Paid vacation usually includes between 12 and 18 days per year, and this number should be stipulated in the employee’s contract.

Employees may also be granted another type of leave, known as “casual leave,” which works similar to standard PTO but applies to urgent and unplanned situations. Sick leave varies by industry, but it generally amounts to 10 to 12 days per year. Maternity leave lasts between 12 and 26 weeks, depending on the number of children in the family. Paternity leave isn’t mandatory, but many companies offer it.

Termination

India doesn’t recognize at-will employment, so there are generally three ways an employer may terminate an employee’s position:

  • Termination may occur at any time during the employee’s probationary period, which typically lasts between three and six months.
  • An employee may also be terminated for misconduct, or reasonable cause. Misconduct is a fairly narrow category, including such acts as theft, fraud, and willful insubordination.
  • Finally, an employee can be terminated as part of collective dismissals, including those that happen as a result of redundancy or company consolidation. Employees terminated during collective dismissal are entitled to 15 days of pay per year worked.

Other benefits

Employment law in India stipulates a number of statutory benefits that employees must receive. These include a gratuity payment, which is a welfare payment given to employees who retire, resign, or become disabled. An employer who has at least 10 employees must make this payment to employees who have completed at least five years of continuous service with the employer. Gratuity is calculated at 15 days’ pay for each year of continuous service, for every full year of service, with any part of a year over six months also counted.

Employers must also pay into the Employee Provident Fund for employees who make under a certain amount each month. This is essentially a retirement fund that employees can only fully withdraw from at the age of 55.

Finally, employees are entitled to state insurance that is partially financed by the company.

Why hire in India

There are many good reasons to hire employees in India. For many companies, the country’s absolutely massive talent pool is top of mind. With a population of over one billion, India produces nearly a third of the world’s STEM graduates each year, with 1.5 million people graduating with engineering degrees from the country’s institutions annually. This has also led to an impressive array of technical expertise in India. Companies looking for skilled programmers, developers, designers, and security specialists should all turn their attention to India. 

How Oyster can help you hire in India

Oyster is a global employment platform that operates worldwide to help businesses find the best person for the job, no matter what the role, where the company is based, or where the employee is applying from. We operate in over 180 countries and work with over 140 currencies. Our goal is to help every company we work with stay compliant while building a global workforce.

We function as the legal employer for our clients’ international hires, and where we haven’t already established an entity, we work with trusted EORs to ensure an easy and reliable hiring process. Learn more about how Oyster can help you hire talent in India and around the world.

About Oyster

Oyster is a global employment platform designed to enable visionary HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.

Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.

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