Effortless Hiring in India

Employment Laws

• While written employment contracts are not mandatory under Indian labor law, they are widely considered best practice. If provided, contracts typically include:
• Employee Position and Duties: Clearly defined roles and responsibilities.
• Compensation: Salary details, bonuses, and retirement savings options.
• Working Hours and Leave: Information on work schedules, holidays, and leave entitlements.
• Term of Employment: Conditions related to termination if applicable.
• Dispute Resolution: Provisions for resolving disputes.

Onboarding Process

• Employers must collect prescribed employee details in writing under the Industrial Employment Act of 1946. Proper onboarding involves preparing compliant contracts and ensuring all documentation aligns with statutory requirements.

Types of Employment Contracts

1. Fixed-Term Contracts: For a specific duration or project.
2. Indefinite-Term Contracts: Common for ongoing employment with no predetermined end date.

Probationary Periods

• Probationary periods are not mandatory but are common practice in India. Under the Industrial Employment Act, probation periods typically last up to three months, though some state laws permit extensions up to six months.

Working Hours

• Employees are limited to a maximum of 48 hours per week, with a maximum of 9 hours per day, as mandated by Indian labor laws.

How Cadana Simplifies Hiring in India

Cadana enables businesses to hire compliantly in India by:

• Managing employee contracts that align with Indian labor laws.
• Streamlining onboarding processes for local and international employees.
• Handling payroll, benefits, and compliance, allowing companies to focus on growth while ensuring employee needs are met.

Payroll Frequency

The standard payroll cycle in India is monthly, with wages typically paid on or after the 28th of each month.

Minimum Wages

• India does not have a single nationally applicable minimum wage. Instead:
• Both central and state governments set minimum wages based on job type, industry, and sector.
• Minimum wages can vary significantly across states and roles.
• As of 2023, the federal government recommends a minimum wage of approximately INR 178/day (~$2.26), which states are encouraged to implement.
• For example, in Karnataka (2021):
• Computer/Data Entry Operator: INR 15,744.47/month (~$201.85).
• Manager: INR 18,146.20/month (~$232.64).

Payroll Deductions

Common deductions from employee salaries include:

• Income Tax (Pay As You Earn - PAYE):
• Progressive rates based on income:
• 0% for income up to INR 2.5 lakh/year.
• Rates increase from 5% to 30% for higher income brackets.
• Employees’ Provident Fund (EPF):
• Both employer and employee contribute 12% of the employee’s salary to the retirement fund.
• Employees’ State Insurance (ESI):
• Applicable to employees earning up to INR 21,000/month.
• Employee contribution: 0.75% of salary.
• Employer contribution: 3.25% of salary.
• Professional Tax:
• Levied by certain states, ranging from INR 200 to INR 2,500 annually.

Bonus Payments

• Governed by India’s Payment of Bonus Act, 1965:
• Minimum Bonus: 8.33% of wages or INR 100, whichever is higher.
• Maximum Bonus: 20% of wages during the accounting year.

Overtime

• Employees are entitled to overtime pay for hours worked beyond their contractual limit.
• Under the Minimum Wages Act, 1984, overtime is paid at double the ordinary wages.
• Overtime rules may vary depending on state regulations.

How Cadana Simplifies Payroll in India

Cadana helps businesses navigate India’s complex payroll regulations by:

• Ensuring accurate and compliant payroll processing.
• Managing tax withholdings and overtime calculations.
• Offering centralized platforms for payroll data and secure management.

Employee Income Tax in India

• Residents and resident companies are taxed on their global income, while non-residents are taxed only on India-sourced income. Non-residents become tax residents if they stay in India for 182 days or more in the relevant tax year.

Income Tax Slabs for Individuals (2021-2022):

• Income of 0 – 2.5 lakh: 0%
• Income of 2.5 – 5 lakh: 5%
• Income of 5 – 10 lakh: 20%
• Income above 10 lakh: 30%

Employer Contributions

Employers in India must contribute to statutory funds and benefits, including:

• Employees’ Provident Fund (EPF): Employers contribute 12% of the employee's salary for retirement savings.
• Employees’ State Insurance (ESI): Employers contribute 3.25% for health insurance, applicable to employees earning up to INR 21,000/month.
• EPF Administration Fee: Employers pay an additional 0.50% of employee salary.
• Employee Deposit Linked Insurance (EDLI): Fixed contributions for insurance.

Goods and Services Tax (GST)

• Introduced in 2017, GST replaced multiple indirect taxes and simplified India's tax structure. The rates vary by goods and services, categorized into:
• 0%
• 5%
• 12%
• 18%
• 28%

Health Insurance

• Subsidized healthcare is provided under the Employees’ State Insurance Act, 1948, with employees contributing 0.75% and employers contributing 3.25% of employee wages.

Pension

• Governed by the Employees’ Provident Fund Act, 1952, both employers and employees contribute 12% each of the employee's earnings to the Provident Fund and pension schemes. This applies to establishments with 20 or more employees and employees earning up to INR 15,000/month.

Types of Leave in India

1. Annual Leave

• Employees are entitled to a minimum of 15 days of leave per year, though specific laws can vary by state.
• Additionally, employees can avail 10 days of casual leave, which allows them to take time off without prior approval.

2. Parental Leave

• Maternity Leave:

• Governed by the Maternity Benefit Act, 1961 (amended in 2016).

• Eligible female employees are entitled to 26 weeks of paid leave if they have fewer than two children.

• For employees with two or more children or for "commissioning" or "adopting mothers," the entitlement is 12 weeks of paid leave.

• Additional provisions include:

• 6 weeks of paid leave for miscarriage or medical termination of pregnancy.

• 1 month of paid leave for illnesses arising from pregnancy or delivery.

• A medical bonus of INR 3,500 (~$44.84).

• Nursing breaks and childcare facilities for establishments with 50 or more employees.

• Paternity Leave:

• There is no legal mandate for paid paternity leave in the private sector.

• Federal and state governments allow up to 2 weeks of paid paternity leave for male employees within six months of childbirth.

3. Sick Leave

• Sick leave entitlements vary by state but generally allow for around 10 days of paid sick leave per year.
• Additional unpaid time off is at the employer’s discretion.

4. Public Holidays

• Public holidays in India are a mix of mandatory national holidays and state-specific holidays.
• Most states offer around 10 public holidays per year, with 4-5 being national holidays, while the remaining are determined by employers.

Examples of national holidays include:

• Republic Day (January 26)
• Independence Day (August 15)
• Mahatma Gandhi Jayanti (October 2)
• Diwali/Deepavali (date varies)
• Christmas (December 25)

Federal Benefits

Mandatory employee benefits in India are governed by several primary statutes, including:

• Employees’ State Insurance Act, 1948: Provides medical insurance, disability insurance, and unemployment benefits for employees earning up to INR 21,000/month.

• Employees’ Provident Fund Act, 1952: Establishes a retirement pension fund where both employers and employees contribute 12% of the employee's salary.

• Maternity Benefit Act, 1961: Offers paid parental leave for eligible female employees. Eligible mothers receive 26 weeks of paid leave if they have fewer than two children and 12 weeks if they have two or more children.

• Payment of Gratuity Act, 1972: Ensures separation and retirement benefits for employees who have completed at least five years of service.

• Employees’ Compensation Act, 1923: Covers compensation for death, injury, partial disability, and occupational diseases.

Supplemental Benefits

Employers in India commonly enhance statutory benefits by offering supplemental perks, including:

• Medical Insurance: Extended coverage beyond statutory health insurance, often including maternity care, cancer treatments, and fertility support. Coverage typically extends to dependents.

• Accident Insurance: Supplemental plans that provide coverage for accidental death and dismemberment (AD&D), offering financial security for employees and their families.

• Retirement Funds: Additional contributions to employee pension schemes or private retirement funds beyond the mandatory provident fund.

• Lifestyle Benefits:

• Transportation Allowance

• Meal Vouchers

• Mobile or Internet Reimbursements

Process

• Employers must provide a valid reason for termination, which can include misconduct, redundancy, or unsatisfactory performance.
• The termination process should follow due process, which may include:
• Issuing written warnings for performance or conduct issues.
• Conducting a disciplinary hearing if required, allowing the employee to respond to allegations.
• Providing a written termination notice that clearly states the reasons for dismissal.
• For retrenchment (redundancy), prior approval from the government may be required, especially for organizations with more than 100 employees, as mandated by the Industrial Disputes Act, 1947.

Notice Period

• The standard notice period for termination is typically between 30 to 90 days, depending on the employment contract and organizational policies.
• For terminations due to misconduct, immediate dismissal may occur without notice, but the employer must substantiate the cause.

Severance Pay

• Employees are entitled to severance pay if terminated due to redundancy or retrenchment.
• Severance is calculated as 15 days of pay for every completed year of service under the Industrial Disputes Act. This applies when employees are laid off due to economic reasons or organizational restructuring.