Laws and Policies in India

Employment Contracts in India

Employment laws are governed by central labour codes and state-specific regulations, making compliance multi-layered.

Contract Requirements

Employment contracts must be in writing and include:

• Employer & employee information
• Job title and responsibilities
• Work location (on-site/remote/hybrid)
• Salary structure (fixed, allowances, variable components)
• Working hours
• Leave entitlements
• Notice period
• Termination terms
• Statutory benefit contributions (PF, ESI, etc.)

Types of Contracts

• Permanent (full-time) contracts
• Fixed-term contracts
• Consultant agreements (for non-employees)
• Probationary employment

Probation

Common practice: 3–6 months, depending on role and company policy.

An EOR ensures compliant contracts aligned with central and state regulations.

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Working Hours in India

Working hour rules vary by state and industry but generally include:

• Standard workweek: 48 hours
• Daily limit: 8–9 hours
• Weekly limit: 6 days, with 1 mandatory weekly rest day

Overtime

• Paid at 2× the normal wage
• Certain industries require prior approval for extended overtime

Flexible Arrangements

India widely supports:

• Hybrid and remote work
• Flexible scheduling
• IT & tech sector exemptions under Shops & Establishments Acts

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Employee Leave in India

Entitlements vary by state and type of establishment, but common standards apply:

Annual / Earned Leave

• Typically 12–21 days per year, depending on state and employer
• Leave accrues monthly
• Carry-forward allowed up to statutory limits

Sick Leave

• Commonly 6–12 days per year
• Some states mandate paid sick leave under Shops & Establishments rules

Casual Leave

• 6–12 days per year, depending on company policy

Maternity Leave

Under the Maternity Benefit Act:

• 26 weeks of paid maternity leave for the first two children
• 12 weeks for subsequent children
• Additional paid/unpaid leave for medical complications

Paternity Leave

Not mandated nationally, but many employers offer 5–15 days.

Public Holidays

India has:

• 3 national holidays (mandatory)
• 10–15 additional state and festival holidays depending on location

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Employee Benefits in India

Mandatory Statutory Benefits

Provident Fund (PF)

• Employer: 12% of basic salary
• Employee: 12% of basic salary
  Mandatory for companies with ≥20 employees (EOR covers compliance).

Employee State Insurance (ESI)

Applicable if gross salary ≤ INR 21,000/month.

• Employer: 3.25%
• Employee: 0.75%

Gratuity

Mandatory after 5 years of continuous service

• Approx. 15 days of salary for each completed year

Statutory Bonus Act

Applicable to employees earning ≤ INR 21,000/month

• Bonus range: 8.33% – 20% of annual wages

Professional Tax (PT)

A state-level tax deducted monthly (where applicable).

Additional Benefits Provided by Companies

• Private health insurance
• Life and accident insurance
• Internet/telephone allowance
• Meal benefits or food cards
• Performance bonuses
• Remote work allowances
• Learning & development budgets

An EOR ensures all statutory benefits are managed accurately and compliantly.

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Payroll & Tax in India

Payroll Currency

• Salaries are paid in Indian Rupees (INR)

Payroll Cycle

• Most employers follow a monthly payroll cycle (1st–30th/31st)

Income Tax

India has a progressive income tax system under old and new tax regimes.
Employers must:

• Deduct TDS (Tax Deducted at Source)
• Deposit taxes monthly
• Issue Form 16 annually
• Maintain payroll records

Employer Payroll Responsibilities

• PF, ESI, PT, TDS deductions
• Monthly statutory filings
• Compliance with labour codes
• Employee onboarding documentation
• Accurate salary structure and tax optimization

An EOR manages all payroll calculations, deposits, returns, and compliance filings.

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Employment Laws & Compliance in India

Key compliance areas include:

• Written employment contracts
• Adherence to Shops & Establishments Acts
• PF, ESI, Gratuity, Bonus compliance
• Minimum wage requirements (state-specific)
• Maternity Benefit Act
• Prevention of Sexual Harassment (POSH) compliance
• Health & safety standards (especially in factories)

Termination & Notice

Typical notice periods:

• 30–90 days, depending on role and contract

Severance obligations may apply:

• Retrenchment compensation: 15 days’ pay per year of service
• Payment of unused leave
• Final settlement within required timelines

Non-Discrimination

Employers must avoid discrimination based on:

Marital status

Gender

Caste

Religion

Disability

Age

Sexual orientation

Pregnancy