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How to Hire Employees in India: A Guide for U.K. Businesses

By August 25, 2022March 12th, 2023No Comments

The remote talent pool in India is flourishing, with a growing population of educated, English-speaking, and tech-savvy workers looking for opportunities. If your British company is considering expanding internationally, India offers an exciting choice for finding exceptional talent.

Can a Foreign Company Hire Employees in India?

Yes, foreign companies can hire employees in India. However, there are some important considerations to remember if you are expanding beyond the borders of the U.K. For instance, India’s 29 states each have unique laws and taxes requiring deliberate navigation.

How to Hire Employees in India

When preparing to hire employees in India, it’s important to decide whether it’s worth setting up a permanent establishment. Creating a permanent establishment requires that businesses closely follow local employment laws to ensure compliance.

Let’s look at three options for U.K. companies who want to expand into India: Setting up a foreign entity, using an employer of record, and hiring contractors.

In-post graphic about how to hire employees in India from the UK

Set Up an Entity

Depending on whether your company hopes to plant permanent roots in India, it may be in your best interest to set up a foreign entity.

For companies that will be establishing a long-term presence in India, or for those who plan to recruit a large team, it makes sense to conduct business as a foreign entity. Setting up an entity allows your company to manage employment logistics internally and save money.

If you do decide to set up an entity, know that it can be an expensive and risky ordeal. During this process, it is vital to research and understand employment laws in India to ensure compliance throughout your presence in the country.

Use an Employer of Record

For companies who do not want to be responsible for managing Indian employment compliance, partnering with an employer of record (EoR) is recommended. Rather than setting up an entity yourself, the EoR operates as a legal entity that handles your company’s hiring, payroll, benefits, and taxes on your behalf.

A global EoR solution enables businesses to ensure their supported employees receive compliant pay, benefits, and support, without having to set up an established entity in India. An EoR becomes the legal employer of the supported employees, making it a far easier and less risky process to do business.

Hire Indian Contractors Instead

If your company doesn’t have plans to establish a long-term presence in India, it may make sense to hire contractors instead. Contractors are an excellent option for companies who need short-term engagements. However, there are still challenges when engaging contractors, as the misclassification of workers can lead to hefty fines and reputational damage.

What to Consider Before Hiring Employees in India

As discussed, hiring in India requires in-depth knowledge of local employment laws. The risks of noncompliance are worth considering if you are planning to grow your business in India.

Common employment challenges include failure to classify contractors and employees correctly, employment law noncompliance, payroll contribution confusion, and misunderstandings around what constitutes a permanent establishment.

Misclassification Laws

While hiring contractors may seem easier than establishing an entity or partnering with an EoR, there are still compliance risks to consider. Hiring contractors could lead to misclassification risks. If a company classifies its employees as contractors improperly, they could face fines, legal issues, and back pay for employees.

Before engaging a contractor, it is recommended to partner with a company to help you understand how to classify your workers, therefore avoiding non-compliance. A global employment partner ensures clients correctly classify their talent under local labour laws. A classification audit helps companies avoid fines, legal fees, business interruptions, and reputational damage from misclassification issues.

Employment Laws in India

With 29 different states, you must follow the correct requirements of the region you are doing business in. The variables between states are diverse, from minimum wage to termination laws.

The national minimum wage in India is 176 (£1.93) rupees for every eight-hour workday, but some states set lower minimum wages. Variable employment laws make it crucial to conduct thorough research prior to onboarding employees across India.

Payroll Contributions

Similarly to an employer’s social security contribution in Great Britain, India has the Employee’s Provident Fund (EPF), which is the country’s social security scheme. All foreign businesses with more than 20 employees in India are required to make this contribution.

Employers and employees both contribute 12% to the EPF, as required by law. Another notable requirement is the recent change that mandates all employers to provide medical insurance in the wake of COVID-19.

Permanent Establishment

Businesses that develop a consistent presence in India may be considered permanent establishments. Once a company triggers permanent establishment, it is responsible for paying local corporate taxes.

The parameters of a permanent establishment are the following:

  • Regularly conduct business in India
  • Have a permanent location in India
  • Partially or wholly operate business through an Indian location

Be aware that if your business is generating income from a stable location, you will face compliance requirements and could risk unpaid taxes or other employer liabilities.

Hire in India With a Leading Workforce Partner

Hiring employees in India is a powerful growth move for many companies in the U.K., but it’s not without its challenges.

British companies partner with Velocity Global’s Employer of Record to accelerate hiring and operations in India. Beyond streamlining employment in India, our EoR solutions provide onboarding, payroll, immigration, benefits, and ongoing support.

For companies interested in hiring a contractor workforce in India, Velocity Global’s Contractor Management (Agent of Record) solution helps companies pay, onboard, and ensure compliance for contractors worldwide.

Contact Velocity Global today to find out how to expand your business into India with ease and efficiency.