India has become one of the most attractive destinations for global companies building distributed teams. The country offers deep talent pools, competitive labor costs, and a fast-growing digital infrastructure. However, India’s employment laws are also known to be complex, multi-layered, and heavily regulated, especially for foreign employers unfamiliar with the regulatory landscape.

This comprehensive guide breaks down the essentials of labour laws in India, covering employment contracts, working hours, wages, social security, employee rights, termination rules, and the most compliant way for global employers to hire—through an Employer of Record (EOR) such as Asanify.

Understanding the Indian Employment Law Framework

India’s employment laws originate from central (federal) legislation, state-level laws, and industry-specific statutes, making compliance multi-dimensional. Unlike countries that rely on a single labor code, India’s regulations often overlap, making interpretation a key challenge for foreign companies.

Central vs. State Legislation

Because employees can work from any state, global companies must track differing state norms—one of the most overlooked compliance risks in remote hiring.

Suggested Read: Employee Benefits in India: Everything You Need to Know in 2025

Regulatory Bodies You Must Know

India’s employment landscape is governed by multiple authorities that oversee labour laws, social security, workplace safety, and state-level compliance. Understanding these regulatory bodies is essential for ensuring proper registrations, accurate payroll deductions, and timely statutory filings. Below are the key institutions every global employer must be familiar with before hiring in India.

• Ministry of Labour & Employment (MoLE) – drafts national labor laws.
  
• EPFO – administers Provident Fund and pension schemes.
  
• ESIC – manages Employee State Insurance.
  
• State Labour Departments – enforce regional employment rules.
  

The Labour Codes Reform

India has introduced four consolidated Labour Codes aimed at simplifying and modernizing the country’s labour regulations. While full implementation is still pending across states, these codes are expected to streamline compliance and bring greater uniformity to wage, social security, and workplace standards.

India introduced four consolidated labour codes:

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

Although implementation is pending in some states, these reforms aim to simplify the regulatory framework. Global employers should expect phased enforcement.

Why this matters for you:
Labour law compliance remains intricate. Working with an EOR like Asanify ensures you stay aligned with both central and state-level rules without needing to understand every small legal nuance.

Types of Employment Contracts in India

Unlike some Western markets with standardized templates, India’s employment contracts require careful drafting to ensure legal validity and avoid disputes. The contract your company uses directly impacts compliance outcomes.

Permanent Employment Contracts

The most common arrangement in India, offering:

• Full-time employment
  
• Access to statutory benefits (PF, ESI, gratuity)
  
• Long-term job security for workers
  

Employees under this category receive stronger protection under Indian labour laws, including notice period and termination safeguards.

Fixed-Term Contracts (FTC)

Fixed-term contracts are legally allowed if:

• Tenure is explicitly mentioned
  
• Benefits are equivalent to full-time employees
  
• No unfair termination practices are involved
  

Many global companies mistakenly assume fixed-term contracts bypass Indian severance norms—this is incorrect.

Contract Labour & Third-Party Staffing

Hiring through vendors is regulated under the Contract Labour (Regulation & Abolition) Act, and requires:

• Registration for establishments using contract labour
  
• Licensing for staffing vendors
  
• Equal wages compared to permanent employees in similar roles
  

Global employers often violate these provisions unintentionally. Asanify eliminates these risks by acting as the legal employer.

Mandatory Clauses in Indian Employment Contracts

Indian laws expect certain clauses to be explicitly written, such as:

• Job description & reporting structure
  
• Working hours and leave entitlements
  
• Compensation breakdown (Basic, HRA, Allowances)
  
• Overtime policy
  
• Termination, severance, and notice periods
  
• Confidentiality, IP rights, and non-solicitation terms
  
• Compliance with state-specific Shops & Establishments Act
  

Missing or vague clauses are one of the biggest triggers for legal disputes.

How an EOR Ensures Legally-Compliant Contracts

Asanify provides:

• State-compliant, watertight employment contract templates
  
• Legally required clauses customized to employee location
  
• Protection against misclassification
  
• Localized compensation structure for payroll & taxes
  

This ensures global employers never have to interpret India’s contract requirements manually.

Wages, Working Hours & Leave Policies Under Indian Law

India’s regulatory framework for wages, working hours, and employee leave is governed by a combination of central legislation and state-specific rules. Because these norms vary across regions, industries, and job categories, global employers must carefully structure compensation and work policies to remain compliant. Below is a comprehensive breakdown to help you navigate these requirements with clarity.

Minimum Wage System

Unlike countries that adopt a single nationwide minimum wage, India follows a multi-factor minimum wage structure where rates depend on:

• State or Union Territory
• Industry or scheduled employment
• Skill level (unskilled, semi-skilled, skilled, highly skilled)
• Job category or role

This means that a “skilled worker” in Karnataka may legally need to be paid a very different minimum wage than a worker classified under the same skill band in Tamil Nadu. Additionally, several states publish revised wage notifications once or twice a year, requiring businesses to monitor and implement updates promptly.

For global employers managing distributed teams across India, this can become a compliance challenge. Partnering with an EOR like Asanify ensures that your compensation remains aligned with every state’s latest wage standards.

Wage Components You Must Include

Indian salary structures operate differently from many Western countries. Employers are expected to break down salary into specific components that influence tax calculations, social security contributions, and take-home pay. A compliant Indian salary typically includes:

• Basic Salary (usually 40–50% of the total CTC)
• House Rent Allowance (HRA)
• Special Allowances or flexible allowances
• Statutory Bonus (where applicable)
• Employer Provident Fund (PF) Contribution
• Gratuity Accrual based on years of service

This structure is not optional; statutory contributions like PF and gratuity must be computed on eligible wage components. Many foreign companies unintentionally create non-compliant salary structures, especially when trying to align Indian payroll with global templates.

Asanify’s payroll intelligence engine eliminates this risk by automatically generating India-compliant salary breakdowns for every employee.

Working Hour Regulations

Working hour rules in India are designed to protect employees from excessive workloads and ensure a minimum standard of occupational welfare. While the Factories Act and Shops & Establishments Acts form the foundation, state governments have the authority to modify certain elements.

General working hour norms include:

• Maximum 48 hours per week
• Maximum 9 hours per day
• Mandatory weekly rest day (typically Sunday, but may differ by employer policy)
• Overtime compensation at 2x the basic wage rate

Certain states also outline rules around night shifts, spread-over time, daily limits, and mandatory breaks. Since remote teams may be spread across states, employers must apply region-specific working hour rules for each employee—not a single uniform policy.

Leave Policies

Leave entitlements in India are largely dictated by state-specific Shops & Establishments Acts. While variations exist, most states follow similar standards, which typically include:

• Casual Leave (CL) for short-term personal needs
• Sick Leave (SL) or medical leave
• Earned Leave (EL)/Privilege Leave (PL), often ranging from 12–21 days per year
• Paid public holidays, usually 8–12 annually, depending on state notifications

Global employers often incorrectly assume uniform national leave standards, which can result in non-compliance. Asanify keeps employee leave policies aligned with the latest state-level updates to ensure accurate entitlements and accruals.

Maternity Benefits

The Maternity Benefit Act is one of India’s most progressive labour laws. It mandates:

• 26 weeks of fully paid maternity leave for eligible female employees
• Protection from dismissal during maternity
• Nursing breaks and additional welfare provisions
• Mandatory coverage for establishments with 10 or more employees

This requirement is significantly more generous than maternity norms in many Western and APAC markets, making compliance essential for employers hiring women in India.

Mandatory Social Security Contributions in India

Payroll compliance is a critical component of Indian labour regulation, requiring employers and employees to contribute to a range of statutory schemes designed to ensure long-term financial security and social protection. These contributions impact retirement savings, healthcare, taxation, and welfare benefits. Global employers must understand these obligations to avoid penalties and maintain fully compliant payroll operations in India.

Provident Fund (EPF)

The Employees’ Provident Fund (EPF) is the cornerstone of India’s social security framework. It becomes mandatory when an organization has 20 or more employees, although companies with fewer employees may voluntarily opt in.

Key requirements include:

• Employee contribution: 12% of basic wages
• Employer contribution: 12%, split between EPF, EPS (pension), and EDLI (insurance)
• Coverage includes retirement savings, pension benefits, and life insurance
• Monthly filing and deposit deadlines set by the EPFO

EPF errors are one of the most common reasons for labour audits in India, making accuracy essential.

Employee State Insurance (ESI)

The Employee State Insurance scheme provides medical and disability benefits to employees earning ₹21,000/month or below. It is applicable to establishments with 10 or more employees, depending on state rules.

Contribution structure:

• Employer: 3.25% of employee gross salary
• Employee: 0.75%

ESI offers comprehensive coverage, including maternity benefits, sickness benefits, disability payouts, and dependent benefits.

Gratuity

Gratuity is a statutory benefit paid to employees who complete five years of continuous service with the employer. It is governed by the Payment of Gratuity Act, 1972.

Key points:

• Payable at 15 days’ wages for every completed year of service
• Applicable regardless of headcount once the employee meets eligibility
• Exempt from tax up to the prescribed limits

Employers must provision for gratuity liabilities as part of long-term HR and payroll planning.

Professional Tax (PT)

Professional Tax is a state-level tax deducted from employee salaries every month. It applies only in states that have enacted PT laws.

Examples:

• Applicable: Maharashtra, Karnataka, West Bengal, Telangana, Gujarat
• Not applicable: Delhi, Haryana, Rajasthan, Uttar Pradesh

PT rates and slabs vary significantly by state and must be monitored regularly.

Labour Welfare Fund (LWF)

Labour Welfare Fund contributions are another state-specific statutory deduction used for employee welfare initiatives such as housing, education, and healthcare programs.

• Typically deducted annually, half-yearly, or monthly depending on the state
• Paid jointly by the employer and employee
• Applicable in states such as Maharashtra, Karnataka, Punjab, and Gujarat

Even though the amounts are small, non-payment can still lead to penalties.

TDS (Income Tax Withholding)

Under the Income Tax Act, employers must deduct Tax Deducted at Source (TDS) from employee salaries based on:

• The employee’s chosen tax regime (old vs. new)
• Applicable exemptions, deductions, and declarations
• Annual tax slab rates announced by the government

Employers must issue Form 16 annually, maintain payroll records, and deposit TDS by statutory deadlines.

How Asanify Automates Social Security Compliance

Asanify’s EOR and payroll engine handles:

• Monthly PF, ESI, PT, LWF filings
  
• TDS deductions & Form 16 issuance
  
• Payment distribution to statutory authorities
  
• Real-time payroll audit trails
  
• State-wise compliance handling
  

This protects global employers from penalties, interest, and audit issues.

Employee Rights and Employer Obligations in India

India follows robust employment protections across discrimination, safety, data privacy, and workplace ethics.

Anti-Discrimination & Equal Pay

Employers cannot discriminate based on:

• Gender
  
• Religion
  
• Caste
  
• Disability
  
• Marital status
  

The Equal Remuneration Act mandates equal pay for similar work.

Workplace Safety

Governed by the Occupational Safety, Health and Working Conditions Code, covering:

• Work environment safety
  
• Health standards
  
• Working hours
  
• Accident compensation
  

Prevention of Sexual Harassment (POSH Act)

A strict requirement for organizations:

• Sexual harassment is a punishable offense
  
• Internal Complaints Committee (ICC) is mandatory for workplaces with 10+ employees
  
• Annual POSH compliance reporting required in many states
  

Data Protection & Privacy

The Digital Personal Data Protection (DPDP) Act 2023 regulates:

• Storage & processing of employee data
  
• Consent and right to erasure
  
• Employer obligations around data security
  

Termination, Notice Periods & Severance Rules in India

India’s termination laws are significantly stricter than “at-will employment” countries.

Termination Norms

Indian law distinguishes between:

• Termination for misconduct (with inquiry)
  
• Termination without cause (notice + severance)
  
• Retrenchment (Industrial Disputes Act)
  

Notice Period Requirements

Standard norms include:

• 30 to 90 days notice for most employees
  
• Immediate termination only with proven misconduct
  
• Buyout options may be allowed
  

Mismanaged terminations commonly lead to labour disputes.

Severance Pay

Under the Industrial Disputes Act:

• 15 days’ average pay per completed year of service
  
• Applicable for workmen category employees
  

Some states mandate additional compensation.

How an EOR Reduces Termination Risk

Asanify ensures:

• Correct categorization under state & central laws
  
• Legally structured termination documentation
  
• Compliance with notice and severance regulations
  
• Avoidance of wrongful termination claims
  

This minimizes exposure for global employers unfamiliar with India’s strong worker protection laws.

Hiring in India Without Setting Up a Local Entity

Setting up a legal entity in India involves:

• Weeks or months of paperwork
  
• Corporate bank account setup
  
• Monthly compliance (GST, payroll filings, ROC filings)
  
• Local HR & legal counsel requirements
  

For companies hiring fewer than 50 employees or testing the market, this is slow and expensive.

Why Employer of Record (EOR) Is the Best Alternative

With Asanify’s EOR services:

• You hire Indian employees in days
  
• Asanify becomes the legal employer
  
• You manage daily work and performance
  
• Asanify manages contracts, payroll, compliance, taxes
  

This is the fastest, safest, and most cost-efficient way to hire in India.

How Asanify Helps Global Companies Stay Fully Compliant

Asanify ensures end-to-end labour law compliance for global companies hiring in India by combining local expertise with automated statutory processes. Here’s how we simplify hiring, payroll, and risk management:

• India-Specific EOR Services: Asanify becomes the legal employer for your India-based workforce, handling compliant onboarding, localized employment contracts, HR policies, and payroll so you can hire without setting up a subsidiary.
• Automated Statutory Compliance: We manage all mandatory contributions PF, ESI, Professional Tax, Labour Welfare Fund, TDS, and gratuity ensuring accurate deductions, timely filings, and zero penalties.
• Local HR Expertise Across All States: Our team interprets state-wise rules (Shops & Establishments, minimum wages, holiday lists, working hours) so your policies stay fully compliant regardless of where employees work.
• Risk-Free Hiring & Termination Support: Asanify handles employment documentation, notice period compliance, severance calculations, and legally safe offboarding to prevent disputes and missteps under Indian labour laws.
• Faster Market Entry: Instead of waiting months to establish a legal entity, you can hire top Indian talent in days. Asanify manages compliance, while you focus on scaling teams and business operations.
• Trusted by Global Teams Worldwide: Companies across the U.S., Europe, Middle East, and APAC rely on Asanify to run compliant India operations without needing in-house legal or HR teams.

Suggested Read: Labour Laws in India: A 2025 Compliance Guide

Conclusion

India offers exceptional talent at scale, but navigating its labour laws requires precision and constant monitoring. With frequently changing wage rules, state-specific regulations, and complex termination norms, global employers can easily face compliance risks. Asanify’s Employer of Record (EOR) services remove these complexities by enabling you to hire top Indian talent quickly while ensuring 100% compliance with both federal and state laws covering payroll, taxes, statutory filings, onboarding, contracts, and offboarding seamlessly.

If you’re planning to expand into India, the most efficient and compliant route is partnering with an EOR.

Faqs

Not to be considered as tax, legal, financial or HR advice. Regulations change over time so please consult a lawyer, accountant  or Labour Law  expert for specific guidance.