Employment Law in India

Roughly 90% of India’s labor force works in the “unorganized,” or informal, sector and until 2020, it was not protected by minimum wage and social security laws and other benefits enjoyed by workers in the formal sector.  

In 2020, India passed the Labour Reforms Bill, which consolidated 29 existing laws into four labor codes:  

• The Code on Wages (encompassing four laws) 

• Industrial Relations Code (encompassing three laws) 

• Occupational Safety, Health, and Working Conditions Code (encompassing 13 laws) 

• Code on Social Security (encompassing nine laws) 

The four codes seek to ensure that all workers in India enjoy the same protections. The codes must be implemented within India’s states, but interpretation of the codes may hamper implementation. The Code on Wages, for example, defines “worker” and “employee” differently and provides different provisions for each.     

Many acts are subsumed under these codes. For example, subsumed laws under the Code on Wages include the Payment of Wages Act, 1936; the Minimum Wages Act, 1948; and the Payment of Bonus Act, 1965.  

Overall, India’s labor laws cover topics such as:  

• Minimum wages 

• Working hours 

• Working conditions  

• Termination 

• Social security contributions 

• Trade union rights  

• Equality  

• Child labor  

With HR and legal experts based in India, Safeguard Global manages compliance with labor laws so you don’t have to. Contact us to learn more about how our EOR handles compliance in India.  

Contracts 

In India, employment contracts can be fixed, permanent, or temporary / probationary, depending on the nature of the job and the agreement between the employer and employee. Permanent employment contracts must include benefits such as provident fund (PF) contributions, gratuity, paid leave, and employee insurance. Fixed-term employees are entitled to the same benefits as permanent employees after they have worked for three months.  

Termination and notice periods  

In India, a combination of central and state laws applies to the termination of employees.   

It’s relatively difficult to terminate an employee in India due to the combination of central and state laws that govern termination. The nature of the employer’s business, the type of employee, and the state the employer is based in determine which laws apply to employee termination. “At-will” employment is not recognized in India, so employers must have a valid reason for terminating an employee.  

In most cases, terminated employees are entitled to a warning and a fair hearing. Just cause for a dismissal includes, but is not limited to, the following: 

• Theft 

• Disorderly behavior 

• Bribery 

• Insubordination 

• Habitual negligence of duty 

• Lack of capability 

• Financial irregularities 

A notice period of one month is common, though it may be longer.  

Employees with at least one year of service are entitled to severance pay of 15 days' wages for every year of service. Employees who have completed five years of service and work for an employer with 10 or more employees are entitled to a gratuity payment of 15 days' wages multiplied by the number of years of service.  

Probation periods  

Some states have a probation period indirectly addressed in the local law, which often ranges from one month to one year in the private sector, and up to two years in government jobs. 

Working hours and overtime  

India has a six-day workweek that runs from Monday through Friday for eight hours a day plus a half day on Saturday. Employees are prohibited from working for more than nine hours a day (or eight in some states), or 48 hours a week. 

Any work beyond nine hours a day or 48 hours a week is considered overtime, and employees are entitled to twice the normal rate of pay per hour. 

As your EOR in India, Safeguard Global helps manage the termination processes and ensure compliance with local labor law. 

Taxes  

In India, withholding tax is known as “tax deducted at source” (TDS) and is deducted by employers before paying salaries to employees. Employers must deduct TDS from employee salaries based on applicable income tax slabs and submit it to the Income Tax Department. 

Employer payroll contributions 

India's social security system requires employer contributions that are dependent on the total number of employees, and these contributions cover pensions, medical care, disability insurance, and gratuity payments. In addition, workers' compensation is financed by contributions from state governments, employers, and employees.