India is the second most populous nation in the world, home to almost 1.4 billion people. A vast and continuously expanding pool of exceptionally talented professionals from many sectors are looking to work remotely for global corporations such as yours.
However, there may also be a few difficulties with recruiting in India, such as handling payroll for remote workers there. In addition, it is important to comprehend and comply with the labor regulations of the area in order to avoid any fines or penalties. If you had to sort all of that out on your own, it would definitely be difficult.
Relieve yourself of the burden with global payroll services. Outsourcing payroll in India offers a simplified solution, seamlessly managing payroll for your international workforce. Some providers go the extra mile by assisting in the recruitment and onboarding of your employees, along with overseeing employee benefits and handling human resources.
Engaging with a payroll company partner transforms the hiring process for the talent you seek in India into a straightforward endeavor. In the subsequent sections of this article, you will gain insights into the intricacies of the payroll process in India, including potential pitfalls to avoid and optimal avenues to commence. Moreover, the Marzuna team stands ready to address any inquiries you may have regarding payroll matters.
Whether you’re in the process of hiring a full-time employee or enlisting the services of an independent contractor in India, it’s imperative to comprehend the fundamental elements of a payroll workflow to adhere to local labor laws. This includes gathering essential employee information such as their name, address, and AADHAR number. When it comes to salaries and wages, meticulous details are needed, encompassing the type of compensation (hourly or fixed annual salary), gross pay pre-tax and deductions, hours worked (including overtime), applicable overtime pay rates as per Indian employment laws, benefits contributions, additional income sources like tips, bonuses, or commissions, and the net pay post-tax and deductions. Deductions, covering payroll tax, withholdings, and benefit deductions, are crucial aspects. Notably, employees in India should be paid in Indian rupees (INR ₹), while contractors, though eligible for payment in another currency, are advised to open a foreign currency account. However, for the sake of simplicity and compliance, businesses are encouraged to remit payments to contractors in Indian rupees, ensuring a seamless process while adhering to regulatory norms. Understanding these components is pivotal for ensuring a smooth and legally compliant payroll process in India.
Tax: In India, a new tax system was just implemented, which businesses would need to understand.
In summary, employees’ income tax was lowered. It was slashed by up to half in some tax bands compared to the previous system.
Although lower taxes may seem extremely desirable at first, there are fewer tax exemptions under this new system, which may result in higher costs for some employees. When the net tax payable under the old regime is less than under the new system, the employee is permitted to continue under the old regime in this scenario.
Here’s a comparison of the old vs. new tax system:
| Taxable income (INR) | Old tax regime | New tax regime |
| Up to 2,50,000 | 0% | 0% |
| 2,50,000 to 5,00,000 | 5% | 5% |
| 5,00,000 to 7,50,000 | 20% | 10% |
| 7,50,000 to 10,00,000 | 15% | |
| 10,00,000 to 12,50,000 | 30% | 20% |
| 12,50,000 to 15,00,000 | 25% | |
| More than 15,00,000 | 30 |
Full taxes are applicable to various components of employee income, including the basic salary, commission, bonuses, profit-sharing income, personal expenses reimbursements, and benefits exchanged for additional pay. The recent tax regime saw the removal of approximately 70 out of 120 exemptions. However, certain allowances such as transport, medical, and house rent allowances remain tax-deductible. Overtime pay is contingent on the hours exceeding those stipulated in the employment contract, a concept not explicitly defined in Indian law and subject to variations based on work type, usual hours, and the employee’s state of residence. Employers in India are obligated to deduct statutory employee benefits, including the Employees’ Provident Fund, Employees’ Pension Scheme, and Employees’ Deposit Linked Insurance Scheme, as part of payroll responsibilities. Voluntary contribution to the Provident Fund is permitted for businesses with fewer than 20 workers, but once the workforce surpasses this threshold, it becomes a statutory requirement.
The 13th-month bonus is a legal entitlement for employees in certain industries, with the bonus amount calculated based on their annual salary. It is mandatory to disburse this bonus within eight months of the conclusion of the financial year.
Regarding the minimum wage, the national standard in India stands at 176 rupees per day, approximately equivalent to $3. However, it’s important to note that this rate can vary depending on the specific industry or the state within India.
Paid Leave:
Employees possess a legal entitlement to 12 days off for every 240 days worked. It’s noteworthy that variations in laws exist based on location, specifically tied to the location of the employer’s legal entity rather than the employee.
Sick Leave:
In India, employees are granted 12 days of leave for health or personal reasons.
Public Holidays:
India observes several national public holidays, with additional holidays celebrated in various states. Employers should take note of key holidays, with dates based on the year 2022, including Republic Day on January 26th, Rama Navami around April 10th, Ambedkar Jayanti on April 14th, Good Friday on April 15th, Eid al-Fitr around May 2nd – 3rd, Eid al-Adha around July 9th – 10th, Indian Independence Day on August 15th, Gandhi Jayanti on October 2nd, Dussehra on October 5th, Prophet’s Birthday on October 8th – 9th, Diwali on October 24th, and Christmas Day on December 25th.
Maternity Leave:
For employees with fewer than two children, a minimum of 26 weeks of maternity leave is granted. If they have two children or more, or have adopted or used a surrogate, the entitlement is reduced to twelve weeks. Maternity leave can commence up to eight weeks before the due date, contingent on the employee having worked a minimum of 80 hours within the last 12 months of employment.
Paternity Leave:
Under Indian employment laws, employees are not automatically entitled to paternity leave.
Payroll Compliance:
Navigating payroll processes in India has become intricate, particularly with the introduction of the new tax regime. Staying abreast of statutory regulations is paramount to ensure compliance and avert potential fines or penalties for businesses. Failure to make accurate contributions to India’s social security system may result in back payments, along with interest and fines ranging from 5-25% of the amount due. Deliberate avoidance of contributions could even lead to prosecution.
Misclassification:
The utilization of contractors in India may be restricted, necessitating employers to obtain a ‘principal employer’ license for engaging self-employed workers. In cases where contractors are employed, caution must be exercised to prevent misclassification, also termed ‘Sham contracting’ under Indian law. Government assessments may be conducted to determine classification accuracy, with penalties and fines imposed for misclassification.
Centralized Payroll and Data Management:
Some companies inadvertently opt for multiple employers of record for payroll management when a single efficient provider could suffice. Overly complex payroll systems and HR processes can impede scalability and drain resources. Opting for a streamlined approach with a single payroll partner capable of handling onboarding, compliance, HR, and more across multiple countries is a more efficient solution.
Outsourcing Payroll in India: Start Building Your Team Today!
Choosing payroll outsourcing for employees in India proves to be a cost-effective and time-saving alternative to establishing an independent legal entity. The latter entails registration costs, high fees for specialized legal and accounting services, and additional expenses related to compliance with Indian labor and employment laws. Partnering with a reputable payroll service like Marzuna eliminates these challenges. With an established legal entity in India, Marzuna offers Employer of Record services, encompassing HR management and competitive benefits packages compliant with local statutory requirements. Accessing all payroll data through a unified dashboard ensures seamless business operations without added stress.
Eager to explore our comprehensive global payroll solution? Schedule a demo with one of our team members to initiate payroll assistance in India and beyond today!
