A foreign company can hire in India through its own Indian entity, usually a subsidiary, or through an employer of record that employs staff on its behalf. Since 21 November 2025 the Code on Wages, Industrial Relations Code, Code on Social Security and Occupational Safety, Health and Working Conditions Code govern employment, alongside state Shops and Establishments laws. Employers must issue appointment letters, register for provident fund and ESI where applicable, set up a POSH Internal Committee at ten employees, and follow notice and compensation rules on termination.
- Main laws
- Four labour codes, in force 21 Nov 2025
- Local law
- State Shops and Establishments Acts
- Final pay
- Within 2 working days of exit
- POSH
- Internal Committee at 10 employees
Own entity, employer of record or contractors
| Route | How it works | Suits | Main risk |
|---|---|---|---|
| Own Indian entity | Subsidiary or branch employs staff directly and runs payroll | Teams that will grow, sell locally or hold assets | Setup time and full compliance burden |
| Employer of record (EOR) | An Indian provider employs staff and seconds them to you for a fee | Testing the market, small or interim teams | Permanent establishment if staff conclude contracts for you; control of IP and confidentiality |
| Independent contractors | Individuals invoice you for services | Genuine freelance, project work | Misclassification, tax and PE exposure, weak IP assignment |
| Secondment from abroad | Foreign employees work in India on an employment visa | Senior managers, technical transfers | Tax residence, PF for international workers, PE |
Paying Indian staff directly from abroad, with no Indian entity, is possible in narrow cases but creates payroll tax withholding, provident fund and permanent establishment problems. Most clients start with an EOR for the first few hires and move to an Indian subsidiary once the team grows, transferring employees with continuity of service.
The four labour codes in force since 21 November 2025
The Code on Wages 2019, the Industrial Relations Code 2020, the Code on Social Security 2020 and the Occupational Safety, Health and Working Conditions Code 2020 replaced 29 central labour laws, including the Payment of Wages Act, Minimum Wages Act, Industrial Disputes Act, EPF Act and Payment of Gratuity Act. Central and state rules under the codes are still being finalised in several states, so some older rules and registrations continue during the transition. Changes that matter for foreign employers include:
- A uniform definition of wages. Basic pay and similar components must make up at least half of total remuneration; excluded allowances above 50% are added back. This raises the base for provident fund, gratuity and leave encashment, so salary structures copied from older offers often need redesign.
- Appointment letters for every employee under the OSH Code, setting out designation, wages and category.
- Fixed-term employment on the same terms as permanent staff, with gratuity after one year of service rather than five.
- Higher thresholds under the Industrial Relations Code: standing orders and prior government permission for lay-off, retrenchment and closure apply to industrial establishments with 300 or more workers.
- Coverage of gig and platform workers under social security schemes, funded partly by aggregators.
Registrations and statutory benefits
- Shops and Establishments registration under the law of each state where you have an office, which also governs working hours, holidays and leave for most office staff.
- Provident fund through the EPFO once 20 or more people are employed (voluntary earlier). Employer and employee each contribute 12% of wages, mandatorily for employees earning up to the wage ceiling. Foreign nationals working in India are covered as international workers from day one, unless exempt under a social security agreement with their home country.
- ESI for establishments with 10 or more employees, covering employees earning up to ₹21,000 a month.
- Gratuity of 15 days' wages for each completed year, payable after five years (one year for fixed-term employees), subject to the statutory ceiling.
- Maternity benefit of up to 26 weeks of paid leave, with crèche facilities for larger establishments.
- Professional tax and labour welfare fund in the states that levy them, and income tax withholding through payroll.
Offer letters, policies and protecting your IP
An Indian employment contract should cover role, place of work, wages broken down under the new wage definition, probation, notice, leave, confidentiality, assignment of intellectual property, data protection and the governing policies. Points that surprise foreign employers:
- Post-employment non-competes are void under section 27 of the Indian Contract Act. Courts enforce restrictions during employment and garden leave during notice, and protect confidential information and trade secrets. Non-solicitation of clients is treated cautiously.
- Training bonds and clawbacks are enforceable only to the extent of a reasonable estimate of actual cost.
- POSH. The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act 2013 requires an Internal Committee in every office with 10 or more employees, presided over by a senior woman employee and including an external member, plus a written policy, awareness sessions and an annual report to the district officer.
- Personal data of employees falls under the Digital Personal Data Protection Act 2023 as its rules are phased in, which affects background checks and transfers of HR data to the parent.
Templates and intercompany terms can be reviewed alongside your other commercial contracts.
Ending employment lawfully
India has no at-will employment. How you exit someone depends on whether they are a "worker" under the Industrial Relations Code, which broadly covers non-managerial staff and supervisory staff earning up to ₹18,000 a month, or a manager governed mainly by contract and the state Shops and Establishments law.
- Retrenchment of a worker with at least one year's service needs one month's notice or pay in lieu, compensation of 15 days' average pay for every completed year, and a contribution of 15 days' wages to the government reskilling fund. Factories, mines and plantations with 300 or more workers need prior government permission.
- Termination for misconduct needs a fair process: a charge sheet, an opportunity to reply and, for workers, a domestic inquiry. Skipping it is the most common reason Indian tribunals reinstate employees.
- Managers are usually exited under the notice clause, often with a negotiated separation agreement and release.
- Full and final settlement of wages must be paid within two working days of removal, dismissal, retrenchment or resignation under the Code on Wages, with gratuity and leave encashment within the statutory periods.
Sending foreign employees to India
Foreign nationals working in India need an employment visa, which is generally issued for skilled roles above a minimum salary threshold, and must register with the Foreigners Regional Registration Office where required. OCI cardholders can work without a visa. Secondees may become tax resident in India if they stay 182 days or more in a tax year, and their salary is subject to Indian withholding even if paid abroad, with treaty relief where available. Provident fund contributions apply unless a social security agreement certificate of coverage is obtained.
Mistakes foreign employers make
- Engaging long-term staff as contractors to avoid setting up an entity.
- Using salary structures with low basic pay that do not meet the wage definition.
- Copying US-style at-will termination clauses and non-competes.
- Delaying the POSH Internal Committee until a complaint is made.
- Paying final dues late or holding them back pending return of laptops.
We work with your HR team by video and email, and handle the Indian registrations and filings through our team in Mohali. For entity setup see company registration for foreigners.
Documents you need
To set up or audit your India employment framework we ask for:
- Entity details: Indian subsidiary, branch or EOR arrangement
- Office addresses in each state where staff will work
- Headcount plan with roles, salaries and expected start dates
- Current offer letter and employment contract templates
- Global HR policies, handbook and code of conduct
- Intercompany or EOR agreements and any secondment letters
- Details of foreign nationals and their visa status
- Any pending complaints, disputes or exits
How we handle it for you
Hiring model
We compare entity, EOR and contractor options for your headcount and timeline.
Registrations
Shops and Establishments, EPFO, ESIC, professional tax and labour welfare as applicable.
Documents
India-specific offer letter, employment agreement, IP assignment and handbook.
POSH and policies
Internal Committee constitution, policy, training and annual report.
Ongoing support
Disciplinary matters, exits, separation agreements and labour code updates.
Why clients choose ProudLegal
Built for clients abroadVideo calls in your time zone and documents signed where you live.
Advocates who appear in Indian courtsYour case is drafted and argued by enrolled advocates in India.
Written fee quote firstScope and fees confirmed in writing before any work starts.
Updates after every stepScans of every filing and order on WhatsApp and email.
Frequently asked questions
Can a foreign company hire employees in India without an Indian entity?
It can through an employer of record, which employs staff on its behalf. Direct hiring from abroad is possible in limited cases but creates payroll, provident fund and permanent establishment issues.
When did the new labour codes come into force?
All four labour codes came into force on 21 November 2025. Rules are still being finalised in some states, so certain older rules continue during the transition.
Is provident fund mandatory for a small team?
It becomes mandatory once 20 or more people are employed. Many employers register voluntarily earlier. Foreign nationals on Indian payroll are covered as international workers from day one unless exempt under a social security agreement.
Are non-compete clauses enforceable against Indian employees?
Not after employment ends. Section 27 of the Contract Act makes post-employment restraints void. Confidentiality, IP assignment and restrictions during employment and notice are enforceable.
Can we terminate an employee without cause in India?
For managers, termination under the contractual notice clause is generally possible. For workers under the Industrial Relations Code, retrenchment rules on notice and compensation apply, and terminations for misconduct need an inquiry.
When do we need a POSH committee?
As soon as an office has 10 or more employees, an Internal Committee must be constituted under the POSH Act 2013, with a written policy and an annual report.
How quickly must final dues be paid?
Under the Code on Wages, wages must be paid within two working days of an employee's exit, whether by resignation, dismissal or retrenchment.
Does an employer of record create tax risk for us?
It can if staff engaged through the EOR negotiate or conclude contracts for your company, which may create a permanent establishment. The roles and the EOR agreement should be structured with this in mind.