As per the Indian Constitution, the federal as well as state governments are empowered to enact suitable legislations to regulate and protect the interests of employees, as well as to create and increase employment opportunities.
Depending on the type of industry, nature of work undertaken, number of employees, location, remuneration of the employees, etc., different legislation, such as the Industrial Disputes Act 1947, Factories Act 1948, and the respective Shops and Establishment Acts of relevant states have been enacted.
Foreign companies looking to establish in India should understand the country’s multiple federal labor laws as well as locally enacted laws that are specific to the state, industry, and the size of the firm.
While the federal government has spearheaded major reforms to consolidate the numerous existing laws into four major labor codes, these Codes are yet to be implemented. They are the Code on Wages, the Code on Social Security, the Industrial Relations Code and the Occupational, Safety, Health and Working Condition Code.
Labor regulations are derived from multiple sources in India. This concurrent nature of labor and employment laws can be confusing for companies that are newly established or looking to expand in India.
In India, Labor law is a concurrent subject in the Indian Constitution, which implies that labor and employment regulations in the country are governed at both the federal and state levels. The main federal statutes that regulate the termination of employment include the Industrial Employment (Standing Orders) Act (IESA), 1946 and the Industrial Disputes Act (IDA), 1947, as amended.
Employers need to consider multiple factors when assessing their statutory requirements, such as their industry, location, and number of employees. While the government is often ineffective in enforcing its labor laws, the legal and reputational risks of non-compliance merit attention. Further, failure to observe best practices in labor matters by foreign entities can be politicized.
Hiring employees in India
India is the youngest country in the world, and as a developing market economy, it appeals to many multinational businesses seeking to expand or hire remote workers. If India is also on your radar, our guide to hiring employees in India will help you assess the process of forming a team in the country.
Before you start recruiting in a new country, you should have a good understanding of the country's workforce and the employment laws that may apply to you.
India has consolidated 29 labor laws under the umbrella of four labor codes. These include the Code on Wages, the Code on Social Security, the Industrial Relations Code and the Occupational, Safety, Health and Working Condition Code. However, the rules for these codes are yet to be notified as of September 2021 and HR policies in India continue to be governed by the old laws for the time being.
There are a variety of visas foreign investors can apply for depending on their purpose of visit. With the introduction of the e-visa, which is open to 166 countries, it has become easier for applicants to apply for an Indian visa. Applicants can apply online without the hassle of visiting an Indian embassy or consulate.
Terminating employees in India
Given the structure of Indian labor laws, there is no standard process to terminate an employee in India. An employee may be terminated according to terms laid out in the individual labor contract signed between the employee and the employer. Equally, the terms may be subject to the country’s labor laws. Here, employers should note that India’s labor laws supersede the provisions of labor contracts—any termination policy or clause outlined within a contract should be checked against the law by a professional.
Employers are exposed to a number of legal and reputational risks resulting from wrongful termination, or not following due process
Employers should, therefore, plan to construct contracts and human resource (HR) materials to ensure that senior management, HR personnel, and employees are fully apprised of their rights and responsibilities.
Payroll processing in India is a daunting task because it involves a slew of financial aspects such as gross compensation, net income, bonuses, daily salaries, leave, compliances, and other items that are part of every employee's hire-to-retirement journey.
Employees are regarded as an organization's most valuable asset. As a result, businesses devote a significant amount of time and effort on recruiting, training, and establishing an appropriate workflow for each employee. Payroll processing is one of the most important tasks in the payroll process. Employees, in a sense, rely on the company's processes to ensure that they are paid on time.
According to the Minimum Wages Act of 1948, both the central and state governments have control over fixing the minimum wages of employment. Wage rates of employment differ across occupations, skills, sectors, and regions. Given the extent of difference between various kinds of employable work, there is no set wage rate for specific work across the country. Businesses are advised to track the periodically updated minimum wage amount across various categories of employment, such as unskilled, semi-skilled, skilled, and highly skilled workers, in their respective state/city/zone of operation.
Social security system
India’s social security system is composed of a number of schemes and programs spread across a variety of laws and regulations. Generally, India’s social security schemes cover the following types of social insurances:
- Employee provident fund
- Health insurance and medical benefit
- Disability benefit
- Maternity benefit
The applicability of mandatory contributions to social insurances is varied. Some of social insurances require employer contributions from all companies, some from companies with a minimum of ten or more employees, and some from companies with twenty or more employees.
A guide to public holidays
India's public holidays include gazetted and restricted days, as is the norm. The country’s holiday schedule is divided across three classifications: gazetted, restricted, as well as state and union territory. Commercial establishments should note the schedule for the respective states where they are located.
Many foreign human resource managers struggle with India’s holiday schedule. That is no surprise – the federal and state governments have acknowledged a numberof holidays every month to accommodate over 1.3 billion people spread over 36 diverse states and union territories, subscribing to different religious faiths, ethnic, and cultural traditions.
Although there are various ways to manage this schedule, most companies in India offer 10 to 14 public holidays, depending on the company’s past practices and industry norms, as well as the discretion of the concerned states.