Hiring and Employment Laws for Foreign Subsidiaries in India

As India continues to attract foreign investment across industries, an increasing number of international companies are setting up wholly owned subsidiaries or joint ventures in the country. One of the critical components of operational success is ensuring full compliance with hiring practices and employment laws.

Foreign subsidiaries must understand and follow India's complex legal framework for labor and employment, which involves central and state-level regulations. Failure to comply can lead to penalties, legal disputes, and reputational damage.

This article provides a concise yet comprehensive overview of key employment law considerations for foreign subsidiaries operating in India.

1. Employment Contracts and Offer Letters

As per the Indian Contract Act, 1872, all employees must be provided with an employment contract. The contract should clearly define:

• Job title and responsibilities

• Remuneration and benefits

• Work location and office hours

• Leave entitlements

• Probation period (if any)

• Termination terms and notice period

Employment contracts must comply with both company policy and relevant labor laws. It is advisable to issue appointment letters even for temporary or probationary employees.

2. Registration Under Local Labor Laws

Every subsidiary must register under applicable central and state-specific labor laws. The most common acts include:

• Shops and Establishments Act (varies by state)

• Employees’ Provident Fund (EPF) Act, 1952

• Employees’ State Insurance (ESI) Act, 1948

• Payment of Gratuity Act, 1972

• Minimum Wages Act, 1948

• Payment of Bonus Act, 1965

• Maternity Benefit Act, 1961

• Industrial Disputes Act, 1947

These registrations are mandatory based on employee count, nature of business, and jurisdiction.

3. Statutory Contributions and Employee Benefits

Foreign subsidiaries are obligated to make monthly contributions toward various employee welfare schemes:

Statute	Employer Contribution
Provident Fund (EPF)	12% of basic wages
Employee State Insurance	3.25% of gross wages
Gratuity	4.81% approx. annually
Bonus (if applicable)	8.33% to 20% of salary

Compliance with statutory payments is monitored by government authorities, and any delay or evasion can result in penalties.

4. Work Hours, Overtime & Leave

• Maximum of 48 working hours per week, generally 8 hours per day

• Overtime must be paid at double the normal wage

• Minimum of 1 day weekly rest

• Employees are entitled to:

  • Paid annual leave

  • Casual/sick leave

  • Maternity/paternity leave (as per law)

Many states have their own leave policies under the Shops and Establishments Act.

5. Termination and Severance

Termination of employment in India must follow due process, including:

• Written notice (as per contract or statutory requirement)

• Payment of dues including salary, gratuity, leave encashment

• Exit interviews and full-and-final settlement

For “workmen” under the Industrial Disputes Act, termination may require approval from labor authorities depending on tenure and role.

6. Hiring Foreign Nationals

Foreigners can be hired under an Employment Visa, which requires:

• A valid employment contract

• FRRO (Foreigners Regional Registration Office) registration

• Minimum salary threshold (usually USD 25,000/year)

Foreign nationals are also subject to Indian tax laws and may require PAN and local compliance for salary payments.

7. Prevention of Sexual Harassment (POSH) Compliance

As per the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, it is mandatory for companies with 10 or more employees to:

• Form an Internal Complaints Committee (ICC)

• Create an anti-harassment policy

• Conduct regular training and awareness programs

Non-compliance can result in heavy penalties and reputational harm.

8. Record Keeping and Audits

It is mandatory to maintain proper employee records, including:

• Attendance registers

• Salary registers

• Wage slips

• PF/ESI challans

• Appointment letters

Government labor inspectors may conduct surprise inspections. Hence, records should be accurate, up-to-date, and accessible.

9. Remote Work and Contractor Classification

Post-pandemic, many foreign subsidiaries engage contractors or freelancers. It's important to:

• Clearly define the nature of engagement

• Avoid misclassification, which could otherwise attract penalties or labor claims

• Follow TDS (tax deduction at source) and GST implications, if any
  
  

  🔚 Conclusion

  Setting up a compliant and efficient HR system in India requires a clear understanding of Indian labor laws and local employment practices. Foreign subsidiaries should work closely with local HR professionals, legal advisors, and compliance consultants to ensure:

  ✅ Contracts and policies are legally sound
  ✅ Statutory obligations are met
  ✅ Employees’ rights are respected

  A well-structured employment framework not only ensures compliance but also builds trust and long-term success for your operations in India.
  
  

  Created & Posted By Nishu Sharma

   Sales and Marketing Executive at TAXAJ
  

  
  
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