Indian labour and employment laws are being reformed steadily to keep pace with modern business needs. The Indian government is making efforts to facilitate ease of doing business and remove the procedural complexities manifested in the labour laws.

To this end, the government is proposing to formulate a distinct set of labour codes on wages, industrial relations, social security and health and safety thereby combining various laws.

Recently, the central government has approved new "model laws" for shops and establishments which includes a provision allowing commercial establishments to remain open 24/7. However, these model laws will only become law if they are adopted by the respective state governments.

In addition, a Unified Shram Suvidha portal (onestop-shop for labour law compliance) has been developed to simplify procedural complexities by facilitating the submission of consolidated returns under various labour laws. This portal has been envisaged as a single point of contact between employer, employee and enforcement agencies, bringing transparency to their day-today interactions.

To encourage more entrepreneurship, and to reduce the burden of labour law compliance, the Indian Government is allowing registered startups to file self-certified returns for a period of 3 years.

Issues arising on hiring individuals

Hiring and dismissing employees must be considered carefully because of the legal, regulatory, social and cultural idiosyncrasies that can arise when doing business in India. Any form of employment in India can trigger local tax, regulatory, immigration and exchange control compliance requirements.


Foreign nationals can be employed by an entity in India, or employed overseas and seconded to an Indian entity. Foreign companies can also consider employing consultants directly in India.

All foreign nationals wanting to work in or visit India must have a visa. Whether an individual should enter India on an employment visa or business visa will depend on the nature of the activity to be conducted in India. Foreign nationals must earn a minimum annual salary of USD 25,000 (amongst other qualifying factors) to be eligible to apply for an Indian Employment visa.

Foreign nationals must obtain the employment visa to work in India from their country of origin or habitual domicile whether employed directly by or seconded to work for an entity in India. The time spent in India is no longer an indicator of the type of visa required. Post-arrival formalities must be completed within the specified period, failing which their exit from India could be delayed. Foreign nationals working for an entity in India must pay all applicable taxes in India.

Employment structuring and documentation

Employers should offer employees working in India a clear written contract of employment. An Offer Letter is commonly used for this purpose, and appropriate terms and conditions should be included in the Offer Letter to avoid any ambiguity. Indian employment contracts can be for a fixed-term or an indefinite term, depending on the requirements.

Companies should ensure they comply with all applicable laws including foreign exchange regulations (where applicable) when structuring employment agreements in India. In addition, employers must ensure that all handbooks, rules and policies are suitable for use in India and enforceable under Indian law.

Finally, employers have certain obligations under specific legislation towards part-time employees and may be held liable even where such employees are hired through a contractor or agent. For instance, in relation to employees who remain on the payroll of the contractor, the "principal employer" must ensure that the contractor has remitted statutory provident fund contributions before releasing any payments to the contractor. The principal employer must also maintain principal employer-related documents and records for employees on the contractor's payroll.

Issues arising during the employment relationship

Wages, annual leave and working time

Terms and conditions of employment are regulated by an employee's employment contract which must meet minimum statutory requirements set out in the respective Shops and Establishment Act (SEA) of the state where the employee is based. The respective SEA could be modified if the relevant state government adopts the "model law" on shops and establishments.

The payment of overtime, notice periods, annual leave and sick leave can vary depending on both the state where an employee is based and the employee's seniority. State specific compliance is required and varying terms of employment may need to be offered to different employees based in different states in India.

India has legislation that offers maternity benefits such as maternity leave and pay, but there is no statutory provision for paternity leave. The period of maternity benefit leave for a woman employee, having less than 2 children, has been increased from 12 weeks to 26 weeks. Further, the maternity benefit for a period of 12 weeks has also been extended to women who legally adopt a child below the age of 3 months and to commissioning mothers.


The Constitution of India guarantees the right to life, liberty and equality, and the right not to be discriminated against on the grounds of nationality, race, sex, religion or disability. However, such right is ordinarily available only against the State and its instrumentalities and not against private persons. An important law relating to discrimination is aimed at preventing and prohibiting sexual harassment of women in the workplace. This recently enacted law places an onus on employers to instigate a complaint redressal mechanism in the workplace and categorise sexual harassment in the workplace as misconduct. Employers should also educate their workforce on the relevant rights and remedies, assist aggrieved women in exercising their rights and monitor the timely submission of reports and compliance in accordance with the law.

Trade unions

The Trade Unions Act 1926 allows workers to organise themselves and form trade unions. Current trends suggest that, with the expansion of the service sector, there has been a decline in the importance of trade unions in the overall landscape of industrial relations in India. Political patronage to trade unions has also decreased over the years. It has been proposed that a consolidated Labour Code on Industrial Relations should be enacted which would simplify and combine the Trade Unions Act 1926 with key industrial and labour laws.

Tax and social insurance

Employees have an obligation to pay individual income tax. Furthermore, companies must comply with corporate tax obligations which includes an obligation to withhold tax on salary, and pay this to the local tax authorities. In addition, both employers and employees have a statutory obligation to make a contribution to the applicable social security schemes including the Provident Fund, pensions and employee state insurance. The courts in India seek strict enforcement of the obligations with respect to social security-related laws. Social security schemes providing universal pension and insurance coverage are also being implemented in India in an effort to introduce a universal social security system.

Amendments are being proposed to make Provident Fund contributions voluntary for certain employees. Under the proposed amendments, instead of making contributions to the Provident Fund, employees may opt for the government approved pension scheme which is available to all citizens.

India has signed social security agreements with countries including Belgium, Germany, Switzerland, Denmark, Luxembourg, Netherlands, Hungary, South Korea, Austria and France which exempts expatriates of these countries from making social security contributions in India. Foreign nationals of all other countries must make contributions to the Provident Fund unless they work at establishments that are subject to Provident Fund legislation.

Pursuant to changes in the employee eligibility requirements, the benefit of social security legislation in relation to employee state insurance and the payment of a statutory bonus is now being extended to more employees who were not previously covered by this legislation.

Issues arising on termination of the employment relationship

Business transfers

The Industrial Disputes Act 1947 (IDA) provides protection to employees falling into the category of "workmen''. In the event of the transfer of an undertaking, eligible workmen are deemed to be "retrenched" (i.e. redundant) and will be entitled to notice and severance compensation only if such transfer results in adverse working conditions or an interruption in the continuity of service. In other words, no special rights or benefits are given if services have not been interrupted and the terms and conditions of employment are not altered to the detriment of the workman.

Employees who are "non-workmen'' do not have statutory rights in the case of a transfer of an undertaking. However, employees will be entitled to contractual rights and/or benefits. Employees may also be entitled to bring a claim against the employer in the case of early termination of their employment or wrongful termination as a result of the transfer.

Terminating employment

The IDA sets out the rules, processes and procedures to be followed by employers when terminating the employment of "workmen". Certain categories of employees, such as managers, those discharging supervisory duties and those earning more than INR 10,000 per month, are exempt from this statutory protection. In such cases the terms and conditions of their individual contracts of employment, or the applicable SEA, will dictate the process of termination.

All employers must comply with the minimum statutory requirements for notice periods and payments in lieu of notice provided for in the applicable SEA.

Retrenchment or termination without cause is permitted under Indian law subject to certain conditions. In cases of proven misconduct or termination for cause, an employer may be entitled to terminate without notice or make a payment in lieu of notice. Rules and procedures can vary depending on the nature of activity of the entity, the state where operations are based and the number of employees employed by the entity.

Above all, the cultural idiosyncrasies of the Indian workplace must always be considered when terminating employment.

Published in collaboration with L&E Global: an alliance of employers’ counsel worldwide

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