Hiring employees in India means engaging with a labour law framework that was rebuilt while most foreign employers were not looking: four consolidated labour codes came into force on 21 November 2025, replacing 29 separate statutes. For a US company the practical question is the same as anywhere: employ through your own Indian entity, through an employer of record, or engage contractors. The codes change the cost arithmetic of all three, because they force at least half of total compensation into the wage base that statutory contributions are calculated on. This page sets out the frame, the on-costs and the checks to run before the first offer letter goes out.
The compliance frame: four labour codes
India consolidated 29 labour statutes into four codes: the Code on Wages, the Industrial Relations Code, the Code on Social Security and the Occupational Safety, Health and Working Conditions Code. They were notified on 21 November 2025, with central rules following and state implementation timelines varying. The change that moves money is the wage definition: basic pay plus dearness allowance plus retaining allowance must make up at least 50% of total compensation, and any allowances above that line are pulled back into the wage base for provident fund, gratuity, ESI and bonus calculations. Decades of structuring offers with low basic pay to shrink statutory contributions stop working under that rule, so an offer letter priced off the old structure understates the true cost of the hire.
Statutory costs on top of salary
The Employees' Provident Fund takes 12% of basic salary plus dearness allowance from the employer and another 12% from the employee, and applies to establishments with 20 or more staff. Employees' State Insurance adds 3.25% from the employer and 0.75% from the employee on gross wages up to Rs 21,000 a month, for establishments with 10 or more employees. Gratuity is 15 days' wages per completed year of service, payable after five years for permanent staff; under the new codes, fixed-term employees earn pro-rata gratuity after just one year. Maternity leave runs to 26 weeks for the first two children at full salary. Working hours cap at 48 a week, with overtime at twice the normal rate. None of these are negotiable by contract, so a compliant quote itemises them rather than folding them into a headline salary.
Entity, EOR or contractor
Running your own Indian entity means company registration, provident fund and ESI registrations, state-level shops and establishments compliance, professional tax in several states, and monthly filings, which only pays off at meaningful headcount. An employer of record already holds all of that and employs your hire under its registrations, charging a monthly fee per employee; it suits the first handful of hires or a team you may not keep. Contractors avoid the statutory stack entirely but only if the relationship is genuinely independent; a contractor working fixed hours under your direction on your core work is an employee in substance, and the new codes' expanded coverage makes that gap riskier to sit in, since written appointment terms, social security coverage and notice obligations now reach further down the workforce.
What to check before the first hire
Written appointment letters are mandatory under the codes and must set out designation, wages, hours, leave, social security and termination terms. Notice periods for confirmed employees typically run 30 to 90 days by contract, with a statutory 30-day minimum for workmen, and final settlement is due within two working days of exit. Leave is state-sensitive: earned leave accrues at roughly a day per 20 worked, and casual and sick leave vary by state under shops and establishments acts that continue to operate alongside the codes. If you are comparing EOR quotes, ask each vendor to show the full stack for your actual salary structure under the 50% wage rule, not a generic percentage, and confirm which state's rules apply to your hire's location. Nothing here is legal or tax advice; the contract and the applicable state rules control.
Questions people ask about hiring employees in india
Do the four labour codes apply to foreign companies hiring in India?
They apply to the employment, whoever the ultimate client is. Whether you employ through your own entity or an employer of record, the legal employer in India must comply with the codes; using an EOR moves the obligation onto the EOR, it does not remove it.
What does an employer pay on top of salary in India?
For covered establishments: 12% of basic plus dearness allowance into the provident fund, 3.25% of gross wages into ESI for staff earning up to Rs 21,000 a month, gratuity accrual of 15 days' wages per year of service, plus paid leave and any state professional tax. The 50% wage-definition rule stops these being minimised through allowance-heavy structures.
Can I just hire Indian workers as contractors instead?
Only if they are genuinely independent: their own tools, their own hours, multiple clients. A contractor who works like an employee can be treated as one, with retroactive statutory liabilities. For a long-term full-time role, an EOR arrangement is usually the defensible route when you have no entity.
How long does notice take when ending employment in India?
Contracts for confirmed employees commonly set 30 to 90 days, and workmen have a statutory 30-day minimum. Final settlement of dues is required within two working days of exit under the new codes, which is much tighter than older practice.