How to hire and pay EMPLOYEES IN


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This guide was last updated on
May 1, 2023
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Before hiring


Before hiring employees in India, there are a few things you need to know. India recently introduced a new tax regime that eliminated 70 tax exemptions, but offers lower tax rates. It’s up to employees to decide which system they want to follow. In India, employees that make below a certain income threshold are exempt from income tax entirely.

It’s also important to know that there is a social security system in India which is administered by the Employees’ Provident Fund Organization (EPFO). Both employers and employees are required to contribute to a retirement savings scheme called the Employees Provident Fund (EPF). It’s important for employers to understand the intricacies of these programs before making a hire. 

In India, severance payments are given to workers who have been continuously employed for two years and are terminated for redundancy. Severance payment depends on the duration of employment, performance, and salary.

We know this might sound overwhelming—but it doesn’t have to be. A solution like Oyster eliminates the barriers for you. With Oyster, you can automate compliance across 180+ countries, easily managing HR and payroll—all in one, easy-to-use platform. 

Get an overview of what you need to know when hiring in India below.

At a Glance









(based on region;
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13th / 14th SALARY


Good to know

  • Employees in India living in self-arranged, rented accommodation can claim a house rent allowance (HRA) as a salary tax deduction. Other deductions from income include contributions made to the provident fund, payment of life insurance premiums, and transport allowances.
  • Employees leaving their jobs are entitled to a "gratuity payment" from their employers if they’ve been working for more than five years. This is equal to 15 days' wages for every completed year of service, subject to a cap. Statutory gratuity is usually always payable, unless the employee is terminated for misconduct or gross negligence.
  • Post-employment non-compete clauses are legally unenforceable in India. Employees must provide one month’s notice if they've worked for an employer for one year or more.

Employment in


Working hours and overtime

Employees in India work eight or nine hours per day, totaling 48 hours a week. Overtime is paid double the rate of an employee’s normal pay.

Employment contracts
Probationary period

In India, the typical probationary period is between three and six months. 

Notice period

The notice period for employees with at least one year of service is one month (or equivalent wages in lieu thereof). No notice is required for employees terminated for misconduct.

Non-compete agreements

Post-employment non-compete clauses are legally unenforceable in India. 

Employment cost calculator


View a list of recognized public holidays in India here.

View a list of recognized public holidays in India here.

Employer tax

Employers are required to contribute 12% of each employee’s salary to the Employee Provident Fund (EPF). 

Depending on the employee’s job type, employers may also have to pay into the Employees’ Deposit Linked Insurance Scheme (EDLI). The wages on which this amount is calculated is capped at INR15,000 per month for all employees.

Individual tax

Employees in India are taxed 0% to 30% depending on their income bracket. Employees also have to contribute 12% of their monthly salary towards the Provident Fund Scheme and 1.75% to the national insurance scheme.

Termination of employment

In India, termination for cause does not include non-performance – it includes only behaviour, which qualifies as misconduct.

Severance payment is given to workers who have been continuously employed for two years and are terminated for redundancy. Severance payment depends on the duration of employment, performance and salary.

In addition, employers must make "retrenchment compensation" that is equal to 15 days' wages for every completed year of service.

Start hiring employees in


Setting up a business entity everywhere you want to hire a new employee isn’t scalable—it takes too long and the legal fees are high. At the same time, understanding and adhering to the local labor laws and employee expectations can be complex and time consuming. And it’s hard to find reliable information on up-to-date employment information for all the countries where you’re considering hiring. Not to mention tracking down invoices and managing employee contracts over email and spreadsheets—that gets messy fast. 

We can’t afford to take risks when it comes to compliance—we need to make sure we follow the local guidelines, especially when it comes to taxes and legalities. 

With Oyster, you can manage HR and payroll, and automate compliance across 180+ countries—all in one, easy-to-use platform.

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