Hiring independent contractors in India: Everything you need to know

All you need to know about hiring contractors in India

With a population of more than a billion people, India offers a deep well of talent for companies looking for individuals to provide their expertise on short-term projects or become valued full-time members of their teams. Companies looking for technology workers—from software development to DevOps to cybersecurity and beyond—often find many qualified candidates in India. 

If the prospect of working with some of the most skilled workers in the world is appealing, check out our guide to hiring in India and some of the essential facts you need to know. 

Need contractor support—fast? They could be set up to work with you in minutes using Oyster for Contractors.

Why hire independent contractors in India?

When competitive companies want to meet their goals, they need individuals with the skills and talent to fulfill specific roles. In some cases, that talent may not be available locally, and the ability to tap into a global workforce can make all the difference to an organization’s overall performance and success. Thanks to a vast population of skilled contractors and freelancers, India holds a great deal of potential for companies in terms of foreign workers, especially in technology. The Indian tech startup scene is one of the most thriving and vibrant in the world, with thousands of experts eager to bring their innovations to the rest of the world. 

Sourcing talent from India represents significant opportunities for businesses, but knowing the ins and outs of hiring independent contractors is critical to maintaining compliance as well as a productive working relationship.

What to know when hiring independent contractors in India 

Like most other countries, India has strict labor laws protecting both workers and employers. Failing to follow these regulations can result in significant—and expensive—consequences, so it’s critical to understand them before you start looking for workers in India. 

Classifying workers

Under the Contract Labour Act 1970, India classifies an independent contractor as a worker engaged in activities to produce a specific result. Essentially, this means someone hired on a per-project basis.

In India, courts employ the control and integration test to differentiate between employees and independent contractors. The control test assesses whether a master-servant relationship exists, focusing on both directing the nature of the work and controlling how it’s done. The integration test determines if a person is fully integrated into the employer’s operations or remains independent.

The ownership of equipment used for work can also influence classification. If the employer provides equipment, it may be deemed a contract of service, especially if the contractor uses substantial employer-owned tools, implying that the owner is the master.

Some of the ways you can avoid misclassifying workers include:

  • Allowing people to work when and where they wish
  • Allowing contractors to work for other companies at the same time 
  • Having them use their own equipment to complete assignments
  • Not requiring non-compete agreements 
  • Not offering benefits to contract workers 

Correctly classifying your workers as independent contractors or employees is a priority. Some consequences of misclassification include fines, damage to your company’s reputation, and even imprisonment. 

Paying workers in India

Under the law, independent contractors receive a set fee for their service rather than a salary or hourly rate. Typically, receipt of this fee is tied to successful project completion, but contract terms may outline a different arrangement. Some companies pay by the hour, when the worker hits certain milestones, or in advance. Contractors in India can receive up to 33% of the fee upfront. 

Paying independent contractors in India is much simpler than paying an employee, as you don’t need to withhold any taxes or social program contributions. That responsibility falls on the contractor. This disparity in tax treatment is another distinguishing factor between employees and independent contractors. 

Even without navigating complex international tax laws, you may face challenges paying Indian contractors, including determining whether to pay in international or Indian currency. It’s best to choose a payment service that doesn’t charge hefty fees to pay Indian independent contractors. One way to work around this issue is to work with a global employer of record (EOR) in India that can handle paying individuals in their local currency and in compliance with all applicable laws.

Staying on top of evolving Indian labor laws and regulations

With the rise of remote work, labor laws are evolving worldwide, and India is no exception. It’s your responsibility to keep up with changes to avoid running afoul of the law. When you do hire workers in India, you need to be aware of specific labor laws, such as:

  • Minimum wage rates vary across states, sectors, skills, regions, and occupations in India, resulting in no single uniform minimum wage nationwide. 
  • Paid leave rules, including sick time (paid at 70% of the employee’s rate) and a minimum of 26 weeks of paid maternity leave for the first two children and 12 weeks for additional children.
  • Employee payroll contributions, including Employees Provident Fund and state insurance, and the Health and Education Cess.  

Again, working with Oyster can ensure that your company stays up-to-date with evolving labor laws and maintains productive working relationships with Indian workers.

Use Oyster to engage and pay Indian contractors 

When you want to hire talented independent contractors in India without the hassles of dealing with onboarding, payroll, and compliance, turn to Oyster for help. Our global employment platform makes it simple to access contractor management tools to streamline paperwork, onboarding, and payments in over 180 countries worldwide, including India. Get in touch today and see how to rest easy knowing you have a global employment partner that will keep your company compliant.

Disclaimer: This article and all information in it is provided for general informational purposes only. It does not, and is not intended to, constitute legal or tax advice. You should consult with a qualified legal or tax professional for advice regarding any legal or tax matter and prior to acting (or refraining from acting) on the basis of any information provided on this website.

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