Looking to hire a contractor in India? This is not as simple as just signing a contract and getting to work. There are many factors to consider when making a global hire.
Today, companies looking to acquire specialized skills and flexibility have begun to rely on global contractors as a strategic move. India has become an attractive option for organizations seeking talented professionals, given its expansive pool of skilled workers, cost-effectiveness, and independent spirit.
This, along with its advantageous business climate, makes India an excellent choice for businesses seeking to hire contract workers and increase their staff. From software engineering to design and client support, global companies are flocking to hire contractors in India.
However, international recruiting remains a big challenge for many companies. There are several legal and regulatory requirements that must be met. This ensures that the hiring process is compliant with the Contract Labor Act of 1970. A Professional Employer Organization (PEO) can help you with global contractor management when you hire a contractor from India.
This Labor Act in India protects the rights of contract workers so that they are treated fairly and ethically. This article will guide you through the steps you need to take to hire a contractor compliantly in India.
Understanding the Contract Labor Act Regulation and Abolition Act, 1970
There are many aspects of India’s Contract Labor Act 1970 to cover. First, let’s focus on the most important bits for global contractor management: what the act is, the risks and consequences of non-compliance, and what employers should look out for when hiring.
What is the Contract Labor Act 1970?
The Contract Labor Act 1970 is a piece of Indian legislation that regulates the employment of contract labor. The Contract Labor Act 1970 outlines important provisions such as the registration of businesses that hire contract workers, the licensing of contractors, and the protection of the health and well-being of contractors. Additionally, it outlines the penalties for failing to comply with the Act.
Here are some key provisions of the Indian Labor Act that employers must comply with:
Registration
When you employ 20 or more contractors, you must register with the appropriate government authority in India. When employers register, they should prepare to provide details about the establishment, such as the type of job, the amount of contractors or employees employed, and the salary given.
Licensing
Contractors must obtain a license to supply labor and employers must obtain a license to employ contractors in India.
Minimum wage and working conditions
The common advice is that employers must ensure that the wages they pay to contract workers are no less than the minimum wage established by the government. However, India has no official minimum wage. Instead, different state governments set the minimum wage rate for where your establishment is registered.
Make sure that you calculate this correctly and budget for it. Payment must also be made in a timely manner. Furthermore, employers are responsible for occupational safety and the availability of necessary facilities, like bathrooms, cafeterias, first aid kits, and so on.
Documentation
Keep accurate records of all contractors, including their names, ages, addresses, and the nature of their work.
Social Security
Employers must give their contractual employees statutory benefits outlined in this act, including contributions to a pension plan called an Employees’ Provident Fund (EPF, 12% of an employee's salary), and the Employee State Insurance (ESI, 4.75% of an employee’s salary), which covers access to health insurance and accident protection. Each state government may also have its own regulations in place, including tax laws.
Prohibitions
The law forbids certain conduct, for example, the use of labor for long-term tasks, or the participation in work methods that discriminate against contracted workers.
By adhering to these provisions, you can guarantee you are recruiting contractors in compliance with India’s Labor Act. This upholds not only the rights of contractors but also shields your business from any potential legal and regulatory difficulties with contract workers in global contract management.
See also: Navigating Indian Labor Laws
Is There a Minimum Wage for Indian Contractors
What are the Risks and Consequences of Non-Compliance?
As we have covered, there are legal requirements that must be met when hiring contractors in India. While meeting the legal requirements is important, employers should also understand the risks and consequences of non-compliance to avoid any difficulties or misunderstandings.
Although you don’t have to register as a legal entity in India to hire contractors – contractors are independent – here are three areas of risk that employers could run into when hiring contractors in India:
Permanent Establishment
If you regularly do business in India, your work practices and conditions can trigger permanent establishment. If tax authorities in India regard your business as a permanent establishment, corporate taxes and penalties will apply.
Misclassification
The distinction between employee and contractor in India is a delicate one; misclassifying a contractor in India could result in serious repercussions, especially when you are not a legal entity. Hence, be very careful and truly understand the distinction between independent contractors and employees. Misclassification is a dangerous game!
Intellectual property
Navigating patent, copyright, and trademark regulations can be a straightforward process when done at home, but securing rights overseas can be a challenge. If you don't protect your intellectual property, it can adversely affect your revenues and overall business potential.
Labor Law in global contractor management can be challenging. Moreover, non-compliance can result in costly consequences, such as fines, penalties, lawsuits, loss of credibility and contract, and in the worst cases, closure of business.
No employers should risk being in non-compliance with labor laws in India. This is an important aspect of the business that employers should focus on. Although it’s a herculean mission to be 100% compliant all of the time, it is absolutely necessary.
Too big of a task and want to focus on your business? Employers can work with EORs or PEO solutions like Borderless to lift the weight of compliance off their shoulders.
What to Look for When You Hire a Contractor in India
When taking on contractors in India, there are a few things to think about to make sure the arrangement is a success. It's also important to provide employee training to increase employee retention. But during hiring, here are some things to look for.
Expertise
Hire contractors with the correct experience and skills needed for the role you are trying to contract out. Do your due diligence by verifying their qualifications and going through their portfolio of GitHub to get a sense of their skillset. Are their skills a good fit for the role?
Communication and flexibility
Hire contractors who are good communicators, have availability that matches your business needs, and can offer flexibility in working hours and project delivery. There is a time zone difference so that is something to be mindful of!
Cultural Awareness
When you hire a contractor in India, you should also hire someone who is aware, well-versed, and has a good understanding of the local culture and business practices in India and in the country that your company operates in. This lessens any potential miscommunication or disputes.
On the topic of cultural awareness and understanding, employers should also be aware and understand the work culture in India when hiring a contractor in India. For example, in Indian culture, there is a hierarchical structure of respect and authority. India is also a very diverse country so employers should be mindful of religious and national holidays and festivals when it comes to their availability and flexibility.
By understanding what to look for when you hire a contractor in India, you can find the best fit for the role and ensure that this is a beneficial arrangement for both parties.
How to Hire a Contractor in India
Employers should be aware of the following steps when employing contractors in India. To hire a contractor compliantly under the Contract Labor Act 1970, you need to follow these steps:
Familiarize yourself with legal requirements
Avoid non-compliance consequences in every step of hiring a contractor in India by familiarizing yourself with the legal requirements outlined in the Indian Labor Act.
Make sure to provide a precise job description
Ensure that the project scope, deliverables, and objectives are clearly defined. Providing contractors with timelines, technical specifications and establish an open line of communication from the very beginning will ensure that the contractors understand what is expected of them.
Do a background check
In India, conducting background checks on citizens is not restricted by any certain law. Even though privacy is a concept that is included in the Indian Constitution, it is not declared as a definite right. Therefore, there is no obstacle to verifying credentials, qualifications and other important details when hiring individuals. Through this process, you can verify education and skill qualifications to make sure you are making the right hire even if you are miles away.
Create a contractor agreement
Outline the terms and conditions of an Independent Contractor Agreement in India. This document should include:
- Contractor's status or classification
- Job role and project information
- Compensation and payment structure and frequency
- Confidentiality rules
- Intellectual property rights
- Standard work hours and overtime
- Benefits and leave
- Termination clauses
It is critical to consult with lawyers, PEOs, or Employers of Record (EORs) who are knowledgeable in Indian law to guarantee adherence and deal with any particular issues.
Decide on a pay structure
Once you’ve fulfilled the legal requirements of engaging contractors in India, established a legally compliant contract agreement, and decided upon the payment structure and timeline that best suits your company and contractor, you can select a method of payment. This could be through hourly wages, an agreed sum for the project when it is finished, or a portion of the wages in advance. Make sure to provide clear guidance on how contractors should submit invoices.
Choose a payment method or platform
There are many ways to pay your contractors in India such as international bank transfers, money orders, money transfer companies, or through a global payroll platform like Borderless. The latter three are the quickest way to pay your contractors in India. Using a global payroll platform also means you can store documentation, don’t have to worry about a higher-than-market exchange rate, and pay in the right currency.
Check with a Professional employer organization or Employer of Record
A PEO or EOR can be invaluable in managing international employees. With a PEO, you will establish a co-employment relationship where you'll share employer responsibilities. An EOR will act as the legal employer on your behalf. In either case, HR outsourcing may be the easiest way to hire Indian contractors.
Manage your team of Indian contractors with best practices
Once you have the administration side of things ready to go, the work doesn’t stop there. Make sure you are managing your team of contractors in India well to get the most out of this arrangement. Regularly communicate, check in, and provide feedback and skill development opportunities that align with the role.
How an Employer of Record Can Help You Hire in India
Employers take advantage of the HR services offered by EORs to make sure that they are abiding by all the employment laws in India and creating a workplace that is legally compliant. An EOR, like Borderless, can serve as an intermediary for overseas talent, such as contractors in India, and provide you with cost-savings by enabling a faster and more economical solution. Here’s how an EOR can help you hire a contractor in India:
Compliance with India's Central Government and Labor Laws
Organizations can rely on an EOR service for their compliance expertise, helping them navigate through the legal intricacies of Indian labor laws, while making sure that all regulations are being met and any compliance risks are minimized.
Global Contractor Payments and Management
EOR services handle the management of contracts, payroll, taxation deductions, and employee benefits for your contractors in India. This includes guaranteeing correct and punctual wages, conforming to taxation laws, and efficiently running benefits for contracts
Risk Management
An EOR assists businesses in managing the risks linked to employment-related matters, making sure they adhere to the proper procedures for terminating contractors, and following all legal requirements outlined in the India Labor Law Act.
Local Expertise and Administering Employee Benefits
EORs provide assistance to contractors in India. EORs are well-versed in local culture and labor laws, which leads to effective communication and an improved employee experience.
Accommodating Changing Needs
EOR services make it easy to rapidly adjust the size of your organization as necessary, without any of the difficulty of managing a remote team in India or dealing with legal and administrative issues.
Hiring a Contractor in India with Borderless Compliantly
Familiarizing yourself with India's labor laws — such as the Contract Labor Act 1970 — is necessary when recruiting new contractors. This law safeguards both you and your potential contractor so that everyone wins.
An EOR can provide additional assistance by taking on the responsibility of managing legal compliance, payroll processing, benefits administration, and local support. An EOR service allows organizations to increase their remote team of contractors in India with the assurance that they are compliant.
Looking for an EOR to help you hire a contractor in India in seconds? Borderless is here to make that process so much easier. See Borderless in action.
Disclaimer
Borderless does not provide legal services or legal advice to anyone. This includes customers, contractors, employees, partners, and the general public. We are not lawyers or paralegals. Please read our full disclaimer here.
