To hire in India, the Indian company (or an Employer of Record) issues employment contracts, registers for provident fund, ESI where applicable and professional tax, runs payroll with Withholding Tax on salary, and files the periodic returns. Gratuity, bonus and leave rules also apply, and India's labour codes are consolidating several of these rules, so confirm the current position for your state and headcount.
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Key facts
| Registrations | Provident fund (EPFO), ESI where applicable, professional tax and state shops and establishment registration |
|---|---|
| Monthly | Salary, Withholding Tax on salary, provident fund and ESI contributions |
| Withholding Tax on salary | Deposited by the 7th of the following month |
| Quarterly statement | Form 138 (previously Form 24Q) for salary Withholding Tax |
| Employment model | Contract-based; there is no at-will employment in India |
| Labour Codes | The four Labour Codes took effect on 21 November 2025, with central rules notified on 8 May 2026; allowances excluded from wages cannot exceed 50% of total pay |
| Post-employment non-compete | Generally not enforceable in India |
Before the first hire
- Decide the employer: your subsidiary or an Employer of Record.
- Register the company for provident fund, ESI (where applicable), professional tax and the state establishment registration.
- Prepare an employment contract and a policy handbook that fit Indian law.
- Set up payroll, the salary structure and the company's bank arrangements.
- Agree IP assignment and confidentiality terms in every contract.
What an Indian employment contract should cover
- Designation, place of work, probation and confirmation.
- Compensation structure and benefits, stated as cost to company with its components.
- Notice period and termination terms. Termination follows the contract and the law. Indian rules on notice and termination differ from the Fair Work Act protections you know in Australia, so an Australian contract cannot simply be reused.
- Confidentiality, IP assignment and data protection duties.
- Restrictions after employment. Non-compete clauses that apply after employment are generally unenforceable in India, so protect the business through confidentiality, IP and non-solicitation drafting.
Statutory benefits and deductions
| Item | What it is |
|---|---|
| Provident fund | Employer 12% and employee 12% of wages; the employer's 12% splits into 8.33% pension and 3.67% provident fund within the wage ceiling, plus 0.5% for EDLI insurance. Mandatory for establishments with 20 or more employees |
| ESI | Employer 3.25% and employee 0.75% of wages for employees earning up to ₹21,000 a month (₹25,000 for persons with disabilities), in establishments with 10 or more employees |
| Gratuity | 15 days' wages for each completed year of service, after five years of continuous service (one year for fixed-term employees under the Labour Codes in force since 21 November 2025) |
| Bonus | Statutory bonus of 8.33% to 20% of wages for eligible employees, within the wage limit set by the Code on Wages |
| Professional tax | A state tax capped at ₹2,500 per employee a year, deducted by the employer where the state levies it |
| Leave and holidays | Governed by state establishment law and the company's policy |
| Withholding Tax on salary | Deducted from salary each month and deposited with the government |
The monthly payroll cycle
- Collect attendance, leave and changes to pay.
- Compute salary, statutory deductions and Withholding Tax.
- Pay salaries and issue payslips.
- Deposit Withholding Tax by the 7th of the next month and provident fund and ESI by the 15th.
- File the quarterly Withholding Tax statement and the periodic statutory returns.
India's labour codes
What this means for an Australian parent
- Do not copy an Australian offer letter. Indian contracts need notice periods, statutory benefits and IP clauses written for Indian law.
- If you offer equity to Indian employees, see ESOPs for Indian employees of an Australian parent.
- Personal data of Indian employees is subject to India's data protection law, so agree how HR data is shared with the Australian team.
Mistakes to avoid
- Hiring people as consultants when they are in substance employees, which creates statutory exposure.
- Starting work before provident fund, ESI and professional tax registrations are in place.
- Copying an Australian employment contract that works under the Fair Work Act but not under Indian law.
- Leaving out IP assignment and confidentiality clauses.
- Ignoring state-level registrations and professional tax.
How AU Corporate handles this
We run HR services, payroll and Employer of Record arrangements for foreign companies in India.
Related services: HR and payroll
Official sources
Rules on this page can be verified at the primary sources: Ministry of Corporate Affairs, Reserve Bank of India, Income Tax Department and the GST portal.
Frequently asked questions
What is the notice period in India?
The notice period in India is set by the employment contract, commonly one to three months for professional roles. State and statutory rules also apply, so it should be written clearly into each contract.
Does an Indian subsidiary have to register for provident fund?
Establishments above the prescribed employee limit must register, and many companies register earlier. Confirm the position for your headcount and state.
Can an Australian employment contract be used unchanged in India?
No. Employment in India is contract based and governed by Indian statutes, so an Australian contract needs Indian notice, benefits, IP and termination terms. Fair Work Act terms and Australian awards do not govern employees who work in India for the Indian subsidiary.
What is gratuity?
A lump sum paid to an employee on leaving after the qualifying period of service, typically five years. The rules are being consolidated in the labour codes, so confirm the current position.
Can EOR employees move into the subsidiary later?
EOR employees can move into the subsidiary later with planning. Employees must agree to the transfer, their service history and benefits such as gratuity and provident fund should carry over, and contracts and notice periods need to be handled, with timing planned so that there is no gap in employment.
What is an Employer of Record and how does it work?
An EOR is the legal employer of your India team. It issues the employment contracts, runs payroll, pays statutory dues and handles compliance, while you direct the day-to-day work. You pay a service fee on top of the employee cost.
What are the employer's payroll obligations?
Pay salaries, deduct and deposit Withholding Tax on salaries, contribute to provident fund and ESI, issue payslips and file the periodic returns. Salary structures should be designed to be both tax-efficient and compliant.
How do ESOPs for Indian employees of an Australian parent work?
The Australian parent grants options or restricted stock units to employees of the Indian subsidiary under its plan. FEMA overseas investment rules and reporting apply to the employees, and tax arises on exercise or vesting as salary, with Withholding Tax, and again as capital gains on sale.
What statutory benefits apply to employees in India?
Employees in India typically receive provident fund, ESI for eligible wages, gratuity after the qualifying service period, bonus where applicable, professional tax in some states, and leave benefits. India's labour codes are consolidating these, so the current position for the state and headcount should be confirmed.
What visa does an Australian executive need?
An Australian executive needs an employment visa to work in India, because a business visa suits only short meetings. An employment visa typically has a minimum salary condition, and longer stays require registration with the Foreigners Regional Registration Office.
What are the employer contributions for PF and ESI in India?
Employers in India contribute 12% of wages to the provident fund (8.33% to pension and 3.67% to provident fund within the wage ceiling), 0.5% to the EDLI scheme, and 3.25% of wages to ESI for employees earning up to ₹21,000 a month. Employees contribute 12% to the provident fund and 0.75% to ESI.
Related guides
Employer of Record vs. Subsidiary in India: When to Use Each
Compare an Employer of Record with your own Indian subsidiary: speed, control, compliance, tax presence and when to convert. A guide for Australian companies.
Read the guide →Sending an Australian Executive to India: Visa, Housing, Banking and Tax
How to relocate an Australian executive to India: employment visa, FRRO registration, housing, banking, tax residency and permanent establishment risk for the parent.
Read the guide →Compliance Calendar for an Indian Subsidiary: What Is Due and When
The recurring compliance of an Indian subsidiary: monthly, quarterly, annual and event-based filings under company, tax, GST, FEMA and labour law.
Read the guide →ESOPs for Indian Employees of an Australian Parent: FEMA, Tax and Cost Recharge
How ESOPs and RSUs work for employees of an Indian subsidiary: FEMA reporting, employee tax, valuation, cost recharge and transfer pricing for an Australian parent.
Read the guide →Sources
Last updated 15 October 2026. General information only, not legal or tax advice. Indian and Australian rules change often; confirm current requirements before acting.