A Spanish company can hire in India through its own Indian company or through an employer of record that employs the staff on its behalf. With a subsidiary, the company is the employer, deducts tax from salary, contributes to the provident fund and, above the wage limit, to state insurance, and follows state shops and establishment rules. India has consolidated its labour laws into four codes, reported in force from 21 November 2025, and some rules and state implementation are still being finalised, so confirm the current position. Spanish managers should expect differences in notice, probation, bonus, working hours and termination. Hiring before the subsidiary is registered for payroll is a common cause of penalties.
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Key facts
| Hiring routes | Own Indian company or an employer of record |
|---|---|
| Employer deductions | Tax on salary (Section 392), provident fund, state insurance above the wage limit, professional tax in some states |
| Labour codes | Wages, Industrial Relations, Social Security and Occupational Safety codes, reported in force 21 November 2025 |
| Payroll dates | TDS by the 7th; provident fund and state insurance by the 15th |
| Contract basics | Offer letter, employment agreement, confidentiality, intellectual property assignment, notice and probation |
| Termination | Notice and, for larger establishments, retrenchment rules |
| Share awards | Parent share awards need Indian tax and FEMA treatment |
| Who to ask first | The payroll team before the first offer letter is issued |
Choosing the hiring route
| Route | Who is the employer | Good for | Watch out for |
|---|---|---|---|
| Indian subsidiary | The subsidiary | Teams of any size with a plan to stay | Setting up payroll registrations; compliance cost |
| Employer of record | The provider, on your behalf | Testing the market, a few hires, or a delay in incorporation | Fee on top of cost; control of staff; permanent establishment risk if the Spanish company directs the work |
| Contractor | Neither; an independent contractor | Short projects with defined deliverables | Misclassification risk; Indian tax and tax withholding |
| Secondee from Spain | Spanish company or subsidiary | Senior or technical staff | See the employees guide |
Contracts and policies
An Indian employment contract should state the role, place of work, salary components, probation, notice period, working hours, leave, confidentiality, intellectual property assignment, non-solicitation and termination. Restrictive covenants after employment are enforced narrowly in India, so a long post-employment non-compete is unlikely to be upheld, while confidentiality and intellectual property clauses are enforceable. Policies on conduct, anti-bribery and prevention of sexual harassment are required for many employers, and an internal committee must be constituted above a size threshold.
Salary structure and deductions
- Basic pay, house rent allowance, special allowance and bonus are the usual components; the split affects tax, provident fund and gratuity.
- Under the wages code the definition of wages affects provident fund, gratuity and bonus calculations; confirm the current rules with your payroll provider.
- The Indian company deducts tax from salary under Section 392 of the Income-tax Act, 2025, and deposits it by the 7th of the next month.
- Provident fund contributions are due by the 15th for employees who fall within the scheme; state insurance applies at lower wage levels.
- Gratuity is payable after five years of service, and employers need to provide for it.
- Professional tax is a state tax and applies in some states only.
The four labour codes
India's 29 central labour laws have been combined into four codes: wages, industrial relations, social security and occupational safety and working conditions. They were reported in force from 21 November 2025, with rules and state-level rules following. The codes change the definition of wages, introduce fixed-term employment on equal terms, expand social security to gig and platform workers and change thresholds for retrenchment and standing orders. For a small foreign-owned company the practical points are the wage definition, the registration requirements, the inspection model and the termination thresholds. Because implementation is still evolving, rely on a current check each time you issue contracts.
Notice and termination
Indian employment law is more protective of employees than many Spanish managers expect in some respects and less in others. Notice periods are set by the contract or by state rules; in many professional roles they run for one to three months. Where the establishment is large enough, retrenchment of workers requires notice and compensation, and sometimes government permission. Managerial and supervisory staff are treated differently from workers. A termination for cause needs an inquiry that follows natural justice, and an unfair dismissal can lead to reinstatement or compensation. Take advice before any termination of a long-serving employee.
Share awards from the Spanish parent
Employees in India who receive shares or options of the Spanish parent are taxed in India when the benefit vests or is exercised, and the Indian company must withhold tax on the perquisite. The Indian employee may also need to report foreign assets, and the parent may need to follow Indian foreign exchange rules for the transfer of shares to a resident. Plan the award before it is granted, tell the Indian payroll team and keep valuation records.
Employer of record as a bridge
An employer of record can employ staff in India before your subsidiary is ready, which is useful if a customer needs a presence quickly. The provider takes the employment risk, runs payroll and gives you a fee-based service. Three cautions apply. The fee is on top of the cost, so long-term use is more expensive than a subsidiary. The Spanish company must avoid directing the staff in a way that creates a permanent establishment. And the transfer of staff to the subsidiary later needs a plan for service continuity and benefits. See the timeline guide.
Official sources
Check the rules at the primary sources: Income Tax Department (India), Reserve Bank of India, Ministry of Corporate Affairs, Agencia Tributaria (Spain), Spanish Ministry of Economy, Trade and Business and the Ministry of External Affairs (India).
Frequently asked questions
Can a Spanish company hire in India without a subsidiary?
Yes, through an employer of record or as contractors, but the employer-of-record fee and the permanent establishment risk need to be managed.
What deductions does an Indian employer make?
Tax on salary, provident fund, state insurance for lower wages and professional tax in some states.
When are the labour codes in force?
They were reported in force from 21 November 2025, with rules and state implementation still developing. Confirm the current position.
When is payroll tax due?
By the 7th of the next month. Provident fund and state insurance are due by the 15th.
Is a non-compete enforceable in India?
Post-employment non-competes are narrowly enforced. Confidentiality and intellectual property clauses are enforceable.
Do I need an employee handbook?
Policies on conduct, anti-bribery and harassment are required or advisable, and an internal committee is needed above a size threshold.
How long is a typical notice period?
It depends on the contract and the role. One to three months is common for professionals.
Are share awards from the parent taxable in India?
Yes, as a perquisite when they vest or are exercised, and the Indian company must withhold tax.
Is gratuity compulsory?
It is payable after five years of service where the law applies, and the employer should provide for it.
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Read the guide →Sources
Last updated 2 November 2026. General information only, not legal or tax advice. Indian and Spanish rules change often; confirm current requirements before acting.