How to hire employees in India

India is the largest single hiring market most founders will ever touch, and the one where the gap between “we made an offer” and “we employ someone lawfully” is widest. The pay arithmetic is unfamiliar, the statutory schemes attach at different thresholds, several of the rules are set by the state rather than the centre, and the paperwork a candidate expects is more formal than in the US or the UK.

This guide is a map, not a rate card. It sets out the decisions in the order you actually face them: whether to employ at all, what to put in the paperwork, which statutory pieces exist, what an exit involves, and where the contractor line sits. Rates, thresholds and slabs change and vary by state, so every number belongs with a qualified Indian adviser rather than in a page like this one.

First decision: entity, employer of record, or contractor

Employing someone directly in India means having an Indian legal entity that can act as an employer. That entity registers under the establishment law of the state it operates in, obtains the tax registrations it needs to withhold and remit, and enrols in the statutory schemes that apply to it once it crosses their thresholds. Incorporating is not difficult, but it is a standing commitment: filings, an accountant, a registered address, and a wind-down cost if you later leave.

If you do not have that entity and do not want one yet, an employer of record employs the person under its own Indian entity and invoices you. You direct the work, they carry the employment. This is the usual answer for a first hire or two in a market you are testing, and it stops being the usual answer once the headcount there justifies your own entity. The sequencing post walks through the order that tends to work: contractor first, employer of record next, your own entity last.

The third route is engaging the person as an independent contractor. That is legitimate when the relationship genuinely is one, and it is the single most common place small companies get India wrong. See contractor vs employee for the tests regulators actually apply. The heading on the agreement is close to irrelevant; how the work is controlled, whether the person is integrated into your team, and who supplies the tools are what get looked at.

The paperwork an Indian hire expects

Indian hiring is document-heavy compared with much of the English-speaking world, and candidates read the documents.

The offer letter comes first. It states the role, the reporting line, the start date, the location or work arrangement, the compensation, and the conditions the offer depends on, typically background verification and the candidate producing their previous relieving letter. Keep the offer short and keep conditions explicit. What belongs in one, and what does not, is covered in the offer letter guide, and there is a free offer letter generator on this site that builds a clean draft in your browser with nothing sent anywhere.

The appointment letter or employment agreement carries the terms: probation and how confirmation happens, notice on both sides, working hours, leave entitlement, confidentiality, assignment of intellectual property, and the grounds and process for termination. Probation is a matter of contract in India rather than a statutory status, so if you want it, write it down, including whether it can be extended and what confirmation looks like. An employee does not become confirmed by silence in every reading, so issue the confirmation.

A salary structure annexure usually accompanies it, breaking the headline number into components. This is where cost to company gets explained or fails to.

Statutory declarations and enrolments follow: identity and tax identifiers, bank details, nominee forms for the applicable schemes, and prior-employment details where tax withholding needs them.

Cost to company, and why candidates get surprised

Indian offers are quoted as cost to company, a single annual number covering everything the employer spends on the person. It includes the components that reach the employee, the employer side contributions that do not, and often benefits, insurance and one-off allowances. Two offers with the same CTC can produce visibly different monthly in-hand amounts depending on how they are structured.

Being straight about this at offer stage is worth more than any perk. Show the annual CTC, the monthly gross, the deductions that apply, and an indicative in-hand figure, and label the indicative parts as indicative. The India CTC breakdown calculator splits a CTC figure into components and a rough in-hand entirely in the browser, with every rate a field you fill rather than a number we assert. Use it to sanity check a structure before you send it, not as advice.

For the employer side of the same question, the employee cost estimator builds a fully loaded cost per hire from the lines you name, which is the number your hiring plan actually needs.

The statutory pieces, conceptually

Indian payroll sits on a handful of statutory components, each with its own authority, its own applicability rules, and its own thresholds. In outline: provident fund as a retirement contribution from both sides, employees state insurance as health and social security cover up to a wage ceiling, professional tax levied by individual states, tax deducted at source on salary withheld monthly against the employee’s annual liability, gratuity accruing as a lump sum obligation over qualifying service, and statutory bonus for eligible employees.

Some of these apply from your first employee, some only above a headcount or wage threshold, and several depend entirely on the state the person works in. That is why a single set of numbers carried in your head is worse than useless. The statutory payroll in India guide describes each component and where it sits in gross to net, again without asserting a rate.

The practical division of labour is this: a qualified payroll provider or chartered accountant performs the calculation and the filings, and your job is to give them clean, complete and timely inputs. Most of the pain founders feel about Indian payroll is not the maths, which they never do, but the monthly scramble to assemble attendance, approved leave, overtime, joiners, leavers, one-off payments and prorations from four places into a fifth.

Leave, holidays and attendance

Leave entitlement in India is set partly by the establishment law of the state and partly by what you offer above it, and the public holiday list differs by state as well as by year. A company hiring in two Indian cities already has two holiday calendars, and a company hiring in India and elsewhere has more.

Write the policy down before the first hire rather than after the first dispute. What leave types exist, whether they accrue monthly or are granted annually, what carries over and how much, how public holidays interact with the entitlement, and who approves what. The leave policy guide covers the structure, and the leave policy generator produces a draft document you can edit.

Attendance matters more in India than in many markets because payable days feed the payroll input directly. If someone joins mid-month, leaves mid-month, or takes unpaid leave, the day count is the fact your payroll partner needs. The payable days calculator does that arithmetic for a single case; a system of record does it for everyone without anyone opening a spreadsheet.

Exits, notice and the settlement

Indian exits are more procedural than most first-time employers expect. Notice runs both ways and is what the contract says it is, and it is common for contracts to allow a buyout of the notice period in lieu of serving it. When someone leaves, a settlement of everything owed and owing follows, along with the documents the person will need for their next employer. That whole process has its own guide: full and final settlement.

Two things make exits go badly. The first is a leave balance nobody can agree on, which is a record-keeping failure rather than a payroll one. The second is a document trail that stops at the last working day, so a former employee writing in 2028 for a payslip lands in someone’s personal inbox. Both are solvable before they happen, and the offboarding checklist sets out the order.

Where a system of record fits

None of the above needs a payroll engine on your side. It needs one place that holds who works here, on what terms, from when, with which documents on file, and which produces the inputs somebody else computes from.

That is what the Capstan core is: one directory holding employees and contractors together across entities, effective-dated changes so a promotion in April is still readable as history in 2029, leave policies and holiday calendars per location, two-tap attendance, onboarding and exit checklists with document expiry tracked, and letters generated from the record rather than retyped. India is the first live region, and an Indian workspace runs in an Indian deployment rather than in a global system with a country column.

The Payroll module compiles those inputs into a documented export for your payroll partner and files the returned payslips back onto each person. It computes nothing, because Capstan holds no Indian rate, slab or formula anywhere and never will. If you want one vendor to compute and file your Indian payroll, that is a different product and you should know that now rather than three months in.

Before you make the offer

Confirm the entity question, because it determines everything else. Get the appointment letter drafted by someone who knows Indian employment law rather than adapted from a US template. Decide the salary structure and be able to explain it. Line up the payroll partner before the first pay day, not after. And write the leave policy down.

Then, when the first hire says yes, the work of employing them is filing rather than firefighting.