India Employment Laws Foreign Companies Must Know in 2026

Expanding into India offers access to one of the world’s largest and most skilled talent pools. But India’s employment law framework is detailed, multi layered, and actively evolving. For foreign companies hiring employees or contractors in India in 2026, understanding the legal landscape is critical to avoid penalties, disputes, and reputational risk.

This guide covers the key employment laws, compliance areas, and practical considerations you should know before building your India team.

Written Employment Contracts Are Essential

Always use India specific contracts covering:

• Role & compensation structure

• Working hours & location

• Leave policy

• Notice & termination terms

• IP ownership & confidentiality

Global templates often fail in Indian courts.

Minimum Wages & Salary Structure

• Minimum wages vary by state and job role

• Monthly salary payment is mandatory

• Payslips are required

• Equal pay for equal work is enforced

Most salaries are split into components (Basic, HRA, allowances).

This affects:

• Taxes

• Provident Fund (PF)

• Gratuity

Incorrect structuring = higher costs or penalties.

Working Hours, Overtime & Leave

Working hours: 48 hours/week (standard)

Overtime: 2× pay (where applicable)

Statutory leave includes:

• Annual / Earned leave

• Sick & casual leave

• Public holidays

• Maternity leave (26 weeks for eligible employee)

Mandatory Social Security Contributions

Employers must register and contribute to:

• Provident Fund (PF): 12% employer + 12% employee

• ESI: health insurance (for eligible salaries)

• Gratuity: payable after 5 years

• Professional Tax: state level

Non-compliance leads to fines and audits

Payroll & Income Tax Compliance

You must:

• Deduct TDS from salaries

• Deposit tax monthly

• File quarterly returns

• Issue Form 16 annually

Payroll errors are one of the top risks for foreign employers.

Termination Is Not “At Will”

• Notice periods are mandatory

• Termination reasons should be documented

• Layoffs trigger additional legal steps

• Final settlement must be paid quickly

Wrongful termination claims are common.

Employee Data Protection

Under India’s new data protection framework:

• Employee consent is required

• Data must be securely stored

• HR privacy policies are mandatory

• Cross border transfers are regulated

Hiring Without an Indian Entity

Two options:

Set up your own entity

• Slow

• High compliance burden

• Ongoing legal management

Use an Employer of Record (EOR)

An EOR:

• Becomes the legal employer in India

• Manages contracts, payroll, tax, benefits, compliance

• Lets you control daily work

• Enables hiring in days

For many companies, this is the fastest and safest route in 2026.

Common Mistakes to Avoid

• Using non-India contracts

• Ignoring state laws

• Poor salary structuring

• Missing filings

• Treating contractors like employees

Final Takeaway

India is a powerful hiring destination but only if compliance is done right.

Companies that get employment law right gain:

• Faster hiring

• Lower legal risk

• Better employee trust

• Scalable operations

Make compliance part of your India strategy from day one.