The indefinite/permanent employment contract is the most common form of employment in India, continuing until terminated by either party in accordance with the notice period, applicable labour laws (state Shops & Establishments Acts, Industrial Employment (Standing Orders) Act/Rules, and — as it rolls out — the Industrial Relations Code, 2020), and the terms of the employment contract. Permanent employees are entitled to full statutory benefits (PF, gratuity after qualifying service, bonus eligibility, leave, etc.) and, if classified as 'workmen,' additional protections against arbitrary dismissal.
Fixed-term employment contracts (FTCs) are formally recognized under the Industrial Employment (Standing Orders) Central Rules (as amended in 2018) and the Industrial Relations Code, 2020. Fixed-term employees must receive statutory benefits and working conditions on a par with equivalent permanent employees on a pro-rata basis (wages, hours, leave, and social security), and — under the newer framework — are eligible for gratuity even without completing 5 years of continuous service, provided the fixed term is completed. The contract ends automatically on expiry without requiring notice or severance, though renewal practices are scrutinized to avoid disguised permanent employment.
Standard working hours are capped at 9 hours/day and 48 hours/week under the Factories Act, 1948 and corresponding state Shops & Establishments Acts, with at least one weekly rest day. Overtime beyond these limits must be compensated at twice (2x) the ordinary rate of wages. The new Occupational Safety, Health and Working Conditions (OSH) Code envisages flexibility to work up to 12-hour shifts (with more rest days) within the same 48-hour weekly cap, but this depends on state notification and had not been uniformly implemented as of August 2026.
Probation is not centrally mandated by statute for all employment types but is standard contractual practice, referenced in several state Shops & Establishments Acts and Standing Orders. Probation is commonly 3-6 months and may be extended once (often for a similar additional period) if performance is unsatisfactory. Termination during probation is generally easier and can be effected with a shorter notice period (often 7-15 days, or as specified in the contract), without needing to show 'just cause' to the same extent required for confirmed employees.
India does not have a general statutory 13th- or 14th-month salary requirement. However, under the Payment of Bonus Act, 1965 (to be subsumed into the Code on Wages, 2019), employers with 20+ employees must pay an annual statutory bonus of between 8.33% and 20% of wages to eligible employees (generally those earning up to a specified wage ceiling, currently INR 21,000/month for eligibility, with the bonus calculated on wages up to INR 7,000/month or the applicable minimum wage, whichever is higher) who have worked at least 30 days in the accounting year. Many employers also pay a discretionary annual or performance-linked bonus, often around Diwali, in addition to or instead of this statutory bonus.
There is no general statutory regulation restricting job titles in India. However, correct classification matters for compliance: whether an employee qualifies as a 'workman' (under the Industrial Disputes Act, 1947 / Industrial Relations Code, 2020) versus a supervisory/managerial employee significantly affects which protections (e.g., against dismissal, entitlement to overtime) apply, so job titles and duties should be documented accurately to reflect the correct statutory category.
Employer-side statutory contributions typically total approximately 17-18% of relevant wages, comprising: EPF employer contribution of 12% of basic wages + dearness allowance (of which 8.33% is diverted to the Employees' Pension Scheme, within a basic-wage ceiling of INR 15,000 for mandatory coverage, though many employers contribute on full basic wages); EDLI (life insurance) employer contribution of 0.5%; EPF administrative charges of about 0.5%; and gratuity accrual of about 4.81% of basic wages (15 days' wages per completed year of service, payable after 5 years' continuous service). Where an employee's gross wages are INR 21,000/month or below, the employer must also contribute ESI at 3.25% of gross wages. A statutory bonus (8.33%-20% of wages) may apply for eligible lower-wage employees.
Employees contribute 12% of basic wages + dearness allowance to EPF (matched by the employer). Employees earning INR 21,000/month or below in gross wages additionally contribute 0.75% of gross wages to ESI (Employees' State Insurance) for health/sickness benefits. A small state-level Professional Tax may also be deducted depending on the state (amount varies, capped at INR 2,500/year).
In addition to statutory leave, employees are entitled to the following statutory benefits:
India's principal social security schemes are administered by the Employees' Provident Fund Organisation (EPFO) and the Employees' State Insurance Corporation (ESIC), under the Employees' Provident Funds & Miscellaneous Provisions Act, 1952 and the Employees' State Insurance Act, 1948 respectively (both being consolidated into the Code on Social Security, 2020 as central and state rules are rolled out).
Work-related injury, disability, and death are covered either through the Employees' State Insurance (ESI) scheme (for employees earning up to the applicable ESI wage ceiling, currently INR 21,000/month, providing medical treatment, disablement benefit, and dependents' benefit) or, for employees not covered by ESI, through the Employees' Compensation Act, 1923 (being subsumed into the Code on Social Security, 2020), which requires the employer to pay statutory compensation for injury, disability, or death arising out of and in the course of employment.
Employers commonly maintain a Workmen's Compensation / Employees' Compensation insurance policy to cover this liability, particularly for employees not covered under ESI or working in higher-risk roles. Compensation amounts are based on the employee's wages, age, and degree of disability, subject to statutory minimum and maximum limits that are periodically revised by the government.
India does not have a general severance-pay entitlement for all employees on termination; obligations depend on the reason for termination and the employee's classification.
For 'workmen' (as defined under the Industrial Disputes Act, 1947, and the incoming Industrial Relations Code, 2020) with at least one year of continuous service, retrenchment (redundancy) requires retrenchment compensation of 15 days' average wages for every completed year of continuous service, plus notice (or pay in lieu) and, for larger establishments, government permission for layoffs/retrenchment. Employers with 300+ workers generally need prior government approval before retrenchment (raised from 100 under the Industrial Relations Code as it is progressively notified).
Separately, any employee (workman or not) who completes 5 years of continuous service is entitled to gratuity of 15 days' wages per year of service under the Payment of Gratuity Act, 1972, payable on resignation, retirement, termination, death, or disability.
There is no general legal requirement for a 13th-month salary in India. However, under the Payment of Bonus Act, 1965, employers with 20 or more employees must pay an annual statutory bonus of between 8.33% and 20% of wages to eligible employees (generally those below a specified wage ceiling) who have worked at least 30 days during the accounting year.
Many employers separately pay a discretionary annual bonus or performance-linked incentive, often around the Diwali festival period, in place of (or in addition to) the statutory bonus. Neither the statutory bonus nor discretionary bonuses are equivalent to a fixed 13th-month salary, and amounts vary by company policy and performance.
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Your employee's hours, time off, holidays, bonuses, and commissions are automatically calculated into payroll. RemoFirst will invoice you in either US Dollars (USD), Euros (EUR), British Pounds (GBP), Canadian Dollars (CAD), Australian Dollars (AUD), or Singapore Dollars (SGD) around the 15th of each month to make sure your employees are paid on time. To make it even easier, you can summarize your entire global team's salaries to aggregate them into one payment (instead of many individual payments).
Unlike full-time employees, contractors work on projects with multiple companies at a given time and are technically self-employed. Full-time employees are solely focused on their employer and usually receive benefits (such as health insurance, equity or stock options, and time off) as an additional form of compensation. While it can be cheaper to work with international contractors instead of paying benefits to a full-time employee, you run the risk of misclassification. It's recommended to work with an EOR for contractor onboarding and payments, so you can know that your international contractors are paid compliantly and on time.
Whenever the employee or employer has a question about, or anything else related to international employment, they can speak with our customer support team to get answers from our team of experts.
