International Contractors

Everything You Need to Know About Hiring Independent Contractors in India

March 6, 2023

In a world where remote work has become the norm and hiring international talent is increasingly popular, India is emerging as an attractive talent pool for business owners looking to hire a global team.

It’s easy to see why. India has one of the fastest-growing workforces in the world, the second-largest higher education system, and boasts a large English-speaking population, with up to 88% of people speaking English in urban areas.

These factors make hiring contractors from India an attractive option for US companies and other international employers. However, before you hire any independent contractors in India, it’s essential to be aware of the legal and compliance requirements surrounding this type of work. 

This article will cover the basics of hiring independent contractors in India — including classification, legal requirements, and contractual obligations. 

Let’s jump in.

Independent contractor, freelancer, or employee?

Like freelancers, independent contractors are self-employed. They enter into a work contract with a business. The main difference between a freelancer and an independent contractor is that while a freelancer might work on a project-by-project basis and have several clients at once, a contractor is usually hired to work on a specific project and will normally, therefore, only work with one client at a time. 

There are many reasons to hire an independent contractor. For example, an architecture firm may want to hire an engineer to bolster the team’s short-term capacity and help them complete a project according to the specifications. The temporary and project-based nature of the work may make an independent contractor agreement the most logical approach. 

In India, the 1970 Contract Labour Act defines an independent contractor as someone who is “hired in connection with the work of an establishment by a principal employer through a contractor.” This may be different from the definition in the employer’s country, so it’s important to clarify this point first. 

While you might think of someone as an independent contractor, local regulators may see them as full-time employees under local Indian law. This misclassification can lead to government fines, back pay and back taxes, damage to the company’s reputation, and even jail time. 

To determine if the person you want to hire is an independent contractor, you’ll need to review the Contract Labor Act and the differences between independent contractors and employees

In addition to classifying the independent contractor, it’s important to confirm that the person has the right to work in India. For example, while all Indian nationals have the right to work, foreign nationals residing in India may require a current employment visa before they can accept work — even if it’s remote work.

Get to know the legal requirements.

Once you’re sure you’re hiring an independent contractor (rather than an employee or freelancer), you’ll need to research the legal requirements for hiring independent contractors in India so that you can make provisions for them in the contract. 

This may include factors such as:

  • Income tax
  • Minimum wage
  • Working hours and conditions
  • Employee benefits, such as health insurance and maternity leave
  • The termination process

Prepare an independent contractor agreement.

There’s no legislative requirement for a written contract to establish the employer-employee relationship in India (with the exception of Karnataka and Delhi). However, it’s advisable to enter into a written agreement with all international contractors to set expectations and have a basis for conflict resolution should it arise. 

This agreement should include elements such as: 

  • Scope of work
  • Deliverables
  • Project timeline
  • Remuneration
  • Intellectual property protection
  • Confidentiality
  • Liabilities
  • Non-solicitation
  • Termination process information
  • Dispute resolution clauses.

However, you should also be aware that Indian labor law supersedes most contract provisions, so you’ll need to check that your company’s policies and clauses comply with Indian laws. Additionally, non-compete clauses are technically unforeseeable according to Section 27 of the Indian Contract Act.

Determine how you will pay independent contractors.

When it comes to payments, the first thing you need to decide is what currency to pay your contractors in — whether it’s US dollars or Indian rupees (INR). Evaluate exchange rates and trends to determine which currency makes the most sense for your business and contractors. 

Then, you’ll need to think about your payment structure and timing. Employers can pay independent contractors in a number of ways, including:

  • By the hour or day
  • Per project
  • Upon project completion
  • Before the project starts — in India, contractors can receive up to a maximum of 33% of their wage upfront.
  • Using milestone-based payments

Finally, you’ll need to think about your payment method. Depositing money into a foreign bank account using SWIFT payments tends to come with high commissions and hefty fees for both parties. Wire transfers using services like Western Union may have more favorable exchange rates than banks, but they also tend to charge significant fees.

One of the most popular options among global employers is money transfer services such as Wise (formerly TransferWise), Remitly, or Xoom. While these services tend to have lower fees and commissions, they also have their drawbacks. For example, they may charge exchange rate markups or percent-based transfer fees. 

One option that’s growing in popularity as more companies turn to global employment solutions is outsourcing payroll to an employer of record (EOR). An EOR is a company that has a legal entity in the country where you want to hire (in this case, India). They can take the headache out of hiring independent contractors in India by taking care of legal and compliance issues and managing payroll for local employees. 

Search for independent contractors.

Once you’ve decided on the contractual arrangements, it’s time to start looking for talented individuals in India to join your global team and initiate the hiring process.

Start by creating a detailed job description that explains what you’re looking for in the ideal candidate, the work they can expect to do, how much payment they will receive, and any other benefits you offer. 

You can advertise the job on your website, along with your social media channels (particularly LinkedIn, as this is where many people go to look for work) and popular job boards within your industry for professionals in India. 

Once you’ve collected the applications, you’ll need to review all the candidates to create a shortlist. Then, you’ll have to interview the shortlisted candidates and check their references. Depending on the role and industry, there may be several rounds of interviews, such as a human resources interview and a technical interview. You may also want each candidate to complete a test to assess their technical skills. 

Finally, when you find the right candidate, you’ll need to onboard them as an independent contractor. This will involve drawing up and signing the contract, granting access to the tools and process documents they will need to perform the work, and providing any necessary training. 

Avoid the pitfalls of hiring independent contractors in India.

With its large and highly skilled talent pool, India is a great place for international businesses looking to hire independent contractors. However, the nuances and complexities of Indian employment law make it a complicated process that’s easy to get wrong — and if you do, you risk facing fines and even jail sentences. 

That’s obviously a situation all employers want to avoid, which is why many companies are now turning to experienced partners like Remofirst to help them handle payroll and ensure compliance with Indian law. 

Remofirst has a legal presence in over 160 countries, including India, and specializes in handling every aspect of hiring and managing global talent — leaving you free to focus on your core work knowing that the rest is taken care of. Check out our India country guide to learn more about hiring Indian talent, or visit our partner Uplers if you're looking to source remote Indian talent.