Last update: January 2008
India
Employment Law
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Employment Regulations
There are various Acts, which regulate labour and employment in India. Some of the Acts are:
- Apprentices Act, 1961
- Beedi Workers Welfare Fund Act, 1976
- Bonded Labour System (Abolition) Act, 1976
- Building and Other Construction Workers (Regulation of Employment Service) Act, 1996
- Child Labour (Prohibition & Regulation) Act, 1986
- Children (Pledging of Labour) Act, 1933
- Maternity Benefit Act, 1961
- Minimum Wages Act, 1948
- National Commission for Safai Karamcharis Act, 1993
- Payment of Bonus Act, 1965
- Payment of Gratuity Act, 1972
- Payment of Wages Act, 1936
- Cine-Workers and Cinema Theatre Workers (Regulation of Employment) Act, 1981
- Cine-workers Welfare Fund Act, 1981
- Contract Labour (Regulation & Abolition) Act, 1970
- Dangerous Machines (Regulation) Act, 1983
- Dock Workers (Regulation of Employment) Act, 1948
- Dock Workers (Safety, Health and Welfare) Act, 1986
- Employees Provident Fund & Miscellaneous Provisions Act, 1952
- Employees' State Insurance Act, 1948
- Employers' Liability Act, 1938
- Equal Remuneration Act, 1976
- Factories Act, 1948
- Industrial Disputes Act, 1947
- Industrial Employment (Standing Orders) Act, 1946
- Inter-State Migrant Workmen (Regulation of Employment and Condition of Service) Act, 1979
- Labour Laws (Exemption from Furnishing Returns & Maintaining Registers by Certain Est.s) Act, 1988
- Pensions Act, 1871
- Sales Promotion Employees (Conditions of Service) Act, 1976
- Seamen's Provident Fund Act, 1966
- Trade Union Act, 1926
- Weekly Holidays Act, 1948
- Workmen's Compensation Act, 1923
Source: Guide "Doing Business in India"
Under the Constitution of India, labour is a subject in the Concurrent List where both the Central & State Governments are competent to enact legislation subject to certain matters being reserved for the Centre. Different labour laws have different eligibility criteria for establishments as well as to the workmen. The main laws relating to labour protection, welfare and rights are enumerated below:
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Work Permits
People coming from United Kingdom need to apply for a Visa to go to India, both for tourism and for business reasons. Visiting the High Commission of India’s web site, you will find all the relevant information you need:
High Commission of India - London
You can find visa downloads and contacts on the following links:
Download Application Forms
See other useful contact details below:
PAKISTAN
Consulate General of India
High Commission of India
G-5, Diplomatic Enclave,
Islamabad, Pakistan
Tel:+92-51-814371 to 75
Fax:+92-51-820742
SRI LANKA
High Commission of India in Sri Lanka
36-38 Galle Road
PO Box No. 862
City: Colombo
Phone: 94 1 421605
Fax: 94 1 446403
Email: hicomind@sri.lanka.net
BANGLADESH
High Commission of India, Dhaka
House No.2, Road No. 142
Gulshan – 1,
City: Dhaka
Phone: +88 09889339 (Main Reception)
Fax: 0088 02 8817 487
The Employment Market
English is widely spoken by managerial and supervisory personnel, and to some degree by unskilled workers.
Payroll costs are generally 15-40% of total production of an industrial organisation, depending on the industry. But manufacturers are beginning to install modern, automated facilities.
Most labour laws apply only to workers in the organised sector (which does not include the small-scale sector, agriculture and most construction work). Another distinction is the special status awarded to the information-technology (IT) industry and other important service industries. Whereas approval is needed to lay off manufacturing workers, it is not required to lay off critical service-industry employees. Minimum wages apply to workers in specified sectors.
Labour is abundant in India. With many well-educated individuals within the ranks of the unemployed and under-employed, competent staff, including technicians and engineers, can be found without much difficulty. Unskilled labour is readily available.
The number of persons with managerial and other white-collar skills is increasing as management institutes begin to turn out graduates. In addition, there are 4,700 industrial training institutes, which have a total capacity of around 700,000 students, offering courses in engineering and non-engineering trades.
The increasing number of multinational companies has spurred competition, making it more difficult to retain managers. The demand for managers is particularly strong in consumer products, financial services, IT, telecommunications and infrastructure. Domestic and multinational companies often offer share options as a way of boosting compensation.
Turnover rates are moderate, generally 1-2% per month (some foreign-managed firms report turnover rates of less than 1%).
Engagement and Dismissal
India has the world’s third-largest pool of scientific and technical personnel, which serves as an important attraction for foreign investors. Most managerial and technical people, and many skilled workers, speak English, and many have studied or worked abroad. Unemployment and underemployment are high, providing an abundant supply of potential employees. Although there is a large pool of underemployed educated personnel, as in much of the developing world, illiteracy acts as a brake on labor productivity in the workforce as a whole. The current 148 industrial policy provides for hiring of foreign technicians without prior government approval.
The RBI (Reserve Bank of India) has raised the remittable per-diem rate from USD 500 to USD 1000, with an annual ceiling of USD 200,000 for services provided by foreign technicians payable to a foreign firm.
Technical personnel can remit up to 75 percent of their monthly net income through authorized exchange dealers. Total duration of employment of a technician is limited to 12 months at a time. Employment in excess of 12 months requires clearance by the Ministry of Home Affairs.
India is a member of the International Labor Organization (ILO) and adheres to 37 ILO conventions protecting worker rights. Industrial relations are governed by the Industrial and Disputes Act of 1947. The Act curbs unfair labor practices by employers, workers or trade unions through imposition of fines and imprisonment. Workers may form or join unions of their choice. Nevertheless, although unionized workers affiliated with national federations number more than seven million, their unions represent less than one fourth of the workers in the so called modern sector (subject to the Factories Act of 1948), primarily in state-owned concerns, and less than two percent of the total work force. Where workers are unionized, wage increases are negotiated between unions and management. Most unions are linked to political parties and their politicization has, in the past, created problems for domestic and foreign employers. Labor militancy has declined in recent years, however, even among the formerly strident Communist-Marxist unions of West Bengal. Workdays lost to strikes and lock-outs have declined every year since 1991. Worker rights are broadly protected under Indian law.
The Industrial Disputes Act established freedom of association and collective bargaining rights. The Factories Act regulates working conditions in mechanized factories employing more than 10 employees or non-mechanized factories employing more than twenty, prescribing standards for working conditions, working hours, handling and storage of materials, etc. Other laws regulate employment of women and children and prohibit bonded labor.
Enforcement of these laws has been imperfect, however, and working conditions for workers not subject to the Factories Act are often quite poor. Payment of wages is governed by the Payment of Wages Act, 1936 and Minimum Wages Act, 1948. Industrial wages range from about USD 3 per day for unskilled workers, to over USD 150 per month for skilled 149 production workers. Retrenchment, closure and layoffs are governed by the Industrial Disputes Act, which requires prior government permission to carry out layoffs or closure of businesses employing 100 or more workers. In practice, permission is not easily obtained. However, private firms
have successfully downsized using voluntary retirement schemes.
Source: ” FY 2000 Country Commercial Guide: India”, U.S. Department of State.
Employees' Rights and Remuneration
India's labour laws are overlapping, potentially inconsistent and cumbersome, with more than 45 pieces of relevant legislation. Employers face particular difficulties in terminating employment and closing industrial establishments.
The Workmen's Compensation Act, 1923 provides for compensation to workers for industrial accidents and occupational diseases resulting in disability and death. The minimum compensation for death is Rs80,000 and for total disability Rs90,000. The maximum compensation for death is Rs456,000 and for total disability is Rs548,000.
The Payment of Wages Act, 1936, and the Minimum Wages Act, 1948 call for regular and timely payment of wages, industry wage boards to recommend the minimum wage and fix the wage-rate structure for each industry.
The Industrial Disputes Act, 1947 covers layoffs, retrenchment compensation, labour-management disputes and unfair labour practices. The Act also addresses reinstatement of workers by a labour court or tribunal order that the employer can appeal to a higher court. A reinstated worker is entitled to 100% of wages while the decision of the higher court is pending.
The Act requires industrial establishments with 100 or more workers to draw up standing orders that specify working conditions (hours, shifts, holidays, vacation, sick pay, termination rules and grievance procedures). These orders must meet minimum state standards, and they may be changed only with the consent of the workers or the unions and only to augment benefits. The code of discipline in industry adopted by the Standing Labour Committee (a type of national 20 India International Tax and Business Guide conference held by the Ministry of Labour) defines the rights and responsibilities of employees and workers, and it provides for a grievance procedure and the settlement of disputes by voluntary arbitration.
The Industrial Employment (Standing Orders) Act, 1959 requires employers in industrial establishments to define conditions of employment.
The Maternity Benefit Act, 1961 covers mandatory maternity benefits.
The Payment of Gratuity Act, 1972 requires employers to pay a gratuity to workers earning less than a certain limit upon termination of service.
The Equal Remuneration Act, 1976 prohibits job and wage discrimination based on sex, except for prohibiting or restricting the employment of women in certain categories of work.
The Essential Service Maintenance Act, 1981 empowers the government to prohibit strikes in any industry that is declared essential.
The Child Labour (Prohibition and Regulation) Act, 1986 prohibits child labour in hazardous occupations and regulates it in non-hazardous occupations.
The Trade Unions Act, 1926 provides for registration of trade unions. By way of amendment in 2001, it reduced the multiplicity of trade unions.
The Indian government continues to oppose the linking of international trade with labour standards, but it is a signatory to 39 International Labour Organisation (ILO) conventions.
Useful information about employment law and many other subjects, to better understand Indian investment climate, can be found online at:
Doing business in India
Working Hours
The Factories Act 1948 established a 48-hour working week; in practice, however, office employees normally work a five-day week of 37-38 hours. Factory workers have on average a six-day week of 43-48 hours. The Factories Act was amended in 2005 to allow women to work on night shifts (10 pm-6 am), as long as employees provide adequate safeguards for them.
In most places, any work beyond nine hours per day (up to ten hours, including rest intervals) is counted as overtime, usually paid at double the normal wage. Night and Sunday work do not command a premium unless they result in overtime. Holiday work generally requires double pay, although workers may opt for a substitute paid holiday. Overtime for blue-collar staff is limited to four hours at a stretch.
Pensions
The Employees Provident Fund (EPF) applies to most establishments that employ at least 20 workers. Contributions are compulsory for employees earning up to Rs6,500 per month and voluntary for those who earn more than this amount. Employers and employees each contribute 12% (10% for certain industries) of the basic wage and dearness allowance of the employee. From the employer's contribution, 8.33% of the wage is taken out and diverted to the Pension Fund. For the purpose of the contribution to the Pension Fund, if the pay of any employee exceeds Rs6,500 per month, the contribution payable by the employer will be limited to the amount payable on the first Rs6,500 only. The employee's contribution does not go to the Pension Fund. Four main types of pension are offered: a monthly pension upon superannuation or disability; a monthly widows' pension for death while in service; a monthly children's pension; and a monthly orphan's pension. The Employees Provident Fund Act now applies to 180 industries and classes of establishment.
Termination of Employment
Existing regulations require companies to obtain government permission to close an operation or lay off workers in firms with 100 or more employees (service-industry companies, such as IT firms, are exempt). The Industrial Disputes Act, 1947 requires employers wishing to close an establishment to apply for permission at least 60 days before the intended closing date. If the government does not convey its decision within 60 days of the application, approval is deemed granted. A company can appeal against a rejection to the Industrial Tribunal.
Workers in an establishment that is closed illegally (that is, without approval) remain entitled to full pay and benefits. Dismissal for misconduct is allowed without notice under the Industrial Employment (Standing Orders) Act, 1959. The Payment of Gratuity Act 1972 entitles workers to a gratuity of up to Rs350,000 after five years of continuous service.
It is usually difficult for large companies to dismiss staff. Retrenchments and layoffs require full explanation to and prior approval from the state government. (Retrenchment under an agreement specifying a termination date requires no prior notice.) The last-in, first-out principle is usually followed.
Compelled by mounting competition to cut wage costs or consider moving out of high-wage locations such as Mumbai (Bombay), several companies have resorted to voluntary retirement schemes (VRSs) or redeployment. Beneficiaries under an approved VRS of a private-sector company are exempt from tax on monetary benefits of up to Rs500,000.
Wages and Benefits
Wages and fringe benefits vary considerably by industry, company size and region. Wages have two components: the basic salary and an allowance ("dearness allowance") linked to the cost-of-living index. The allowance, paid as part of the monthly salary, may be at a flat rate or on a scale graduated by income group; it often adds 60% or more to base pay. A mandatory bonus supplements wages.
Companies use both time and piece rates. The former is more common in organised-factory industries, such as engineering, chemicals, cement, paper and glass. Rates may be per hour, day, week or month. Piece rates, which the government has encouraged in order to boost productivity, are usually paid monthly, although casual workers are paid on a daily basis. Some industries (especially metal extracting, metal rolling, electrical machinery and glass) pay production premiums.
In the organised sector, wages are often set by settlements reached between trade unions and management.
The central government sets a general floor minimum wage and sets other, higher minimum wages for different industries. The state governments set different minimum wages for other industries, but these are not bound by the central government's floor wage.
Fringe benefits normally add 40-50% to base pay. By law, women are entitled to remuneration equal to that of men for performing equivalent work. Mandatory fringe benefits include the following:
- Bonus for workers earning Rs3,500 or less per month (minimum of 8.33% and maximum of 20% of annual wages in factories employing ten or more). The minimum bonus payable is Rs2,500 and the maximum bonus actually payable is Rs6,000.
- Dearness allowance (based on cost-of-living index) for all levels below management in firms employing 50 or more workers.
- Provident fund at 10% of wages (12% for a large number of industries and business establishments) for all workers earning Rs6,500 or less per month.
- One day of paid vacation for every 20 days worked (granted to every worker who has worked in a factory for a period of 240 days or more).
- Health insurance (employer contributes 4.75% of total wage bill) for those who earn Rs6,500 or less per month.
- Severance pay of 15 days of average salary for each complete year of continuous service.
- Sick leave of seven days annually at full pay; half pay for those covered under the Employees' State Insurance Act.
- Casual leave of seven to ten days for unforeseen circumstances.
- Maternity leave of 12 weeks at full pay.
Employment of Foreigners
Expatriate employment in manufacturing industries is generally limited to technical and specialised personnel. Many foreign affiliates have a few expatriates in India. The usual configuration is one or two at the head office (often in the finance function or as chief executive) and two or three technical people.
No specific permission of the Government of India or the RBI is required for a foreign national to take up employment in India. Foreign nationals do have to register with the concerned District Foreigners' Registration Officer/Foreigners' Regional Registration Officer, within 14 days of their arrival in India, if they hold a visa for a period of more than 180 days. This registration is required irrespective of whether or not they intend to stay in India for less or more than 180 days-that is, the deciding factor is the period for which the visa has been granted and not the actual length of stay. Foreigners' Regional Registration Offices are located in Mumbai, New Delhi (the capital) and Kolkata (Calcutta); there are also state-level offices in individual states.
Foreign nationals (except citizens of the countries of Nepal and Bhutan) require a valid passport or travel document and a valid visa to enter India. Such a visa can be obtained from the Indian Embassy/Consulate located in the home country of the foreign national.
It normally takes about three months to obtain an immigration visa, and foreign companies report no problems in acquiring visas for their technical personnel. The visa is generally given for the same period as the employment contract. Once it is obtained, a stay permit is granted; this must be endorsed annually by the state government where the foreign national resides.
Indian embassies and consulates abroad issue visas. Business visas are granted on application and may be issued for up to five years, with a multiple-entry provision. Visas may be extended or renewed within India. A foreigner who arrives in India without a visa may be granted a temporary visa at the airport, but this usually leads to future difficulties and should be avoided.
Expatriates are paid salaries several times those of their Indian counterparts. Domestic private-sector salaries are rising quickly, although they vary widely among industries. Foreign nationals employed in India for up to three years, but not permanently resident in the country, may remit up to 100% of their net salary out of India.
Under India's double-taxation agreements, salaries that a foreign company (and not its permanent establishment in India) pays for services rendered in India are taxable in India if the employee works for more than 182 days during the tax year.
Source: Deloitte - International Tax and Business Guide
Please note that this information was last updated in January 2008. The Information shown is for guideline purposes. For precise and up-to-date information please contact the IPTU team or visit the country government website.
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