Globalization, new business trends and increasing number of employees working overseas have raised the bar on global mobility compliance and related issues. More and more companies are expanding their operations and transacting business across national borders. With the shift of focus from West to East, India is attracting many expatriate workers from all parts of the world to be a part of its fast-growing economy. India is home to the second largest proportion of high-earning expatriates in the world after China and ahead of countries like Switzerland, Russia and Hong Kong, as per a HSBC survey.1 The HSBC bank ranked India ninth out of 34 countries as a destination for overseas living, ahead of Hong Kong, Canada and Australia.2
In addition to understanding immigration laws it is important to be aware of a few employment laws of the host countries that can directly and indirectly impact international operations. This article highlights some of the salient provisions that affect expatriates in India.
Indian labour and employment laws have not kept pace with India's fast track liberalization policies. Hiring and firing employees must be carefully considered because of the legal, regulatory, social and cultural idiosyncrasies that arise when doing business in India.
Indian law distinguishes between 'workmen', who are entitled to various statutory protections, and 'non-workmen' who receive only limited statutory protection. Foreign nationals can be employed by an entity in India, or employed overseas and seconded to an Indian entity. Foreign companies can also consider employing consultants directly in India.
As with most other countries, foreign nationals require a work permit or an employment visa to work in India. Indian immigration law does not enumerate the criteria to qualify for an employment visa but in keeping with the governing guidelines (the Guidelines) published by the Ministry of Home Affairs (MHA) employment visas are generally issued to highly skilled specialists, managers and executives. Consular and immigration officials consider an applicant's academic and professional qualifications to fill the proposed position in India, and the availability of Indian workers to fill the position. Employment visas are not granted for jobs in positions where large numbers of qualified Indians are readily available and companies are required to attest to that fact suitable Indians are not available for the job though not labor market test is required. Most companies meet this requirement by showing that the potential employee has proprietary knowledge of their affiliate overseas and this cannot be gained in India.
All employment visa applications must be sponsored by a duly registered Indian entity. Employers are required to pay foreign nationals on employment visas in India a minimum annual salary of US$ 25,000. The foreign national can only apply for an employment visa at the Indian diplomatic post in his or her country of citizenship or country of residence provided if the applicant has resided there as a permanent resident for at least two years. It is important to note that Indian Consulates reserve the right to refer an application to the MHA or to the consular post in the country of nationality for further action additional clearances.
The decision of whether to enter India on an Employment visa or Business visa depends on the nature of activity to be conducted in India. The time spent in India does not affect the type of visa required. Post-arrival formalities must be completed within stipulated periods, and failure to do so will affect the expatriate's departure from India. Salaries earned by foreign nationals are subject to all applicable taxes and social security payments in India whether the employment is directly with the sponsoring, Indian entity or with an entity outside India, irrespective of where the salary is actually paid and/or received.
Employment Issues That Affect Foreign Nationals
In India, employment laws do not discriminate on the basis of an employee's nationality. Therefore, a foreign national, working in an Indian company is eligible to receive benefits and protection under relevant employment laws, similar to those applicable to his Indian colleague, under certain circumstances. Most times, whenever applicable, Indian law will apply irrespective of the choice of law in the employment contract.
Labour in India is governed by central and state laws. Currently, India does not have a robust and comprehensive labour law framework governing employment in India but has a plethora of complex and antiquated laws that govern various aspects of employment related matters. At present, there are 44 labour related statutes enacted by the Central Government dealing with minimum wages, accidental and social security benefits, occupational safety and health, conditions of employment, disciplinary action, formation of trade unions, industrial relations, etc.
The terms of employment of the foreign national must be clearly documented in either an employment contract or "offer letter," a term that is used frequently in India for the letter that contains basic terms of employment. However, in practice a clear, complete record of the terms of employment in a contract is preferred to an offer letter. It is not necessary to define the term of the contract but highly advisable to do so with clear notice periods prior to termination. If employers are considering engaging foreign national or for that matter even Indian nationals on part-time basis, or through agents or as independent contractors, they should take into consideration several employment laws that could trigger liabilities if there is an infraction.
In India most of the labour and specific employment laws primarily apply only to a 'workman' as defined in the Industrial Disputes Act, 1947. Under this statute, a 'workman' is defined as a person who is employed to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, excluding a person: (a) who is employed mainly in a managerial or administrative capacity; or (b) who is employed in a supervisory capacity and draws a salary exceeding INR 10,000 per month or exercises functions mainly of a managerial nature. As a result foreign nationals are generally not considered to being 'workmen.' The employment relationship, hence for foreign nationals, is governed by an employment contract.
Companies need to comply with both central as well as state laws if they have operations across different parts of India and it is important that the employment contracts and corporate policies are also compliant with these laws.
Tax and Social Security Obligations
Employees have an obligation to pay individual income tax and a foreign nationals' salary that is earned for work done in India is subject to income tax no matter where he/she receives the salary. Also, after certain lengths of stay in India the foreign national's global income may be taxable in India as he/she could be considered a tax resident of India. This varies depending on the nationality of the individual because applicable Double Taxation Avoidance Agreements with different countries would have a bearing on this. Further, companies must comply with tax withholding obligations, which include an obligation to deduct the applicable tax on employee salaries and pay this to the local tax authorities.
Employers should also take into account the number of employees they employ in India as some labour laws become applicable based on the number of employees in organizations. For example, the law governing provident and pension funds for employees in factories and other establishments is applicable when there are 20 or more employees (The Employees' Provident Funds And Miscellaneous Provisions Act, 1952 – the 'EPF Act') in an organization. Once the EPF Act covers an organization, it must continue to comply with this statute even if the number of employees falls below 20 at a subsequent time. Further, the statute covers any foreign national working with an Indian company that is subject to the EPF Act as well. Indian nationals can opt out of making these contributions but foreign nationals cannot. Both the employer and employee is required to make contributions under this statute, each at the rate of about 12% of the basic salary.
In addition, both employers and employees have a statutory obligation to make a contribution to applicable social security schemes including, pensions and employee state insurance. The courts strictly enforce the social security laws and the Foreigners Regional Registration Offices (FRROs) or the Foreigners Registration Offices (FROs), empowered with granting visa extensions in one-year increments also demand evidence of tax and social security compliance before granting an extension. In addition, at some locations, employers are required to file reports to evidence compliance with the social security obligations. India has signed these agreements, known as totalization agreements, with some countries including Australia. The agreements between India and the following countries are now active: Austria, Norway, South Korea, Luxemburg, Hungary and France. These totalization agreements exempt expatriates from these countries from making certain social security contributions in India as set out in the applicable social security agreement. Foreign nationals of all other countries are required to make contributions towards provident funds in case they work at establishments that are subject to provident fund legislation.
Additionally, employers need to keep themselves updated with legislative changes. A new law addressing the issue of sexual harassment at the workplace, Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, now requires employers to address complaints of sexual harassment with the seriousness and promptness that such matters warrant. Each office or branch of an organization employing more than 10 employees is now required to form an Internal Complaints Committee for handling complaints and failure to do so could result in fines and/or cancellation of licenses.
The terms and conditions of employment for foreign nationals are regulated by their respective employment contracts. But it is important to ensure that the terms pertaining to overtime, vacations, severance compensation, sick leave etc. meet minimum statutory requirements set out in the respective Shops and Establishment Act of the state where the employee is based. The payment of overtime, notice periods, annual leave and sick leave can vary depending on both the states where an employee is based and the seniority of the employee. Often times this requires the employer to offer different terms to its employees based in different states in India.
To conclude, it is not difficult to get employment visas for foreign nationals, but it can get complicated to ensure compliance with statutory obligations and when seeking extensions of these visas.
2 Joanna Sugden (October 27, 2014) What Expats Really Think of India. Blogs.WSJ.Com. Retrieved from http://blogs.wsj.com/indiarealtime/2014/10/27/what-expats-really-think-of-india/
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.