How to Pay a Remote Worker in India

How Can a Foreign Business Pay Remote Workers in India?

There are a few different options for foreign businesses to pay remote workers in India. Here are some legal options you can consider:

1. Set up a domestic company in India

One of the straightforward options is to set up a domestic company or branch in India. Once you have a registered entity, you can open a bank account and make salary payments to your remote workers just like any other employee. Despite the simple option, you must set up your own vendors and payroll providers to make it happen. That gives you the responsibility to stay compliant with the Indian laws and state regulations.

2. Use an International Payroll Service Provider

When hiring in India, businesses often use an international payroll service provider. These experienced companies help with tax compliance, employee onboarding, and salary payments. They usually have a network of local partners in India that they work with to make sure your remote workers get paid on time and correctly. With their help, you avoid the hassle of dealing with Indian laws and opening of legal entity.

3. Pay Remote Workers as Independent Contractors

If you don't want to set up a legal entity or use an international payroll service provider, you can pay remote workers as independent contractors. When doing this, you would make payments directly to their bank account using a cross-border payment solution like TransferWise.

You'll need to set up a remote worker contract outlining the work scope and pay rate. You should also get a signed W-8BEN form from your remote worker, which the IRS uses to determine whether taxes should be withheld from their payments.

What Currency Should Companies Pay Remote Workers in India?

All payments made by businesses in India must be in Indian Rupees (INR). That includes salary payments to remote workers. If you're a foreign business, you'll need to convert your home currency into INR before making any payments.

When converting currency, it's essential to compare exchange rates and transfer fees to get the most bang for your buck. However, when calculating the amount in INR, it is crucial to note the difference compared to other currencies. A comma denotes a thousand, and after the first three digits, INR places the second comma after two digits. It is different from the US, where a comma comes after every three digits regardless of whether they're to the left or right of the decimal.

Here's an example of how it would look:

• INR 1,00,000 = 1 lakh (100,000)
• INR 10,00,000 = 10 lakh (1 million)
• INR 1,00,00,000 = 1 crore (10 million)
• INR 100,00,00,000 = 1 arab (1 billion)

Remember that the comma is placed differently when written in INR compared to USD.

What are Payroll Taxes in India?

The Indian government requires businesses to withhold taxes from their employees' salaries and pay them directly to the government. And with the newly introduced tax regime, there is a slight decrease in income taxes. Today, the new system offers no exemptions making it not fair for everyone. The government has also hiked the surcharge on those earning between Rs 2-5 crore annually.

The below table gives a breakup of the new tax slabs under the new system:

Surcharge:
Individuals with an annual income between Rs 50 lakh and Rs 1 crore are required to pay a surcharge of 10%, while those earning above Rs 1 crore have to pay a tax of 15%.

Education Cess: 3% of the total tax liability will be charged as an education cess.

However, not every employee's salary included in India is taxable. While some allowances are fully taxable, others are partially taxable or exempt from tax. The most common allowances which are fully taxable are:

• Basic Salary
• Dearness Allowance (DA)
• House Rent Allowance (HRA)
• Leave Travel Allowance (LTA)

There are various types of allowances which are partially taxable in India are:

• Transport and conveyance Allowance benefit offered by the employer for commuting to work is tax exempted below Rs 1,600 per month
• House rent allowance benefits offered by the employer on behalf of the employee is tax exempted to a maximum of 40%/50%/60% of the salary, depending on the city
• Medical Allowance benefit offered by the employer to reimburse medical expenses is tax exempted up to Rs 15,000 per annum
• Children's Education Allowance benefit offered by the employer for up to two children's education expenses is tax exempted for up to Rs 1,000 per month per child

Meanwhile, India does recognize a few types of allowances that are tax-exempted. But they are limited to specific cases only. So, non-taxable allowances should not be a significant concern when running a business.

What is the Minimum Wage in India?

While India offers the most competitive labor cost in Asia, its government has set the minimum wage that every worker should get by the ministry of labor and employment.

The minimum wage is the lowest hourly, daily, or monthly wage that employers may legally pay to workers. It is also one of the most crucial labor standards in India. And with the Minimum Wages Act, 1948 amended several times since it was enacted, the latest amendment was made in 2019.

Under the Minimum Wages Act, 1948, the national minimum wage is INR 176 per day or INR 4,944 per month for agricultural workers. For non-agricultural workers, the minimum wage is INR 190 per day or INR 5,280 per month.

Overtime Pay in India

In India, overtime work is defined as any work that extends beyond the normal hours of work prescribed in the employment contract.

The employee is entitled to receive overtime pay for any work done beyond the prescribed hours at a rate not less than:

• Time and a half of the employee's regular rate of pay, if the employee works more than 5 hours in a day; or
• Double the employee's regular pay rate if the employee works more than 10 hours a day.

There is no specific regulation on overtime pay for remote workers. However, the remote worker should be paid at the same rate as the employees working in the company's office.

How to Pay Contractors in India?

Today, giant businesses like Microsoft, Amazon, and Google have outsourced a significant percentage of remote teams from India. Like remote contractors from elsewhere, India-based remote workers should also get paid in their local currency (INR). However, a foreign currency is optional if the remote worker requests to be paid in USD or any other currency by opening a foreign currency account.

India has strict regulations on how remote contractors should be paid. There are also limitations on the types of contracts businesses engage with hired contractors. Breaking any of these regulations can result in criminal charges and/or hefty fines.

Workers who feel undermined by their remote employer also have the right to file a complaint with the Ministry of Labor. And with the help of Globalify, you can outsource remote talents and be sure they get paid legally and are compliant with the remote work regulations in India.

Manage Your Full Remote Work with Globalify

As more and more businesses are looking to hire remote workers, it's important to know how to pay them compliant with local laws. In India, there are specific regulations on things like minimum wage, overtime pay, and contracts with remote workers in India. Failure to comply with these regulations can result in criminal charges and/or hefty fines.

Globalify platform is an AI-powered sourcing, hiring, and remote work management solution that connects businesses with remote talents worldwide. With our partner companies, we make it easy for companies that hire talent in India, Dominican Republican, and the Philippines to stay compliant with local employment laws.

Even better, Hivedesk offers you a fully remote work management solution that helps you with time tracking, employee productivity monitoring, and payroll all in one place. If you're looking to hire remote workers in India, or any other country, be sure to partner with a company that can help you stay compliant with local laws. Globalify is here to help!