Best Ways to Hire Employees in India

TransferWise
03.27.20
7 minute read

China may be the most dominant economy in Asia and among the top in the world but its neighbor to the southwest, India, has a rapidly growing population and dynamic economy that make it a great opportunity for international investors and employers. India’s economy is best-known for its information technology and business process outsourcing (BPO) industry. The country also houses one of the fastest growing workforces in the world, and has the third-largest higher education system in the world after the U.S. and China according to a report by the World Bank.

Why Outsource to India?

The best advantage in hiring employees and independent contractors in India is the cost, which will be a small fraction of what the company needs to pay to a similarly qualified worker in the U.S. for the same job function. There’s also a wide array of skilled workers you can choose from without worrying too much on how to pay their medical insurance or Social Security. Indians are also well-educated technology workers and are able to speak English fluently since it is one of their official subsidiary languages.

Before we proceed, let's cover the most important thing to consider in the hiring process.

Employees vs. Independent Contractors

The tax implication as well as the information and forms that need to be collected and filed to IRS depend on the the type of employee you'll hire. A business may pay an independent contractor and an employee for the same type of work but there are legal differences between the two. Basically, an independent contractor is also a business person who works for other businesses, while an employee is hired by the company to perform a specific work assigned by the employer and there is an employee-employer relationship. Employers usually don’t withhold taxes nor provide any benefits to independent contractors unlike regular employees. We recommend to get consultation from a legal advisor regarding this matter.

Pros and Cons of hiring Independent Contractors from India

A foreign company can hire contractors directly to work from India, since there is nothing illegal in hiring an Indian contractor. But, there is an option to start an Indian subsidiary of your company to keep the standards of your workers according to your needs, for this you have to invest in India. There is also an option to hire an existing Indian company in the same field on a contract basis who will manage workers working for you, thus in turn you’ll have to pay the company on an hourly or monthly basis.

Pros

  • Easier to Run Payroll - A lot of work goes into preparing payroll due to tax reporting, calculations, payslips etc. But most of these tasks are not necessary when paying independent contractors. However, you’d need an international money transfer service ready to help execute transfers from USD to INR. Use services like TransferWise for Business to save time and money on payroll and send multiple payments in one go. This will save you over 30% of the overall international transfer cost you’d normally incur using traditional banks or PayPal.

  • Cost and Time Saving – less time spent on recruitment, evaluation, training and learning the business niche

  • Hire on a Per Project Basis – since these workers are not on your regular payroll, you don’t have to worry about monthly salaries, insurance, Social Security, etc.

  • Flexible Work Schedule – contractors work on their own time and phase without being pressured by a tight schedule, thus results to increased productivity

  • Less Paperwork – hiring contractors can cut down your administrative paperwork, utilizing a contractor-based workforce also reduces your need to fill out forms related to employments such as employment records

  • Provides Missing Expertise – contractors can perform specific tasks or launch projects which fall outside your regular employees' scopes of expertise.

  • Develop New Competencies for the Business – offshore outsourcing gives businesses the ability to develop new competencies that can be used as competitive advantage

Cons

  • Limitation on Use of Independent Contractors – there is no prohibition on the use of independent contractor in India under the Contract Labour Act, 1970¹; however there are certain restrictions with respect to use of contract laborers.

  • Loss of Confidentiality – one of the biggest disadvantages of outsourcing is the risk of losing sensitive data and loss of confidentiality; it is important to have regular checks in place to avoid data loss

  • Less Management Control – you can’t closely supervise and micromanage the work of independent contractors so result may vary from your expectations

  • IC’s will Come and Go – most contractors are short-term workers and are as-needed basis, this means workers will constantly come and go which can be inconvenient and disruptive to the company

  • Risk of Government Audits – state and federal agencies might audit your business if you have misclassified employees as contractors, particularly the IRS wants to see more tax and insurance money flows into the government

  • Limited Ownership Rights on IC’s Work – you may not own copyrights in works of a contractor unless it is clearly stated in your agreement contract that copyrights will be owned by the company after the service

How to hire employees in India

One thing you should study is the legal and tax implications of the country. Even though the legal system in India and the U.S. is similar since both are rooted from the British system, foreign employers who are hiring employees in India will still be entering an unfamiliar and regulatory environment with distinct differences.

There are options in hiring employees in India, first is to set up a legal entity in India to run payroll and taxes, second is to use third party services, or third is directly hire from websites and job platforms on the internet which can be risky.

One of the best ways to hire employees in India is to have a third party local entity service to outsource employment and serve as intermediary in an existing employee-employer relationship, here’s a quick guide on how to do it;

1. Select the employee and make an agreement on the job function, duration, and salary.

2. Draft an employment contract that is compliant on both parties’ local regulations and terms and conditions.

3. Third party service contractors will register the employee for payroll in the host country to ensure compliance with all the regulations regarding employment, tax, payroll, and pension funds.

4. Address all queries related to employment through your account manager in the host country.

5. Comply with your local obligations if your business has to report to IRS or withhold tax on payments made to third-party service contractors.

6. Set a payment scheme to the third-party service contractor.

Where to find contractors

1. Go4Customer² – a contact center outsourcing company based in India providing BPO services since 2004 with 250 to 1,000 employees

2. Outsource2India³- Outsource2India is a communications company based in Bangalore, India, with offices in Princeton, NJ, Davao City, Philippines, and Rickmansworth Herts, UK. Founded in 1999, Outsource2India provides non-voice BPO/back office services, voice/call center services, translation, transcription, and finance & accounting capabilities.

3. Callbox⁴ - Callbox is a business process outsourcing company based in Encino, California; hired by an advertising company to take charge of its telemarketing and lead generation through its outbound calls.

4. AdvanceMD⁵ – A BPO firm for the healthcare industry based in Jordan which offers a variety of solutions for independent practices.

5. GCS⁶ - GCS is a multi-channel contact center solutions provider based in Salisbury, North Carolina with offices in New York, Boston, and the Philippines. Founded in 2001 and was hired by an energy company to assist security analysis of the client’s database servers allowing the client to securely implement its beta security strategy without having to worry about the infrastructure of security monitoring.

Jobs Companies Usually Hire for Contractors

Most jobs that usually get outsourced are those which require both non-specialized and specialized skills. Job outsourcing helps companies be more competitive in the global marketplace.

  • IT Jobs – American companies outsource these jobs to India because of much lower wage compared to natural born workers

  • CallCenter – many call centers have been outsourced to India and the Philippines because of lower wage and both workers from these countries speak English

  • Manufacturing – a lot of American companies ship raw materials over to offshore manufacturers and the final goods are shipped back because of lower production cost

  • Human Resources – human resource outsourcing particularly benefits small business by reducing costs; pooling thousand businesses lowers the price of health benefit plans, insurance and workers compensation

  • Data Encoder – this is the most popular outsourced job abroad, it does not require a specific skill sets however, due to overwhelming volume companies outsource these jobs

Web Design and Development – web design and development can be demanding, that’s why many outsource the work to experts.

  • Data Processing Services – data processing help companies in managing their data efficiently empowering businesses with increased productivity and reduced operational costs

  • Accounting Jobs – this is a very common outsourced job since it requires specialized skills and not everyone are familiar on how to accounting effectively

  • Search Engine Marketers – provides promotion of websites by increasing visibility in search engine results pages through paid advertising

  • eCommerce Customer Service – provides services for online retail stores and help enhance customer experience and builds brand loyalty

  • Medical Professionals – some tasks of health professionals are being outsourced as a way to reduce costs like transcription of your medical records

A cost effective way of paying contractors in India

Not that many payroll services support international payroll which is why companies use money transfer services like TransferWise to pay their employees overseas. It's cheaper and faster compared to traditional banks and offers the real exchange rate without any mark-ups. Transfers are typically processed in 0 - 2 working days.

Additional benefits are:

  • Multiple transfers in one go through the batch payment tool

    USD global - pay overseas contractors in USD
  • Borderless account - hold, send and receive funds in one multi-currency account
  • Linkable to accounting software such as Xero
  • Automated batch payments through open API to save you time and streamline the process.

Here’s how to use the batch payment tool for paying your employees and independent contractors:

1. Set up a business account with TransferWise
2. On your activity page, click Batch payments.
3. Download a batch payment template file.
4. Open the template file in a spreadsheet editor and fill in your transfer details.
5. Save your file as a .CSV (it should have .csv at the end) and upload the file on your account.
6. Review the transfers in your batch.
7. Pay for your batch.
8. Track your transfers in real time on your account.

Sources:
  1. Chief Labour Commissioner 2. Go4Customer website
  2. Outsource2India website
  3. Callbox website
  4. Advancedmd website
  5. Global Contact Services website

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