The Employment Contract: What Must Be in It
Indian employment law does not mandate a single standard employment contract, but certain elements are essential for enforceability. At a minimum, the contract must include: full legal name and address of both parties, date of commencement, job title and reporting structure, compensation (basic salary, allowances, bonus targets), working hours (typically 8 hours/day, 48 hours/week under the Factories Act for manufacturing; the Shops Act for IT offices typically allows 9-hour days), leave entitlement (Earned Leave, Casual Leave, Sick Leave per applicable Shops Act), notice period for resignation and termination, confidentiality and non-disclosure obligations, and IP assignment clause (all work product belongs to the employer).
Non-compete clauses (post-employment) are generally not enforceable in India under Section 27 of the Indian Contract Act 1872 - courts treat them as restraint of trade. Non-solicitation clauses (not to poach colleagues) have somewhat better enforceability. Focus on strong confidentiality and IP assignment clauses rather than broad non-competes.
The contract must be in English (acceptable across all Indian states) and signed before or on the first day of employment. Keep original signed copies in the HR file.
EPFO: Registration, Contributions, and Compliance
Every establishment with 20 or more employees must register with EPFO (Employees' Provident Fund Organisation) under the Employees' Provident Fund and Miscellaneous Provisions Act 1952. However, most GCCs register voluntarily from employee one to avoid retroactive compliance issues when they scale.
Employee contribution: 12% of basic wages (basic salary + dearness allowance). Employer contribution: 12% of basic wages, of which 8.33% goes to the Employees' Pension Scheme (EPS) and 3.67% to the EPF. For employees earning above INR 15,000 per month in basic wages, the employer contribution to EPS is capped at INR 1,250/month (8.33% of INR 15,000). ECR (Electronic Challan cum Return) must be filed and payment made by the 15th of the following month.
International workers (foreign nationals on employment visas) working in India are also subject to EPFO unless their home country has a Social Security Agreement (SSA) with India. India has SSAs with Australia, Austria, Belgium, Canada, Czech Republic, Finland, France, Germany, Hungary, Japan, South Korea, Luxembourg, Netherlands, Norway, Portugal, Sweden, and Switzerland. Expatriates from SSA countries can claim exemption.
Higher basic salary reduces PF burden but affects gratuity and leave encashment
Structuring CTC with a higher basic salary increases the absolute PF contribution (12% of basic). Many Indian employees prefer a higher special allowance structure to keep the take-home higher and PF deduction lower. However, gratuity (15 days x last drawn basic salary x years of service) and leave encashment calculations also use basic salary, so reducing basic reduces these long-term liabilities as well.
Shops and Establishments Act: State-Level Mandatory Registration
The Shops and Establishments Act is a state legislation - each Indian state has its own version. For IT offices (not factories), the Shops Act is the applicable labour law. Registration must be obtained within 30 days of commencing operations, from the municipal corporation or district labour office of the state where the establishment is located.
The Shops Act governs: working hours (typically maximum 9 hours/day, 48 hours/week), weekly holidays (one day off per week), overtime rules (double wages for overtime), annual leave entitlement (usually 1 day per 20 days of work), medical leave, and maternity leave in addition to the Maternity Benefit Act.
For a GCC operating in Karnataka: The Karnataka Shops and Commercial Establishments Act requires registration within 60 days of commencement, with a registration certificate displayed at the premises. For Maharashtra: similar registration from the Municipal Corporation within 30 days.
Glossary terms referenced in this guide