How do you hire employees in India?
How to hire employees in India: rules as of 30 October 2026.
To hire in India: define the role and CTC, advertise, interview, verify the candidate, issue an offer and appointment letter, register the employee for provident fund and, where eligible, ESI, deduct tax at source on salary, and agree a notice period. A registered employer is required; you can use an employer of record if you have none.
At a glance
- CTC (cost to company) is the full yearly employer cost. In-hand pay is lower after employee PF, tax and professional tax.
- Offer letter states terms; appointment letter is the formal contract.
- Notice periods are contractual. Thirty to ninety days is common; confirm for your role.
- Gratuity and PF are statutory, not optional.
The steps
| # | Step | Owner | Notes |
|---|---|---|---|
| 1 | Decide the legal employer | Founder | Own entity or employer of record. |
| 2 | Write the job description and set CTC | Hiring manager | State CTC in Rs lakh per annum (LPA) with a breakup. |
| 3 | Source candidates | Recruiter | Job portals, referrals, campus placement drives. |
| 4 | Interview and score | Panel | Use one scorecard for all candidates. |
| 5 | Background verification | HR | Obtain written consent; see background verification. |
| 6 | Issue offer letter | HR | Use the offer letter format. |
| 7 | Candidate serves notice | Candidate | Joining date follows their notice period. |
| 8 | Appointment letter and joining documents | HR | ID, PAN, Aadhaar-based UAN, bank details, prior Form 16. |
| 9 | Register statutory benefits | HR | PF through EPFO; ESI if wages are within the ceiling; professional tax where the state levies it. |
| 10 | Payroll and TDS | Finance | Monthly salary; tax deducted at source under section 192 (section 392 of the Income-tax Act, 2025 from 1 April 2026). |
What are the statutory contributions?
- Provident fund: employer contribution of 12% of PF wages; employee contributes 12%. Part of the employer share goes to the pension scheme. The EPFO wage ceiling for mandatory coverage rose from Rs 15,000 to Rs 25,000 a month from 17 September 2026 (Ministry of Labour, https://www.labour.gov.in/static/uploads/2026/09/4f607a88c5342aeb980c6b999997caab.pdf, checked 2026-10-30). Check current rules on the EPFO site.
- ESI: applies to employees whose monthly wages are within the current ESIC ceiling; employer and employee rates are set by ESIC.
- Gratuity: payable on completion of the qualifying service period under the Payment of Gratuity Act or Code on Social Security. Formula in the Act: 15/26 x last drawn basic (plus dearness allowance) x completed years of service. Under the Labour Codes in force since 21 November 2025, fixed-term employees qualify after one year of continuous service (PIB, https://www.pib.gov.in/PressReleasePage.aspx?PRID=2192463, checked 2026-10-30); for permanent staff confirm the qualifying period in the Code on Social Security rules.
- Maternity benefit: Maternity Benefit Act provides paid leave for eligible women employees; check current duration with the Ministry.
CTC vs in-hand: worked example (illustrative)
Example CTC Rs 12,00,000 (Rs 12 lakh) a year:
| Component | Annual (Rs) | Monthly (Rs) |
|---|---|---|
| Basic (example 40% of CTC) | 4,80,000 | 40,000 |
| HRA (example 50% of basic) | 2,40,000 | 20,000 |
| Employer PF (12% of basic) | 57,600 | 4,800 |
| Gratuity provision (example) | 23,077 | 1,923 |
| Special allowance (balancing) | 3,99,323 | 33,277 |
| CTC | 12,00,000 | 1,00,000 |
Example only: structure changes by employer and law. Gratuity provision here is 15/26 of one month's basic (Rs 40,000 x 15/26 = Rs 23,077), the Act's formula for one year of service. The in-hand pay is monthly gross minus employee PF, professional tax and TDS.
What goes wrong most often?
Candidates leave before joining after accepting; offers that do not state the notice period; unclear variable pay; skipping consent for verification. Keep in touch during notice and require written acceptance.
FAQ
Do I need an offer and an appointment letter? Many Indian employers issue both: the offer to propose terms, the appointment letter as the contract.
What is a probation period? A trial period, commonly three to six months, stated in the letter.
Can I hire a fresher? Yes. Use the same documents; campus hires often join on a set date.
Do I need a labour licence? Depends on the state and establishment type.
Next step: use the India offer letter format.
Sources
See front matter. Accessed 30 October 2026.
This is general information, not legal, tax or immigration advice. Rules change and your situation may differ. Consult a licensed attorney or qualified adviser.