With increasing trade relations between India and the world, cross border movement of employees from and out of India has increased quiet considerably. In India, employees enjoy the protection of diverse laws and regulations. In a country like India, the complex legal regime usually leave the employers facing typical issues related to interpretation of the large number of labour and employment laws governing the industry.
The issues can be more challenging when one of the parties involved is a foreign national. While throwing light on the appointment of foreign nationals by Indian employers, this section covers issues like taxation, working conditions, various social security benefits, issues related to termination of employees, importance of enforceability of non-solicitation clauses, retrenchment and various statutory registrations etc.
- Immigration for Foreign Employees in India
- International sources of Labour and Employment Laws in India
- Deployment of Foreign Employees in India
- Tax liability of an Employee in Respect To Foreign Nationals in India
- Visa Requirements
- Registration with FRRO
- Permanent Establishments in India
- Registrations required under various Labour Legislations
- Sexual Harassment Act in India
- Extraterritorial Application of Labor and Employment Laws and Conflicts-of-Law Issues in India
- A decade of immigration liberalization has seen a large influx into India of foreign workers with work contracts. Many of these immigrants are employees of foreign companies or multinational corporations with operations in India. They are either nationals of the country in which the company’s home office is located, or they may be from another country, in the case of multinationals.
- There are no legislative restrictions as such on the type of skills that workers must possess in order to work in India, nor is there any restriction on the number of foreign workers who may be brought into India. However, under central government policy, foreign workers require an employment visa and employment visas are issued only to foreign nationals who are skilled professionals and are engaged by companies, organizations, and economic undertakings as technicians, technical experts, senior executives, and the like. Applicants are required to submit proof of contract/employment/engagement by the company or organization in India.
- In India, there are two principal pieces of legislation governing the use of foreign workers:
- Foreigners Act, 1946
- Registration of Foreigners Act, 1939
- These laws prescribe certain formalities regarding registration, movement, and departure of foreign nationals in India. Under these laws, the Indian Government has unfettered powers to regulate and restrict the movement and presence of foreign nationals in India. The power to grant or refuse permission to foreign nationals to enter India, or to restrict employment subsequent to entry into India, are provided in the Foreigners Order, 1948, issued by the central government in the exercise of powers conferred by Section 3 of the Foreigners Act, 1946. The immigration authority can refuse a foreign national entry into India if he or she does not possess a valid passport, is insane, is suffering from any infectious disease, or has been convicted of an offense that would qualify for extradition, or if his or her entry is prejudicial to the interest of the country.
- No foreign national may, without the permission in writing of the civil authority, either enter any premises relating to or accept employment in, any industry or area that is prohibited to foreign nationals. This includes military defense industry and areas such as the following: the whole of the union territory of Andaman and Nicobar Islands; the whole of the states of Arunachal Pradesh, Manipur, Mizoram, and Nagaland and parts of the states of Sikkim, Himachal Pradesh, and Rajasthan.
- India is a founding member of the International Labour Organization (ILO). It has ratified 39 conventions, including four of the core labor standard conventions.The four core conventions that India has ratified are the following:
- Forced Labor Convention (No. 29)
- Abolition of Forced Labor Convention (No. 105)
- Equal Remuneration Convention (No. 100)
- Discrimination (Employment Occupation) Convention (No. 111)
The four core conventions that India has not ratified are the following:
- Freedom of Association and Protection of Right to Organize Convention, 1948 (No. 87)
- Right to Organize and Collective Bargaining Convention, 1949 (No. 98)
- Minimum Age Convention, 1973 (No. 138)
- Worst Forms of Child Labor Convention, 1999 (No. 182)
- The deputation for expatriates and foreign nationals attract several issues under the Indian legal system. Foreign nationals are engaged in India to provide training and development to local employees, for technology transfer, compliance of joint venture and license agreement etc.
- The appointment of a foreign employee is done in order to smoothen the transfer the execution of company policies to the Indian business arm. Further it is convenient for foreign employees in India to co-ordinate with the parent company in terms of decision making, financial management and other company matters.
- The major tax implication of a foreign national working in India falls under the Indian Income tax Act, 1961. This includes:
- Residential status of an Expat: An individual is taxed in India on the basis of residential status under the IT act divided into two Categories:
- Resident in India:
- Resident and ordinarily resident.(ROR)
- Resident and not ordinarily resident.(RNOR)
- Non Resident in India.(NR)
- Foreign nationals may be exempt from tax in India if their stay does not exceed 90 days, as prescribed in the Act, or the number of days prescribed (generally 183 days) under various double taxation avoidance agreements (DTAA) into which India has entered with other countries, subject to the satisfaction of all the other conditions.
- Remuneration for services rendered by a foreign national employed by a foreign enterprise during his/her stay in India will be exempt from tax in India if:
- The total period of the stay in India does not exceed 90 days in a financial year
- The foreign enterprise is not engaged in any trade or business in India
- The remuneration is not charged to an employer subject to Indian income tax.
The rules for employing foreign workers are as follows:
- foreign workers should be highly skilled professionals engaged on a limited-term contract or employment basis;
- foreign workers may not be granted employment visas for jobs for which qualified Indians are available
- foreign workers may not be granted employment visas for routine, ordinary or secretarial and clerical jobs
- foreign workers sponsored for employment visas should draw a salary in excess of US$25,000 per annum, except in cases of ethnic cooks, language teachers (other than teachers of the English language) or translators and staff working for an embassy or high commission
- foreign workers must comply with all legal requirements such as the payment of their tax liability, etc
- the Indian employer shall be responsible for the conduct of the foreign worker during his or her stay in India and also for the departure of such foreign national upon the expiry of the visa
Foreigners are entitled to certain special concessions as follows:
- Remuneration received by a foreigner as an employee of a foreign enterprise forservices rendered in India is not subject to Indian income tax, provided:
- The total period of the stay in India does not exceed 90 days in a financial year
- The foreign enterprise is not engaged in any trade or business in India
- The remuneration is not charged to an employer subject to Indian income tax
- Salary received by a non-resident foreigner in connection with employment on a foreign ship is exempt from tax if the employee’s stay in India during a year does not exceed 90 days
- As per the clarifications given by Ministry of Home Affairs for employment of foreign nationals in India, it is a prerequisite for them to have a minimum salary of USD 25000 (to protect low/less skilled Indian labour)
- Special exemptions under specified circumstances are available for remuneration received by employees of a foreign Government during training with the Indian Government or in an Indian Government undertaking
- Employment visas are issued to foreigners who are working in India, for an Indian entity.
- Employment visas are usually granted for one year, or for the term of the contract. It can be extended in India.
- Employment visa is also granted to foreigners coming to India as a consultant on contractfor whom the Indian company pays a fixed remuneration (this may not be in the form of amonthly salary), foreign artists engaged to conduct regular performances for the durationof the employment contract given by Hotels, Clubs, other organizations, coaches of national/state level teams, or reputed sports clubs, sportsmen who are given contract for aspecified period by the Indian Clubs/organizations, self-employed foreign nationals comingto India for providing engineering, medical, accounting, legal or such other highly skilledservices in their capacity as independent consultants provided the provision of suchservices by foreign nationals is permitted under law, foreign engineers/technicians comingto India for installation and commissioning of equipment/machines/tools in terms of thecontract for supply of such equipment/machines/tools, providers of technicalsupport/services, transfer of know-how/services for which the Indian company paysfees/royalty to the foreign company.
- For foreign workers residing in India, in the case of changes in their employment, as per the new visa regulations, such foreign workers need not return to their home countries to arrange for new employment visas. While residing in India, such workers may be subject to fulfilment of prescribed requirements when making new applications to the government, seeking permission to change the details of their employment on the original visas.
- As per the new guidelines issued by the government of India, spouses of authorised workers on dependent visas can convert their dependent visas into employment visas within India, subject to the following conditions:
- all the conditions laid down for the granting of an employment visa are fulfilled by applicants; and
- prior approval from the Ministry of Home Affairs is obtained.
Foreign nationals including their family members who intend to stay in India for more than 180 days have to get themselves registered with the Foreign Regional Registration Office (FRRO) within two weeks (14 days) of arrival in India. For the purposes of the registration, the individual is required to make an application in the prescribed form and be present in person at the time of registration. There is no registration fee charged for registration by FRRO.
- As per treaty laws, India cannot tax the business income of a foreign entity, unless that entity has a Permanent Establishment (‘PE’) in India.
- Article 7 of the various DTAAs stipulates that only the profits directly or indirectly attributable to the PE in India would be taxed in India. Therefore, only the PE generating income with a business connection in India will be taxable in India.
- The PE of the foreign enterprise in India may use its assets and resources to earn income both in India and outside India, but only the segment of Income that relates to the business connection in India is taxed. In the absence of business connection in India, the PE would just be a taxable entity and not a tax paying entity.
- A foreign company is generally considered to have a PE in India if the foreign company is regarded as having a fixed place in India through which the said foreign company carries onbusiness in India.
Shops and Establishments Act
- A State-specific legislation to regulate the terms of service and other conditions of work.
- Contains provisions for regulating the working hours, payment of wages, leave holidays in shops, commercial establishments, residential hotels, restaurants, theatres and other places of public amusement or entertainment.
- Every establishment covered by the Statute is required to register itself with the Inspector of the respective Shops and Establishments Authority within 30 days from the date of commencing its work.
- The Employees Provident Funds and Miscellaneous Provisions Act, 1952 (PF Act) applies to all factories or establishments employing twenty (20) or more persons.
- Compulsory registration after the number of employees reaches the prescribed limit.
- Voluntary coverage where the number of employees is less than 20.
- Employer is required to contribute a certain percentage of the salary, dearness allowance and retaining allowance of the employee, into the PF account.
- Employer’s responsibility to deduct employees contribution and deposit it in the PF account along with his own contribution. Failure to collect the employees contribution would make the employer responsible.
- The employees drawing wages up to INR 15000 (INR Fifteen thousand only) per month are statutorily entitled to the provident fund benefit under the PF Act.
Employee State Insurance
- The Employee State Insurance Act, 1948 (ESI Act) applies to all factories and establishments employing twenty (20) or more persons.
- Every factory or establishment to which this ESI Act applies shall be registered with the Regional Office within 15 days of the Act becoming so applicable.
Factories Act, 1948
- The Act is applicable where 10 or more persons are employed at a place in which a manufacturing process is carried on with the aid of power, or a place where 20 or more persons are employed at a place in which manufacturing process is carried on without the aid of power.
- Registration is required to be done as per the rules laid by the respective State governments in this regard.
- Professional Tax is levied by various States in India on the income earned by way of profession, trade, calling or employment.
- In case of salaried and wage earners, the liability to deduct Professional Tax is on the Employer and deposit the same with the respective State government. In case of other class of individuals, this tax is liable to be paid by the person himself.
- Every person liable to pay Professional Tax under the respective State legislation shall apply for Registration Certificate to the respective State’s tax department in the manner prescribed.
- In case of more than one place of work, registration has to be done separately with the respective jurisdictional authority.
- The Indian states which have enacted provisions for Professional Tax are Karnataka, West Bengal, Andhra Pradesh, Maharashtra, Tamil Nadu, Gujarat, Assam, Chhattisgarh, Kerala, Meghalaya, Orissa, Tripura and Madhya Pradesh.
Employees State Insurance Policy
- The ESI Act, wherever applicable, provides for health care and cash benefit payments in the case of sickness, maternity and employment injury. It provides for need-based social insurance schemes that protect the interest of workers in contingencies such as sickness, maternity, temporary or permanent physical disablement, or death due to employment injury.
- The salary limit for eligible employees has been increased from 10,000 rupees to 15,000 rupees.
- The EPF Act provides for the institution of provident funds, family pension funds and deposit-linked insurance funds for the employees, which taken together provide old-age and survivorship benefits, long-term protection and security to the employee.
- The salary limit for employees covered by the EPF Act is 15,000 rupees.
- Contributions to the Fund are made by both employer and the employee and are administered by the Central Board of Trustees.
- An individual must be an employee to be a member of the Fund. Casual engagement is not ‘employment’.
Provisions for International Workers in India
- Expatriates working in India are obligated to contribute toward the Indian provident fund systems unless they fall within the category of an “excluded employee.”
- In order to facilitate the balance of social contributions made by foreign expatriates deployed in India and by Indian nationals working in countries outside India, the Government of India has signed and is in the process of signing Social Security Agreements (SSAs) with different countries. SSAs have been signed between India and many other countries; however, only Belgium, Germany, Luxembourg, France, Denmark, Korea, Netherlands, and Switzerland had ratified the agreements.
- The Government of India has imposed a limitation on the withdrawal of provident fund balances by foreign expatriates. Under this limitation, foreign expatriates will be able to withdraw the accumulated provident fund balance only at the age of 58 years and not at the end of their employment in India. In certain circumstances, an earlier withdrawal may be possible, such as the following:
- On retirement on account of permanent or total incapacity to work due to bodily or mental infirmity duly certified by a prescribed medical officer/registered practitioner;
- On suffering from tuberculosis, leprosy, or cancer, even if contracted after leaving the service on grounds of illness; or
- Any of the grounds specified in the SSAs.
- Further, pursuant to the ratification of SSAs with Belgium, Germany, Luxembourg, France,vDenmark, Korea, Netherlands, and Switzerland foreign expatriates from these countries are exempted from age 58 limitation.
Retrenchment and Termination
Retrenchment is the termination by the employer of the services of an individual worker or groups of workers (excluding mass terminations due to closure), for any reason whatsoever except for the following:
- As a punishment inflicted by way of disciplinary action,
- Voluntary retirement of the worker;
- Involuntary retirement of the worker on reaching the age of superannuation (mandatory retirement), if the contract of employment between the employer and the worker contains a stipulation specifying a mandatory retirement age;
- Termination of a worker as a result of the nonrenewal of the contract of employment between the employer and the worker upon its expiration or as a result of the contract of employment automatically terminating under a contractual stipulation to that effect;
- Termination of the service of a worker on the ground of continued ill health, or closure of a part or the whole of an undertaking.
There are no restrictions on retrenchment of workers whose continuous service with the current employer is of less than one year’s duration.
- Employees in the category of workmen can be dismissed with cause (non-renewal of contract, non-performance, continued ill health, etc). In cases of misconduct, an inquiry must be held before dismissing the employee.
- Where a prima facie case exists against the employee, a charge sheet detailing the allegations against the employee, which are acts of misconduct, should be issued to the employee.
- The employee should be afforded reasonable time to submit a reply to the charge sheet. If the reply is found to be unsatisfactory, an employer shall proceed with a domestic enquiry. The employer shall appoint a presenting officer (PO), who would represent the case on behalf of the employer, and an enquiry officer (EO), who would undertake the disciplinary proceedings.
- The employee shall be informed about the appointment of the EO, and the EO shall inform the employee about the date, time and venue of the enquiry. During the disciplinary proceedings, the EO should provide a reasonable opportunity to the PO and the employee to prove their respective positions, including the production of documents, witnesses and cross-examination of witnesses.
- The EO shall maintain a written record of submissions made by all persons and obtain an endorsement from such persons for the same. Thereafter, an enquiry report shall be prepared by the EO detailing the charges against the employee, the defence of the employee, the evidence assessed and the findings following the enquiry.
- Based on the findings in the enquiry report and the gravity of the offence, the employer shall decide on the disciplinary action, including dismissal, etc, that needs to be taken against the employee.
To dismiss an employee in the non-workmen category:
- in cases of misconduct, an inquiry must be held before dismissing the employee (the opportunity to be heard); and
- in cases of dismissal for any other reason, the employee must be given a minimum of one month’s notice or salary in lieu thereof, or as agreed in the terms of employment and any other benefits as per the terms of employment.
For both workmen and non-workmen, where the terms of contract such as minimum notice period, leave and holidays, working hours, severance compensation, etc. are better than those required by law, then such terms of contract will prevail over statutory requirements.
In order to come under the purview of the IDA and to receive the benefits of IDA there under, the employee has to be a ‘workman’ which is defined as any person (including an apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical and supervisory work for hire or reward, but does not include any such person who is employed mainly in a managerial or administrative capacity; who, being employed in a supervisory capacity, draws wages exceeding ten thousand rupees (INR 10,000) mensem or exercises, either by nature of the duties attached to the office or by reason of the powers vested in him, functions mainly of a managerial nature.
For termination for any reason whatsoever, unless on grounds of misconduct, of every ‘workman’ who has been in continuous employment of the Company for 1 year or more, the employer has to comply with the following requirements:
- The employer must give one month’s notice to the workman indicating the reasons for termination, or payment in lieu of wages for the period of notice.
- The employer is required to give to retrenchment compensation to the workman. Such compensation is to be calculated at the rate of 15 days’ average pay for every completed year of continuous service or part thereof in excess of six months.
- A notice of such retrenchment shall also be given to the Central Government in the prescribed form, within three days of the date on which notice is served to the workman or date on which he is paid wages in lieu of such notice.
The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (‘Act’) and The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Rules, 2013 (‘Rules’) have been now notified with the objective of providing protection against sexual harassment of women at the workplace and for the prevention and redressal of complaints of sexual harassment.
- The definition of ‘sexual harassment’ includes unwelcome physical contact and advances, demand or request for sexual favours, making sexually coloured remarks, showing pornography or any other unwelcome physical, verbal or non-verbal conduct of sexual nature.
- Any implied or explicit promise of preferential treatment in employment, implied or explicit threat of detrimental treatment in employment, implied or explicit threat about present or future employment status or interference with the work or creating a nintimidating or offensive or hostile work environment or humiliating treatment likely to affect the employee’s health or safety in relation to or connected with any act or behaviour of sexual harassment may amount to sexual harassment.
- The Act is applicable on all regular, temporary, ad hoc employees, individuals engaged on daily wage basis, either directly or through an agent, contract labour, co-workers, probationers, trainees, and apprentices, with or without the knowledge of the principal employer, whether for remuneration or not, working on a voluntary basis or otherwise, whether the terms of employment are express or implied.
- India’s labor and employment laws are not applied outside India, but are applied solely within the territorial jurisdiction of the country.
- There exist no specific rules for the application of other countries’ labor and employment laws in India because these are not generally considered in deciding Indian lawsuits. Indian courts have opined that Indian labor laws have been enacted to suit the conditions of the country and the legislature has therefore, enacted provisions that are not parallel with those in other countries.
- Unless there is a bilateral agreement with a country, the question of application of that foreign country’s law on Indian laborers does not arise.
- In India, the labor laws are enacted primarily in keeping with the interest of laborers and their welfare. If the workers of a foreign employer in India were given more beneficial interest than their Indian counterparts, it could be difficult to question that or insist that the foreign company adhere to the norms prescribed by Indian labor law.