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With an expanding economy and consumer base, along with burgeoning capabilities in service sectors like information technology and business process outsourcing, India is the new go-to place for Western companies large and small. Despite Indias huge population, however, the current expansion is tightening the supply of skilled labor. Furthermore, many differences in laws, compensation, and business culture can make HR in India a challenge. This article provides a brief overview of laws, practices, and other local conditions vital for HR and recruiting in India.

Labor Market Overview

Looking in the aggregate, India has a huge number of employable workers. Out of Indias population of 1.1 billion people, about 160 million are in the non-agricultural workforce. The population is matched by a large educational network of over 10,000 colleges of various sorts. India has over 22 million college graduates, 7.2 million of those in science and engineering. It turns out 2.5 million new graduates each year.

Since 2002, seasoned technical and managerial staff have been in particularly high demand in India, with salaries rising sharply every year. Competition is fierce, with frequent job-hopping and poaching the norm. Still, salaries are significantly less than those in the US.

Legal Environment

Although deregulation in the 90s made it much easier to do business in India, the legal system is still onerous by American standards. Among the hazards one must deal with are: the huge number of laws on the books (estimated at over 2000, but never codified); joint federal and state government authority over labor; and and ambiguous laws. However, restrictions are often lighter for the newer service industries, and the regulatory burden is no longer so heavy that it deters investment.

Working Conditions

Working conditions standards in India depend on state and federal laws, as well as whether the workplace is a specified establishment. Factories, mines and plantations are usually put in this category. When in effect, regulations set standards such as: annual paid leave of 19 days; a working day not less than 12 hours; and double pay for overtime above 9 hours a day or 48 hours a week. Also, governmental permission is needed for female employees to work at night, though this is usually granted in service sectors.

Managerial staff are almost always excluded from regulations on working conditions. While managers usually receive the same leave terms, they do not receive overtime pay.

Contracts and Termination

In standard practice, employees will receive a letter of appointment, which serves as a binding contract, though legal requirements take precedence. The letter will include such terms as salary, starting date, position, place of work, transfers, ethics, confidentiality, probation, and termination.
Termination in India is somewhat difficult. By law, a number of procedures must be followed, including just cause, notice, and arbitration. (These procedures are not applicable to managerial staff.) Without the proper procedures, firing can be challenged in court. This means termination must be done carefully: although misconduct is accepted as a cause for termination, inefficiency is not always accepted.

Compensation Structures

For Westerners, one of the most unfamiliar aspects of employment in India is the prevalence of non-salary benefits. The structure of compensation usually comes out to about 40% base salary, 35% flexible benefit plan, and 25% retirement benefits and performance-based pay.

This system came about mainly because most non-salary benefits were tax-exempt to the company. However, these tax advantages are being chipped away at, especially with the Fringe Benefit Tax (FBT), a new corporate tax established in 2005. The FBT lists tax valuations for many different benefits, such as entertainment, travel, and gifts, ranging from 0% to 30% of the benefits actual value. As a result of the FBT and other changes, benefits are being reduced somewhat, but they are still a significant part of the Indian HR landscape.

The Flexible Benefit Plan (FBP) is a standard corporate practice where an employee is assigned a fixed monetary amount to receive in benefit form. He or she then chooses how to take them, depending on personal and tax circumstances. Common benefits include rent, house payments, transportation, medical insurance, childrens education, and subsidized loans.

Compensation Levels

Salaries in India vary sharply by education quality and experience. As shown in the charts below, an entry-level IT hire may earn as little as US$2,000 annually, while an engineer freshly graduated from a reputed university will easily make US$12,000. In some of the highest-demand sectors, salaries for particularly experienced staff have even risen to surpass American levels IT managers with 15 years experience, for example, command about US$220,000. However, this is an exceptional sector; pay for functional heads is generally about a quarter of American levels. Overall, salaries are rising by 10-30% yearly.

Public Retirement / Disability Programs

 The most prominent social security program in India is the Provident Fund. Although it is only mandatory for employees making under about US$141 monthly, it is used almost universally because of its tax benefits. It takes contributions of 12% of salary from the employee and 12% from the employer. Its funds go to a retirement pension as well as to lump sum payments for death or disability.
There is also Employees State Insurance, mandatory for employees in specified industries making under about US$163 monthly. It pays benefits for death and disability as well as sick pay and maternity pay.

Types of Employees

Expatriates are less common in India than in most Asian countries, except for top positions. Pharmaceutical, hospitality, and airline industries are among those most often hiring expatriates. Returnees are becoming more common, but are still limited overall; however, they rarely command higher salaries than locals. India does not have a system that would allow a foreigner to move easily from job to job on the same permit; work visas are tied to jobs.

Recruiting Methods

Like the US, India has a wide range of recruiting methods. Much recruiting is still fairly informal, with walk-in interviews common below the managerial level. In specialties like finance, engineering, or marketing, on-campus recruitment is often used to find entry-level candidates. Advertisements and recruitment agencies can be effective and even necessary to recruit for managerial positions. Internet job sites like Monsterindia.com and Naukri.com are also coming into wider use.

Employee Characteristics

Employees will usually be hardworking, analytical, and open to relocation. On the other hand, their written communication skills may need improvement. Some socialization with colleagues and bosses is also expected as a matter of course.

In deciding whether to take a job, they will consider such factors as responsibility, career prospects, company reputation and profitability, their offered title, travel opportunities, and the possibility of going overseas. Multinational companies tend to have more prestige, even as the gap between their salaries and domestic company salaries is narrowing.

Retention

There was a time when many Indians hoped to stay in one job for life, but that is no longer the case. Employees will now frequently check up on average industry salaries, and will readily switch jobs for an inducement. Indians may take an overseas posting as an opportunity to relocate to the West permanently.
In this environment, one must do as much as possible to keep employees satisfied. Some common strategies are: keeping salary levels in line with the market; having a transparent appraisal system and company policies; and providing good food/leisure facilities.

Conclusion

India is full of capable, effective workers that can excel. The catch is that most of them are already employed. To get the most out of your Indian operations, a careful and proactive HR strategy, adapting to local culture and practices, is imperative.

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