May 03, 2024

At a glance: hiring employees in India

This is an extract from Lexology Panaromic

Background information on applicants

Background checks

Are there any restrictions or prohibitions against background checks on applicants? Does it make a difference if an employer conducts its own checks or hires a third party?

There is no legal prohibition on conducting background checks in India provided that the entity conducting the background check adheres to applicable data protection laws. The storage, transfer and processing of sensitive personal data or information belonging to persons located in India are regulated by the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules 2011 (the Sensitive Information Rules) enacted under the Information Technology Act 2000. The Sensitive Information Rules require that the information processor adheres to certain requirements in relation to the collection, storage and transfer of electronic data that is classified as sensitive personal data or information, including:

  • passwords;
  • financial information, such as bank accounts and details of payment instruments (eg, credit and debit cards);
  • physical, physiological and mental health conditions;
  • sexual orientation;
  • medical records and history; and
  • biometric information.

The Sensitive Information Rules require that the information processor obtain the consent of the information provider regarding the purpose of usage of the information that is collected, the intended recipients of the information, and the name and address of the entity storing the information. The Sensitive Information Rules also require the company to formulate and publish policies regarding privacy and the disclosure of information.

There is no difference between the employer conducting a background check or a third party doing so. In practice, however, organisations typically outsource background checks to organisations that are experienced in conducting such tests.

Medical examinations

Are there any restrictions or prohibitions against requiring a medical examination as a condition of employment?

An employer is permitted to conduct a medical examination as a precondition to employment and can choose not to hire persons who refuse to submit to such tests, subject to adhering to applicable anti-discriminatory laws. In this regard, the Human Immunodeficiency Virus and Acquired Immune Deficiency Syndrome (Prevention and Control) Act 2017 prohibits conducting HIV tests on persons without their informed consent.

As best practice, it is advisable that employers undertake medical examinations for recruitment only in cases where there is a direct correlation between the medical fitness of an employee and the work that is to be performed.

Drug and alcohol testing

Are there any restrictions or prohibitions against drug and alcohol testing of applicants?

Indian law does not prohibit the testing of employees for drug or alcohol consumption, subject to adhering to applicable data privacy requirements. The employer can also formulate relevant policies to prohibit the use of drugs or alcohol during working hours.

Hiring of employees

Preference and discrimination

Are there any legal requirements to give preference in hiring to, or not to discriminate against, particular people or groups of people?

There is no general requirement under Indian employment law for organisations in the private sector to give preference in hiring to a particular category or set of persons. That said, there may be instances where organisations have been given certain concessions by the government – such as the acquisition of property at subsidised rates – that would require the organisation to provide employment to certain identified categories of persons.

Employers in the private sector are prohibited from discriminating on the basis of gender, disability and HIV status.

Written contracts

Must there be a written employment contract? If yes, what essential terms are required to be evidenced in writing?

There is no mandatory requirement for organisations to issue employment contracts to employees, although it is highly recommended. Employment contracts should essentially cover terms related to terms of employment and termination, designations, duties and responsibilities, probationary periods, salary and benefits, work hours and terms of work, restrictive covenants, confidentiality obligations, and the assignment and ownership of intellectual property.

It is important to note that, while there is no statutory requirement for a written employment contract, certain state-specific statutes require employers to issue appointment letters and orders to employees. These documents are simpliciter documents that, among other things, provide the designation of the employee, wages and period of employment.

Fixed-term contracts

To what extent are fixed-term employment contracts permissible?

Fixed-term employment contracts are permissible in India and there are no prescribed maximum durations for fixed-term contracts or restrictions on the type of work that can be performed by employees who are employed under such contracts. That said, it is important to ensure that there are bona fide reasons for employing persons through fixed-term contracts.

Probationary period

What is the maximum probationary period permitted by law?

The duration of any probationary period is determined by the contract of employment or by the standing orders applicable to the establishment. Standing orders are statutory consolidations of the terms of service that are to be certified by a statutory authority under the Industrial Employment (Standing Orders) Act 1946, which generally prescribe a probationary period of three months.

Typically, probation periods are structured such that they end prior to any statutory termination protections kick in. Accordingly, based on the state in which the employee is employed, the work performed by the employee and the industry of the employer, employees are required to serve a probationary period of three to six months.

Classification as contractor or employee

What are the primary factors that distinguish an independent contractor from an employee?

The primary factors that distinguish an independent contractor from an employee are the amount of supervision and control that the employer is able to exercise on the individual and the type of work performed by the individual.

Indian courts usually consider various factors to determine whether an individual can be deemed to be an employee of an organisation, such as:

  • the nature of services provided (including whether such services are in relation to a core activity of the organisation or are specialised services);
  • whether the nature of work is perennial;
  • the ability of the organisation to monitor the individual’s work from time to time;
  • the extent of scrutiny into the work and the organisation’s ability to provide instructions;
  • the duration of the engagement;
  • the exclusivity of the relationship; and
  • whether the worker is being engaged as an independent contractor solely for the organisation to avoid liability.

Temporary agency staffing

Is there any legislation governing temporary staffing through recruitment agencies?

The Contract Labour (Regulation and Abolition) Act 1970 governs the engagement of workers (contract workers) through third-party organisations (contractors) to perform work at an organisation’s establishment. Specifically, it applies to establishments in which 20 or more workers are, or were, engaged on any day in the preceding 12 months as contract workers and to contractors that deploy 20 or more contract workers. This applicability threshold varies in certain states. The Contract Labour (Regulation and Abolition) Act 1970 requires that the organisation engaging the contract workers (the principal employer) and the contractors obtain registrations and licences, and ensure that the payment of wages and benefits to the contractors is timely and adequate.





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