The diverse labor law provisions existing in India may be quite challenging to comprehend. As a business owner, investing time in getting acquainted with the complex legal provisions, statutory compliances and tax norms is undoubtedly a herculean task. So, where does the solution to this problem lie? Well, in using PEO services in India! Partnering with a PEO partner will aid you in streamlining all kinds of HR processes and employee management tasks.
Whether you are a startup looking to scale quickly or an established enterprise aiming to optimize your operations, understanding the advantages and workings of PEO services in India can be a game-changer. In this blog, we will delve into the world of PEO services in India, exploring how they operate, the myriad benefits they offer, and why they are becoming an indispensable tool for businesses aiming to thrive in a competitive market.
Table of Contents
- India at a Glance
- What is PEO India?
- How Do PEO Services in India Function?
- Employer Costs in India
- Employee Contributions in India
- Employee Income Taxes in India
- Working Hours in India
- Leave Entitlement in India
- Termination in India
- What are the Benefits of Using PEO Services in India?
- What are the Differences Between an EOR India and PEO India?
- PEO Services in India for Small Businesses
- Frequently Asked Questions (FAQs)
India At a Glance
- Capital City: New Delhi
- Currency: Indian Rupee (INR)
- Language: English and Hindi
- Payroll Frequency: Monthly
- Population: 1.3 billion
- GDP: 3.42 lakh crores USD
Suggested Read: PEO Service Providers in India
What is PEO India?
PEO India, or Professional Employer Organization India, is a service that allows businesses to hire employees in India without having to worry about regulatory norms and compliances. The PEO acts as the co-employer on behalf of the client company, managing various HR functions such as payroll, benefits, compliance with Indian labor laws, and administrative tasks.
The co-employment arrangement of a PEO enables companies to focus on their core business activities while ensuring that all employment-related legalities and obligations are met efficiently and effectively. By using a PEO, companies can quickly and compliantly expand their operations into India, leveraging local expertise and reducing the complexities associated with international employment.
PEO service providers in India such as Asanify offers premium HR services at affordable rates and automates all the HR processes. Powered by robust HR technology and an excellent customer support team, Asanify enables businesses to focus on their core operations while all the administrative tasks are taken care of.
How Do PEO Services in India Function?
PEOs in India function by taking on the administrative and legal responsibilities of employment on behalf of client companies. Professional Employment Organisations in India such as Asanify offers businesses personalized assistance in completing end-to-end HR processes and ensuring compliances. This helps companies to stay compliant with the legal norms in the new country in which they are commencing their operations.
Let’s have a look at the structured way in which a PEO company in India works to streamline complex HR and payroll processes for businesses all over the world:
Step 1: Finalization of the Agreement
The client company engages with the PEO and enters into a co-employment agreement. This agreement outlines the responsibilities of both parties, including the scope of services provided by the PEO.
Step 2: Onboarding of Employees
Once the agreement is signed between the PEO firm and the organisation, the former assists in recruiting and onboarding new employees. This includes preparing employment contracts, collecting necessary documentation, and ensuring compliance with Indian labor laws.
Step 3: Automation & Administration of Payroll
Next, the PEO manages the payroll process, which includes calculating salaries, withholding taxes, and making statutory contributions such as Provident Fund (PF) and Employee State Insurance (ESI). They ensure timely and accurate salary disbursements. PEO firms like Asanify has revolutionized the entire payroll process by automating it completely. It enables a single-click payroll run that helps in eliminating every possible calculation error that would have otherwise cropped up if a traditional method was used.
Step 4: Employee Benefits Management
To help businesses attract and retain talent, the PEO administers employee benefits, such as health insurance, retirement plans, and other perks. They handle the enrollment and management of these benefits, ensuring they comply with legal requirements and are competitive.
Step 5: Compliance Support
Adhering to the compliances of a new country can be quite difficult. As a business owner, it is probable that you have too many things on your plate. And, decoding the complex labor laws and statutory compliances existing in India can be challenging. The PEO ensures compliance with all local labor laws and regulations. This involves maintaining accurate records, filing necessary reports, and ensuring adherence to laws regarding minimum wage, working hours, and employee safety.
Step 6: Risk Mitigation
The PEO helps mitigate risks associated with employment, such as handling wrongful termination claims, workplace safety issues, and compliance risks. These service providers offer legal and HR guidance to navigate complex situations.
Step 7: Termination & Off-boarding
When an employee leaves the company, the PEO manages the termination process, ensuring compliance with local labor laws. They handle final settlements, documentation, and ensure a smooth offboarding process.
Suggested Read: PEO vs EOR Differences- All That You Need to Know
Employer costs in India encompass various mandatory and optional expenses, including salaries and wages, statutory contributions (such as Provident Fund and Employee State Insurance), and bonuses. Additionally, employers incur costs for employee benefits like health and life insurance, leave encashment, training and development, and office infrastructure.
Recruitment costs, compliance and legal expenses, and miscellaneous costs related to employee welfare and transportation also contribute to the overall employer expenditure. These costs are essential for budgeting and financial planning to ensure compliance with labor laws and maintaining employee satisfaction.
Here is a breakdown of the statutory contributions to be made by an employer in India:
- Provident Fund (PF): Employers contribute 12% of the employee’s basic salary to the Employee Provident Fund Organization (EPFO).
- Employee State Insurance (ESI): Employers contribute 3.25% of the employee’s gross salary to the ESI.
- Gratuity: A statutory benefit paid to employees who have completed five years of continuous service. The cost is approximately 4.81% of the basic salary per year.
Partnering with a PEO company in India will help you take care of all these mandatory contributions that you need to make as an employer. Why take the stress of compliances when your co-employer is here to safeguard your business by helping you stay 100% compliant?
Employee Contributions in India
Employee contributions in India vary from 0.75% to 12%. These include the following:
|
Contributions |
Percentage |
| Provident Fund | 12% of basic salary and dearness allowance |
| ESI | 0.75% of gross salary |
| Professional Tax | Varies by state; as a standard- Rs 2,500 per year |
Employee Income Taxes in India
Employee income taxes in India are governed by the Income Tax Act, 1961, and are calculated based on the individual’s annual income.
Income Tax Slabs (For FY 2023-24)
India follows a progressive tax system with different slabs for different income levels. Let’s see what these are:
For Individuals Below 60 Years
| Up to Rs 2.5 Lakh | No tax |
| Rs 2.5 Lakh to Rs 5 Lakh | 5% |
| Rs 5 Lakh to Rs 10 Lakh | 20% |
| Above Rs 10 Lakh | 30% |
For Senior Citizens (60 to 80 Years)
| Up to Rs 3 Lakh | No tax |
| Rs 3 Lakh to Rs 5 Lakh | 5% |
| Rs 5 Lakh to Rs 10 Lakh | 20% |
| Above Rs 10 Lakh | 30% |
Often, calculating tax deductions can be quite tricky. This is because computing tax withholdings precisely is crucial and it may turn out to be quite a complex task. However, with a PEO partner, you won’t have to worry about all these things. Starting from tax calculation, Form 24Q generation to swift payroll processing, an ideal PEO partner in India such as Asanify will control all these activities and give you unparalleled peace of mind at work.
Suggested Read: What is a PEO + Top 5 Ways It Can Help Your Business
Working Hours in India
Working hours in India are regulated by various labor laws, with the primary one being the Factories Act, 1948. The standard working hours in India is is 48 hours per week and 8 to 9 hours per day. A rest interval of at least 30 minutes after every 5 hours of continuous work is usually provided.
Provision of Overtime Wages
- Overtime Pay: Typically, employees are entitled to twice their regular rate of pay for any hours worked beyond the standard 9 hours per day or 48 hours per week.
- Maximum Overtime: Specific limits on maximum overtime vary by state and industry, but generally, the total hours (regular + overtime) should not exceed 60 hours per week.
Leave Entitlement in India
In India, employee leave entitlements are governed by various labor laws and can vary based on the type of establishment and the specific state regulations. Let’s have a look at the type and quantum of leaves made available for employees in India:
|
Type of Leave |
Purpose |
Quantum |
| Casual Leave (CL) | For short-term absences due to personal reasons or unforeseen circumstances | 7 to 10 days per year |
| Sick Leave (SL) | For illness or medical reasons | 7 to 12 days per year |
| Earned Leave (EL) | For vacation or personal reasons, planned in advance | 15 to 30 days per year |
| Maternity Leave | For childbirth and postnatal care | 26 weeks for the first two children, and 12 weeks for subsequent children |
| Unpaid Leave | When all paid leave is exhausted or for extended personal reasons | Subject to employer approval and company policy |
Termination in India
Termination of employees in India is governed by various labor laws, including the Industrial Disputes Act, 1947, and the Shops and Establishments Acts, which vary by state. Employers must provide a valid reason for termination, such as misconduct, poor performance, or redundancy, and typically adhere to a notice period of 30 days or provide payment in lieu of notice.
Proper procedures, such as issuing a show cause notice and conducting a domestic inquiry, are essential, especially in cases of misconduct. Employees are entitled to final settlements, including unpaid salary, leave encashment, and statutory benefits like gratuity and provident fund. Compliance with these legal requirements ensures fair treatment and mitigates the risk of legal disputes.
Finding all these to be too difficult to handle? Avail PEO services in India to ensure a smooth offboarding of employees.
Suggested Read: Employer of Record Companies in India
What are the Benefits of Using PEO Services in India?
Using Professional Employer Organization (PEO) services in India offers numerous benefits for businesses, particularly for small and medium-sized enterprises (SMEs) and also for international companies. These include:
1. Ensures Compliance with Local Laws
PEOs ensure compliance with India’s complex labor laws and regulations, reducing the risk of legal issues and penalties. They handle all necessary statutory filings and submissions, such as Provident Fund (PF), Employee State Insurance (ESI), and tax returns. With the support of PEO services, you get the assurance that your business is insulated from any kind of penalties and legal conflicts. Gaining peace of mind while focusing on the core aspects of your business is crucial and PEO services help you achieve that.
2. Cost Savings
Outsourcing HR functions to a povider of PEO services in India can significantly reduce administrative overhead and operational costs. Further, PEOs can negotiate better rates for benefits and insurance due to their larger pool of employees, providing cost-effective solutions.
3. Automation of Payroll Management
PEOs manage payroll processing, ensuring timely and accurate salary payments, tax deductions, and statutory contributions. They ensure compliance with local payroll regulations and handle payroll-related queries and issues. PEO service providers in India such as Asanify offers a robust payroll solution by which the entire procedure of running payroll is automated. This ensures an error-free methodology of completing the most crucial calculations pertaining to employee wages. The most remarkable thing, you wonder? You won’t have to worry about any kind of administrative tasks because your co-employer will do it for you.
4. Employee Benefits Administration
PEOs offer access to a wide range of employee benefits, including health insurance, retirement plans, and wellness programs. They manage the administration of these benefits, including enrollments, renewals, and claims processing.
5. Focus on Core Business
By outsourcing HR tasks, you can focus more on the core activities of your business and strategic initiatives for its growth, improving overall productivity. Internal resources can then be redirected to key business functions, enhancing efficiency and growth.
6. Scalability and Flexibility
PEO services can scale up or down based on the company’s needs, making it easier to manage workforce fluctuations. They provide flexible solutions that can be customized to fit the unique requirements of different businesses.
What are the Differences Between an EOR India and PEO India?
|
PEO India |
EOR India |
| In a PEO arrangement, there is a co-employment relationship where both the PEO and the client company share employer responsibilities. | The EOR acts as the legal employer of the employees. This means the EOR is responsible for all employment-related legal matters, including compliance with labor laws, tax filings, and statutory benefits. |
| The client company retains significant control over hiring and day-to-day management of employees. The PEO provides support and manages administrative functions. | The client company retains control over the day-to-day management and work-related activities of the employees, but the EOR assumes responsibility for legal and administrative aspects. |
| The client company and the PEO share employment-related liabilities, with the PEO handling compliance and administrative risks. | The EOR assumes most of the employment-related liabilities, reducing the client’s legal and compliance risks. |
Role of PEOs for Small Businesses
Studies have revealed that PEOs offer services to more than 200,000 small and medium-sized businesses, employing 4.5 million people.
Professional Employer Organizations (PEOs) play a crucial role for small businesses by providing comprehensive HR solutions that streamline administrative tasks. Further, PEOs bring expertise in HR management, help mitigate employment-related risks, and provide scalable solutions that adapt to the evolving needs of the business.
1. Regulatory Compliance
- Ensure adherence to labor laws and regulations.
- Handle statutory filings and submissions.
2. Cost Savings
- Reduce administrative burden
- Leverage economies of scale for benefits and insurance.
3. Excellent Employee Benefits Administration
- Access to competitive benefits packages.
- Manage benefit administration and employee support.
4. Scalability and Flexibility
- Offer scalable solutions to match business growth.
- Provide customizable HR services to meet specific business needs.
Frequently Asked Questions- PEO Services in India
1. What is PEO in India?
A Professional Employer Organization (PEO) in India is a service provider that enters into a co-employment relationship with businesses to manage various human resources functions. These functions include payroll processing, benefits administration, compliance with labor laws, and handling other administrative HR tasks. By partnering with a PEO, businesses, particularly small and medium-sized enterprises, can focus on their core activities while the PEO handles the complexities of HR management and regulatory compliance, ultimately improving efficiency and reducing administrative burdens.
2. What is the work of PEO?
A Professional Employer Organization (PEO) manages a range of human resources functions for businesses. This includes processing payroll, administering employee benefits, ensuring compliance with labor laws, handling tax filings, managing employee records, and providing HR support. By doing so, PEOs allow businesses to focus on their core operations while the PEO takes care of the administrative and regulatory complexities associated with employment.
3. What are the benefits of using PEO services in India?
Benefits include compliance with local labor laws, reduced administrative burdens, access to better employee benefits, cost savings, and the ability to focus on core business activities. PEOs also provide HR expertise and support that might be otherwise unavailable to small businesses.
4. Is my business eligible to use PEO services?
Most businesses, regardless of size or industry, can benefit from PEO services. PEOs are particularly advantageous for small to medium-sized enterprises that want to streamline their HR functions and ensure compliance without establishing an extensive HR department.
5. How does a PEO handle compliance with Indian labor laws?
A PEO ensures that all HR practices comply with Indian labor laws and regulations. They stay updated with the latest legal requirements and manage statutory filings, employee benefits, and tax obligations, reducing the risk of legal issues for the client business.
6. How are employee benefits managed by a PEO?
PEOs administer employee benefits such as health insurance, retirement plans, and other perks. They negotiate better rates with benefits providers due to their larger employee base, offering small businesses competitive benefits packages.
7. What happens if I want to terminate my PEO agreement?
Termination terms will be outlined in the service agreement with the PEO. It’s essential to review these terms before signing the contract. Generally, you will need to provide notice as stipulated in the agreement and ensure a smooth transition of HR functions back to your business or another provider.
8. How does a PEO differ from an EOR (Employer of Record)?
While both PEOs and EORs manage HR and administrative tasks, a PEO enters a co-employment relationship where responsibilities are shared between the PEO and the client. In contrast, an EOR acts as the legal employer for tax and compliance purposes, assuming full responsibility for employment-related legalities.
Not to be considered as tax, legal, financial or HR advice. Regulations change over time so please consult a lawyer, accountant or Labour Law expert for specific guidance.
