What You Need to Know Before Hiring in India: A Guide to Terminations

Published

May 10, 2023

Author

When making your first Indian hire, termination policies might be far from your mind. But if you don't know the procedural basics, you'll be in danger of violating the country’s complex labor laws.

Employees in India have strong protections against unjustified dismissals. Failing to adhere to minimum notice or pay requirements, or failing to prove a just cause for involuntary termination of employment could subject you to wrongful dismissal claims from Indian courts.

Read on to learn everything you need to know before hiring Indian employees—and how hiring through an Employer of Record (EOR) can spare you from landing in legal hot water.

5 things to know about employee terminations before hiring in India.

You should establish terms of dismissal in your employment agreement. Since India doesn’t have a standardized termination procedure, the offer letter to your Indian employee should include a termination clause that spells out the notice periods, severance pay, and grounds for dismissal.
Many labor laws only apply to non-managerial “workmen.” The Industrial Disputes Act, 1947 sets termination requirements for employees who aren’t supervisors or administrators. Employees in managerial roles can negotiate different contract provisions.
You should only dismiss workmen without cause if you give notice or pay in lieu of notice. Non-managerial employees who’ve worked at a company for at least a year can only be let go without cause if given 1 to 3 months’ advance written notice of termination. Alternatively, employers can pay the employee out through the notice period and have them stop working immediately (known in India as equivalent pay).
India doesn’t recognize at-will employment. Unless for severe misconduct, firing an employee without notice or equivalent pay can violate legal requirements.
Employers may have to notify local governments before making collective dismissals. Employers need to contact regional labor departments before laying employees off en masse. You also need the government’s express approval if you want to collectively terminate more than 100 employees working in a manufacturing plant, mine, or plantation unit.

Types of termination in India: What are acceptable grounds for firing an employee?

Indian employees can leave their job voluntarily for any reason, so long as they give the advance notice stipulated in their employment agreement. Both parties can also agree to end the employment by mutual agreement. Here are the reasons an employee can be terminated involuntarily in India:

Termination during the probationary period. Probationary periods need to be defined in the contract of employment, and typically last between three and six months. They allow employers to evaluate a new hire’s suitability for a new job. Employers can terminate the employee during their probationary period without providing any notice or pay in lieu of notice.
Termination for reasonable cause. According to Indian laws, reasonable causes for termination include willful insubordination, theft, fraud, extensive unexcused absences, and disorderly conduct on company property. Employers can waive notice periods in cases of severe misconduct. But employees need the opportunity to explain themselves before they’re fired for violating any company policies.
Collective dismissals. In some circumstances, Indian employers can terminate a group of employees for reasons beyond the employees’ control, such as redundancy, corporate restructuring, or flagging profits. For workmen covered under the Industrial Disputes Act, this is known as retrenchment. This can also take the form of layoffs (or downsizing), which are allowed if a business becomes insolvent and can’t afford to pay its employees. Employers typically need to notify local governments before making collective dismissals. Employers need to follow a “last in, first out” protocol for retrenchment, where the most recent person hired needs to be the first fired.

India’s termination requirements might differ from those in other countries where you hire, and it’s crucial to keep your global hiring compliant with local laws.

What are the mandatory notice periods for terminating Indian employees?

Non-managerial employees (“workmen”) are entitled to one month’s notice or equivalent pay in lieu of notice. If they work for a factory, mine, or plantation with 100 or more employees, they get three months’ advance notice or pay in lieu of notice.

For managerial and more senior-level employees (“non-workmen”), notice periods are governed by regional Shops and Establishment Acts, which set state-specific workforce standards. Many state laws—including in Delhi, Maharashtra, and Karnataka—mandate at least a 30-day notice period.

Terminated employees aren’t entitled to any notice period in cases of misconduct.

What are the severance pay requirements for Indian employees?

Non-managerial employees who are fired for any reason other than disciplinary punishment are entitled to retrenchment compensation. The pay is calculated as the average of 15 days’ pay for every 1 year of continuous service, or part thereof in excess of 6 months.

For employees who are dismissed, employers must pay termination benefits including leave accrued, equivalent pay in lieu of notice (if no notice is given), statutory bonus payment, and any other amounts due under the employment contract. Under the Payment of Gratuity Act, 1972, employees with at least five years’ continuous service get additional gratuity payments of half a month’s salary for each year of employment.

For employees who are terminated due to misconduct, no entitlement to notice pay or severance pay is required.

The easiest way to comply with Indian termination requirements

If you employ a global workforce, keeping track of termination requirements gets complicated. Without any assistance, employers need to master conflicting just-cause considerations, probationary and notice periods, and severance pay laws that vary both within and among countries.

An alternative is to hire through an EOR, which can monitor termination requirements for you. Rippling, for instance, will localize employment agreements on your company’s behalf.

Rippling ensures contracts adhere to termination requirements for all of your Indian employees—regardless of whether you’ve set up your own local entity. It also automatically enrolls your new hire in statutory benefits, while allowing you to manage payroll for your entire international workforce.

Stay compliant through any employee termination in India

See Rippling

Frequently asked questions about terminating employees in India

Do you need a reason to terminate an employee in India?

Yes, employers must provide Indian employees with a valid reason for their termination. The reason can be related to an employee’s performance or conduct, in which case employees need a chance to explain themselves, or due to factors outside the employee’s control, such as redundancies. Employers should ensure they have evidence supporting their reasoning before terminating any employee, and submit a written termination letter explaining their decision.

What is considered a reasonable cause for terminating an employee in India?

Reasonable causes for involuntarily terminating Indian employees include:

Theft
Accepting bribes
Committing criminal offenses
Fraud
More than 10 days of unexcused absences
Insubordination
Breaching company policies

While poor performance issues can be reasonable causes for the termination of an employee, employers should try to rectify the situation through less extreme disciplinary proceedings first. Most workplaces try to correct less severe misconduct with verbal and written warnings, followed by suspensions with or without pay, before firing an employee outright.

Employers should ensure they have strong evidence of any serious breach of conduct before terminating an employee without the minimum required advance written notice.

What qualifies as wrongful termination in India?

Wrongful termination is when employers violate due process when terminating Indian employees. Examples include:

Getting fired on discriminatory grounds, such as age, race, sex, or other protected demographics
When an employer changes working conditions to make them untenable and effectively coaxes an employee into resigning (this is known as constructive dismissal)
Terminating an employee while they’re on statutory maternity leave

Indian employees can consult local labor departments to bring illegal termination claims against employers. Indian courts can try employers and order them to pay fines, provide additional compensation, and even reinstate terminated employment.

What is the law for dismissing a contractor in India?

The termination process for independent contractors in India can vary depending on the terms of the contract.

Typically, either party may terminate by providing notice as specified in the contract. If the contract does not specify a notice period, the reasonable notice period will depend on the length of the contract and the nature of the work performed.

If an independent contractor is found to be misclassified, they may be entitled to back pay and termination pay in lieu of notice.

Manage the entire lifecycle of your international employees with Rippling

From onboarding to offboarding, Rippling helps you streamline the entire employee lifecycle—globally, and all in one place.

Just click "hire" and Rippling can support your global workforce right out of the box:

Set up a localized India employment agreement.
Pay employees and contractors in India and around the world—without waiting for bank transfers or conversions.
Easily stay compliant with India overtime, leave, and termination requirements.

Catch Rippling in action and learn how Rippling EOR can monitor the tangled web of global termination requirements—so you don’t have to.

Rippling monitors termination laws in India so you can focus on running your business