When expanding into India through an Employer of Record (EOR), one of the most overlooked yet crucial aspects of hiring is understanding the difference between State and Central labor laws.
For companies unfamiliar with India’s legal structure, it may come as a surprise that labor is a concurrent subject meaning both the central (federal) government and the individual state governments have the power to legislate on it. This creates a complex web of rules that can vary dramatically based on where your employees are located.
If you’re planning to hire in India using an EOR like Mometum91, a trusted partner in India understanding how these dual systems interact will help you remain compliant, avoid penalties, and treat your remote employees fairly.
India’s Constitution divides responsibilities between the Central and State governments. Labor laws fall under the “Concurrent List,” which means:
So while the core framework is national, the actual application often depends on local rules.
This matters for you as an EOR client because a payroll or HR strategy that works in Bangalore (Karnataka) may not be fully compliant in Mumbai (Maharashtra) or Chennai (Tamil Nadu).
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Here are some key central labor laws that EOR partners like Mometum91 follow for all employees across India:
Ensures timely payment of salaries to employees. EORs must process salaries within the specified timeline.
Mandates that employers pay at least the prescribed minimum wage. These rates vary by job role and region.
Requires companies to contribute a portion of employee salaries toward retirement savings. The standard contribution is 12% from both employer and employee.
A health insurance scheme applicable to employees earning below a threshold (₹21,000/month). Contributions are made by both employer and employee.
Provides statutory bonuses for employees earning below ₹21,000/month, depending on company profitability.
Applicable when an employee completes 5 years of continuous service with the employer, offering a lump sum benefit upon exit.
Now, here’s where things get more nuanced. Each Indian state can amend certain labor laws based on regional economic conditions, industry needs, or political decisions. These state-specific variations impact how EORs manage:
As a global startup or business using an EOR model in India, here’s why understanding this distinction is key:
If your EOR partner doesn’t account for local state rules, you could face:
Non-compliance reflects poorly on your company’s global image even if it’s technically the EOR’s responsibility.
Failing to meet the correct minimum wages in a specific state can result in underpaid employees and high attrition.
Indian workers are increasingly aware of their rights. Localized policies help build trust, satisfaction, and retention.
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At Mometum91, we maintain up-to-date compliance checklists for every Indian state we operate in. Here’s how we keep our clients protected:
Whether you hire in one state or across five, Mometum91 ensures full compliance with both central and local labor laws.
Before selecting locations for hiring, understand the pros, cons, and compliance differences.
India isn’t a one-size-fits-all market. What’s legal in Gujarat may not be in Tamil Nadu.
Ensure employment agreements reflect the correct jurisdiction and legal framework.
It impacts the employee's net take-home.
Hiring in India is a massive opportunity but it’s layered. The central government lays the foundation, but state-level rules paint in the details.
With a reliable EOR partner like Mometum91, your business doesn’t need to worry about decoding 28 states’ labor laws. We do it for you seamlessly managing your team’s compliance, compensation, and documentation while you stay focused on your business goals.
Whether you're onboarding your first hire in India or building an entire team, understanding the interplay of state vs. central laws helps you stay ahead of the curve and avoid costly missteps.
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