• Arjun Paleri

Engaging temporary contract workers in India

Arjun Paleri (Partner) & Jaya Ramachandran (Senior Associate)



Temporary staffing arrangements are an attractive option for foreign companies seeking to operate in India, especially where the business needs require flexibility and the foreign company does not have an establishment or presence in India.


Foreign companies must be mindful of certain legal risks of engaging temporary contract workers (“TCW”) in India. This article briefly examines the key aspects which a foreign company must consider while assessing the use and engagement of TCW in India.


Key points to consider while engaging temporary contract workers in India


1. Assess your business needs and duration of engagement:

  1. TCW are normally considered for short-term positions where the work requirements are either ad-hoc or require specialist expertise for short durations.

  2. Where the staffing requirements are for day-to-day operations, routine work or long term work, then other alternatives should be considered (as feasible) e.g., fixed-term employment, or engaging services of TCW through third-party contractors.

2.Choose roles and responsibilities of TCW carefully:

  1. The foreign company engaging TCW in India should set the roles and responsibilities of TCW carefully.

  2. If TCW fulfills roles and responsibilities which are normally also fulfilled by employees of the foreign company, this could trigger the risk of TCW being treated (by claims from TCW) as employees of the foreign company entitled to the same employment and statutory benefits as regular employees of the foreign company.

  3. The roles and responsibilities of TCW could also bear upon the tax liabilities in India of the foreign company.

3. Work authorisation of TCW:

  1. All TCW should be authorised to work in India.

  2. Foreign TCW being deployed in India will require employment visas to work in India, and register with the local Foreigner Regional Registration Office (FRRO) in India.

4. Permanent establishment:

  1. The activities of TCW in India for the foreign company may amount to a “permanent establishment” of the foreign company in India and income of the foreign company attributable to the activities of the TCW may be subjected to Indian income tax and tax compliances.

5. Engagement model:

  1. TCW could be engaged directly on individual contracts which should be structured carefully. Indian goods and service taxes (“GST”) may be leviable on the fees payable to the TCW.

  2. Alternatively, the TCW could be engaged through a licenced third party contractor who will perform work for the foreign company through TCW. This arrangement may have additional costs associated in the form of a management fee charged by the third party contractor and also GST depending on how the contract with the third party contractor is structured.

6. Other compliances:

  1. Where many TCW are engaged in India by the foreign company, this may also trigger the requirement to register the foreign company with the Indian labour authorities, obtain registrations and maintain compliances.

  2. The foreign company may also be required to:

  3. comply with Indian foreign exchange laws such as obtaining prior approvals from authorised banks etc.; and

  4. deduct and deposit tax with Indian tax authorities and make periodic filings in respect of the same.


Key risks of engaging temporary contract workers in India:

Key take-away


Engagement of TCW in India by a foreign company is possible and must be structured appropriately to mitigate and minimise the risks.


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Engaging temporary contract workers in India - 7 July 2021
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