Employment Contracts in India: A Guide for Foreign Employers

As India and Belgium work to double their trade, more European firms are making their first hires in India. That also means writing employment contracts in India, often for the first time. This guide explains what the contract must cover, which clauses work differently in India, and the mistakes to avoid.

Key takeaways

• Indian law requires every new employee to receive an appointment letter.
• A home-country template rarely works as it is. Indian law sets rules that a contract cannot override.
• Post-employment non-compete clauses are generally not enforceable in India.
• Show pay as a clear CTC breakdown that follows the 50% wage rule.
• With an EOR, the EOR signs the contract as the legal employer, while you direct the work.

Why do employment contracts in India need extra care?

In September 2026, India and Belgium committed to doubling bilateral trade within five years. Both sides also agreed to improve talent mobility and speed up visas. So cross-border hiring will likely grow in both directions.

However, a trade deal does not change local employment law. Once you hire in India, Indian law governs the job. That is why employment contracts in India are your first real test of the rules.

Is a written employment contract required in India?

Yes. Under India’s Labour Codes, employers must give every new employee an appointment letter. The four Labour Codes took effect on 21 November 2025, and states are still rolling out their own rules.

In practice, most employers use two documents:

• An offer letter, which sets out the role, pay and start date before the person accepts.
• An appointment letter or employment agreement, which sets out the full terms once they join.

On its own, an offer letter is rarely enough. Instead, treat it as a summary, and put the full terms in the main agreement.

What should employment contracts in India include?

A sound contract covers these points:

1. Job title, duties and reporting line. Keep duties broad, so the role can grow.
2. Place of work. State the city, and say whether remote or hybrid work applies.
3. Pay and CTC breakdown. Show basic pay, allowances and employer costs line by line.
4. Working hours. The Labour Codes set limits on hours and overtime for covered employees.
5. Probation. Three to six months is common. Also state the notice period during probation.
6. Leave and holidays. State rules set minimums, so check the law for the employee’s state.
7. Benefits. List PF, gratuity, health insurance and any other benefits.
8. Confidentiality and intellectual property. Cover both during and after employment.
9. Data protection. Explain how you will use the employee’s personal data.
10. Notice and termination. Set the notice period for both sides and the grounds for dismissal.

Our guide to the benefits Indian law requires lists the items your contract must match.

Which clauses work differently in India?

Several clauses that are normal in Europe need a different approach in employment contracts in India.

Non-compete clauses

Section 27 of the Indian Contract Act makes agreements in restraint of trade void. So Indian courts generally do not enforce non-compete clauses after the job ends. By contrast, limits that apply while the person still works for you are usually valid.

Instead of a broad non-compete, rely on strong confidentiality terms. You can also add a narrow non-solicitation clause. However, even those need care, so take local advice.

Intellectual property

Under Indian copyright law, the employer usually owns work that staff create as part of the job. Still, that rule does not cover everything. For inventions and other rights, add a clear written transfer of IP to the employer.

Notice periods and probation

Indian contracts often set notice periods of one to three months. Senior roles often have longer ones. Also, spell out whether you can pay salary instead of notice. For more detail on exits, see our guide to notice and severance in India.

Salary structure

Under the Labour Codes, if allowances go above 50% of total pay, the law adds the extra back into wages for PF and gratuity. As a result, a contract with a very low basic pay can create hidden costs. Our note on common 50% rule mistakes shows what to avoid.

Fixed-term contracts

India allows fixed-term contracts, but they now carry equal benefits. For example, fixed-term staff become eligible for gratuity after one year of service. Our guide to fixed-term employment under the Labour Codes explains the rules.

What mistakes do foreign firms make with employment contracts in India?

• Copying a home template. A Belgian or German contract will miss Indian rules and may include clauses that do not apply.
• Choosing foreign law. A foreign governing law clause does not remove the employee’s rights under Indian law.
• Using “at-will” wording. India has no at-will jobs, so this wording causes confusion.
• Quoting one salary figure. Without a CTC breakdown, pay disputes are more likely.
• Ignoring the state. Leave, holidays and some taxes depend on where the employee works.

Who signs employment contracts in India if you use an EOR?

If you hire through an Employer of Record, the EOR is the legal employer. So the EOR signs the employment contract with the employee. You then sign a service agreement with the EOR.

That service agreement matters too. It should make sure that IP and confidential data pass to your company. Meanwhile, you still choose the person, set the work and manage the day-to-day job. Our guide to hiring in India without your own entity compares the EOR route with setting up a company.

Before you draft any contract, it also helps to know the full budget. See our breakdown of the cost of hiring in India. After signing, use our checklist for onboarding employees in India.

Frequently asked questions

Is an offer letter enough for employment contracts in India?

No. An offer letter is useful, but it usually covers only the role, pay and start date. Indian law requires employers to give every new employee an appointment letter. Most employers also use a full employment agreement that covers duties, pay, leave, confidentiality, intellectual property and termination.

Are non-compete clauses enforceable in India?

Post-employment non-compete clauses are generally not enforceable in India. Section 27 of the Indian Contract Act makes agreements in restraint of trade void. However, restrictions that apply during employment are usually valid, and confidentiality clauses remain an important protection.

What notice period is common in Indian employment contracts?

Notice periods in Indian employment contracts are commonly one to three months, and senior roles often have longer periods. The contract should state the notice for both sides, the notice during probation, and whether the employer can pay salary instead of notice.

Can a foreign company choose its own law for an employee in India?

A foreign company can include a foreign governing law clause, but it does not remove the employee’s rights under Indian law. Indian employment rules on pay, leave, benefits and termination still apply to people who work in India.

How TMS can help

With TMS’s Employer of Record service, your team in India gets compliant contracts under Indian law from day one. We act as the legal employer and handle payroll and statutory benefits, while you manage the work.