Why payroll outsourcing is a game changer for European companies in India

Managing payroll abroad can be challenging and time-consuming, as each country has unique laws and regulations regarding social security and taxes. By outsourcing administrative matters, you won't lose valuable time and can focus on growing your Indian business. These are the benefits of payroll outsourcing for European companies in India.

Better compliance with local labor and tax laws

If you have staff abroad, you know better than anyone how important it is to stay up to date on the latest payroll regulations, such as annual salary increases, a 13th month paid holidays, etc. Keeping up to date in this area can take an immense amount of time, especially in India. In addition, being non-compliant with new regulations can negatively impact your business in the country. 

Therefore, to ensure compliance and reduce risk, it makes sense to outsource payroll to a local expert. That way, European companies can be sure that all processes comply with laws and regulations at the state, federal, local and industry levels, without having to invest significant resources. 

Streamline HR function through payroll outsourcing

Outsourcing payroll can reduce the workload on your HR department alleviate, allowing them to truly focus on human resources issues. By taking difficult administrative tasks off your HR staff's hands, they can focus on challenging cultural issues that need to be bridged, for example. 

Transferring payroll to a third party ensures that you do not have to hire and train additional staff, saving you money and time that you can invest in your core business.

Maintain confidentiality and transparency

With in-house payroll, there is a risk of losing sensitive personal data of employees. Therefore, it is advisable to consider payroll outsourcing. This approach helps maintain confidentiality while limiting access to payroll data to key decision makers and senior employees. 

To ensure data security compliance, it is essential to work with a trusted payroll administrator that offers secure solutions, including data encryption, storage and reporting.

Are you looking for a reliable administrative partner?

From our European offices in the Netherlands, Germany, Spain and Sweden, and our offices in Delhi, Bangalore, Pune and Chennai, IndiaConnected helps dozens of companies from across Europe do business in India every year.

For companies with a subsidiary in India, we take care of the entire administration: accounting, payroll, tax returns, legal support and necessary compliances. We also perform the Company Secretary and the Chartered Accountant function. Do you need business and tax registrations, such as GST, DIN, DSC or TAN? We apply for them for you.

Let us know what administrative matters you could use help with, and we will put together a customized package for you.

India's major taxes: you need to know about the Goods and Services Tax (GST)

The Goods and Services Tax (GST) is the Indian version of VAT. Anyone doing business in India will eventually have to deal with it. The GST was introduced in 2017 to make the country's complex existing tax system more manageable.

Despite having made doing business in India considerably easier, the GST tax can still be a challenge for European companies starting their operations in India. In this article, we'll explain how the tax works and how it affects you as a foreign entrepreneur.

The old, Indian GST tax system consisted of an accumulation of indirect taxes, excise taxes and surcharges levied not only at the national level, but also at the state level and even at the city level. A major tax collected by Indian states was the Value Added Tax (VAT), but there was no fixed national rate for it.

States independently determined what VAT was charged for a product, resulting in much red tape for businesses. In addition, state-to-state sales also required a Central State Tax (CST) to be paid to the national government, further underscoring the fragmentation of the old tax system.

All these different taxes from different Indian governments brought about a waterfall effect and made tax evasion and corruption relatively easy. Indian tax authorities were losing a lot of revenue as a result, so change was much needed. 

One centralized sales tax

With the new Goods and Services Tax, there came one centralized sales tax for all of India in 2017. It unifies all taxes by product type and is levied at the national level in New Delhi.

There are five rates, ranging from 0% to 28%, under which 1211 categories of goods and services are divided. Under the GST system, tax is charged at any point when value is added to the product and a sale occurs. This runs up to the final sale to the customer. To clarify this a simplified example: 

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In addition, GST is a destination-based tax. This means that if a product is manufactured in the state of Andhra Pradesh, but sold in Karnataka, the entire tax goes to Karnataka. A big improvement from the previous system where tax had to be paid at each step to a different government body. 

The benefits of Goods and Services Tax

The list of benefits of a centralized sales tax is long. First, the GST greatly simplifies India's unwieldy tax system. In addition, the GST makes it possible to effectively make India a single market in which free movement of goods between states becomes a reality.

This allows companies to organize their distribution from a central nationwide warehouse - and not have to set it up separately in each state. Furthermore, tax evasion becomes more difficult, increasing revenues for the Indian treasury. The above benefits in turn lead to positive macroeconomic effects: doing business in India becomes easier, (foreign) investment increases, the Indian government itself can invest more, and the Indian economy will grow faster.

But the GST also has disadvantages

The GST is far from perfect because it still does not bring taxes together under one roof. In fact, there are 38 different ones: a separate GST for all 29 states (SGST) and the seven "union territories" (UTGST), a federal GST (CGST) and an integrated GST (IGST) for interstate supplies of products and services.

Despite the fact that the GST system is supposed to eliminate the water vale effect and thus lower the price of products, certain products have actually become significantly more expensive. For example, since the introduction of the new tax, products such as shampoo and deodorant suddenly fall into a higher tax rate. 

What does the GST mean for you as a European entrepreneur in India?

All European companies wishing to start their own branch, joint venture or any other type of sales organization in India will face this tax. To pay this tax, you will need a PAN number and must register with the GST portal where you will get your unique GSTIN code. Through this portal, a tax form has to be submitted and paid every month.

European companies that only export to India hardly have to deal with the taxes. However, it is important to understand how the GST taxes the Indian distributor or importer you are working with.

GST is one of India's most important taxes, besides of course Corporate Tax and all sorts of other taxes such as Minimum Alternate Tax (MAT), Dividend Distribution Tax (DDT), Custom Duty and Excise Duty.

Salaries in India: what do you need to think about?

Wondering how much you can really save on your personnel costs if you out-source to India? Or have you started recruiting staff for your Indian branch and are you wondering what a realistic salary proposal is? These are the average salaries in India: From university graduates to telemarketers and skilled tradespeople. Please note that these are averages regardless of the experience, education, sector and location of the candidate.

Despite the fact that the average wages in India are still a lot lower than in Europe, the average monthly salary has risen rapidly in recent years. While the average salary was ₹19,492 (€221) in 2016, it has now almost doubled to ₹31,900 (€362). This sounds very advantageous, but this average also includes the very low salaries of the many Indian farm workers. As a foreign company, you cannot rely on this average. Depending on the region where you are located, the average salary will be higher or lower. Foreign companies are often looking for staff around the big cities and those salaries are a lot higher. For instance, in Mumbai, the average salary is ₹66,900 (€760), while in Chandigargh, a much smaller city, it is only ₹43,900 (€499).

Average salary in India based on experience, education and function

A candidate's level of education and experience obviously affect salary. In general, Indian workers with two to five years of experience earn on average 32% more than freshers and juniors across all sectors. Professionals with more than five years of experience earn on average 36% more than those with five years or less of work experience. When reaching ten years within a sector, salaries increase by 21% and by a further 14% when reaching 15 years or more of experience. Not only the years of experience count, but also changing jobs has an influence. Every time a person changes jobs, the salary increases by 30-35%. An important point to consider in the recruitment process. 

Of course, several aspects play a role in determining salary, such as education, position and location. In India, employees with a basic education earn on average 17% more than colleagues who have only completed secondary school. A Bachelor's degree increases the salary by an average of 24% and a Master's degree by another 29%. There is also a big difference between the different regions. In the big cities, the cost of living is much higher than in more rural areas. Salaries are, of course, adjusted accordingly. 

To get an idea of average salaries of different jobs and sectors, we have put together some examples. Please note that these are only examples and the experience, education, sector and location of the suitable candidate are not included in the examples below. Would you like more insight into the possible salary costs for your Indian entity? Please contact our experts, they can advise you on realistic salary proposals based on the sector you are active in, your location and your specific requirements.

Fight turnover with a competitive salary offer

In India, many companies suffer from high staff turnover. To attract and retain talented employees, it is very important that your salary is equal to or higher than the average salary for that position in India. In addition, you must comply with the rules of the Indian employment arena. Legal assistance in drafting employment contracts and conditions is therefore no luxury. It is also advisable to seek practical advice on best practices, so that the policy is not only legally compliant, but also HR-friendly. IndiaConnected is happy to support you in this process, including the recruitment and selection process and contract negotiations.