Just because the entity is closing does not mean that there is no further need for skilled and experienced employees, so a strategy will be necessary to keep them onboard.

If you are closing an entity in India, it is important to pay attention to local regulations and labor policies that may affect how you handle employee transitions.  This is especially crucial if you are planning on retaining only a portion of your Indian staff and terminating others.  There are several options to accomplish this with varying levels of compliance and employee appeal.

How to Employ and Pay Staff in India Without an Entity

Once the decision has been made on retaining staff, the next step to find a new employment solution.  If you have been doing business in India for some time you may have a local partner (vendor or supplier) who would be willing to place your employees on their payroll.  This appears to be a simple option as long as you have a trust relationship with the partner.

But at best, this is an interim solution and can’t be relied on for long term employment.  The employee may have doubts about job security or benefits when there is a new ‘employer’ unrelated to their actual managed duties, and the partner would have a fair amount of control over their statutory rights.

Some companies will elect to shift the employees into an independent contractor relationship, which also saves the cost of employment benefits and entitlements.  This option would have to be acceptable to the employee as they would be giving up those very same benefits.  If they were unhappy with the decision at some point, they could easily bring a claim of misclassification if you continue to manage their work and time just as if they were an employee.

Neither one of these choices would be appealing to long term, high value employees so a more complete solution will be needed.

Use an employer of record to employ your staff

Another option for transferring staff is... read more

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