Essential Employment Contract Clauses in India - Free Downloadable Templates in Fillable PDF and Word Formats Online

Employment contracts in India are governed by multiple laws including the Indian Contract Act, Labour Codes, and various state-specific Shops and Establishments Acts. This guide covers essential clauses and compliance requirements for Indian employers.

Legal Framework in India

Governing Laws

• Indian Contract Act, 1872: Basic contract principles
• Industrial Employment (Standing Orders) Act, 1946: Terms and conditions
• Code on Wages, 2019: Wage-related provisions
• Industrial Relations Code, 2020: Employment relations
• Social Security Code, 2020: PF, ESI, Gratuity
• State Shops and Establishments Acts: State-specific rules

Applicability

Different laws apply based on:

• Number of employees
• Type of establishment
• State of operation
• Nature of work

Essential Clauses for Indian Employment Contracts

1. Job Description and Designation

Clearly define:

• Job title and designation
• Department and reporting structure
• Primary duties and responsibilities
• Key Result Areas (KRAs)
• Performance metrics

2. Compensation Structure (CTC Breakup)

Indian employment contracts must detail the entire Cost to Company:

Fixed Components:

• Basic Salary (typically 40-50% of CTC)
• House Rent Allowance (HRA)
• Dearness Allowance (DA)
• Conveyance Allowance
• Special Allowance
• Medical Allowance

Statutory Deductions:

• Provident Fund (12% employer + 12% employee on basic)
• Employee State Insurance (employer 3.25%, employee 0.75%)
• Professional Tax (state-specific)
• TDS (Income Tax)

Variable Components:

• Performance Bonus
• Incentives
• Commission (if applicable)

3. Provident Fund Compliance

Employers with 20+ employees must register under EPF Act:

• Employee contribution: 12% of basic + DA
• Employer contribution: 12% (3.67% to EPF + 8.33% to EPS)
• Admin charges: 0.5%
• EDLI charges: 0.5%

4. ESI Compliance

Applicable if:

• 10+ employees in notified areas
• Employee salary up to Rs. 21,000/month

Contribution rates:

• Employer: 3.25%
• Employee: 0.75%

5. Gratuity Provisions

Under Payment of Gratuity Act, 1972:

• Applicable after 5 years of continuous service
• Formula: (Last drawn salary × 15 × Years of service) / 26
• Maximum limit: Rs. 20 lakhs

6. Leave Entitlements

As per Shops and Establishments Act (varies by state):

Typical Entitlements:

• Earned/Privilege Leave: 15-21 days
• Casual Leave: 7-12 days
• Sick Leave: 7-12 days
• Maternity Leave: 26 weeks (first two children)
• Paternity Leave: Company policy (no statutory requirement)

7. Working Hours Compliance

Under Factories Act / Shops and Establishments Act:

• Maximum 48 hours per week
• Maximum 9 hours per day
• Overtime at 2x normal wages
• Weekly off mandatory

8. Probation Period

Standard provisions:

• Duration: 3-6 months
• Extension: Maximum 3 months
• Notice during probation: 7-15 days
• Benefits during probation may differ

9. Notice Period and Termination

Typical Notice Periods:

• During probation: 7-15 days
• After confirmation: 1-3 months
• Senior positions: 3-6 months

Grounds for Termination:

• Performance issues (with documented warnings)
• Misconduct
• Redundancy
• Medical incapacity

10. Non-Compete and Confidentiality

Important Case Law:

• Niranjan Shankar Golikari vs Century Spinning (1967): Restrictions during employment valid
• Pepsi Foods vs Bharat Coca-Cola (1999): Post-employment non-compete generally void under Section 27, Contract Act

Enforceable:

• Confidentiality clauses (during and post-employment)
• Non-solicitation of clients/employees
• Garden leave provisions

Not Enforceable:

• Broad post-employment non-compete
• Unreasonable geographic restrictions

11. Intellectual Property

• Work product belongs to employer
• Pre-existing IP should be disclosed
• Invention assignment clauses
• Moral rights provisions

Statutory Compliance Checklist

Registration Requirements

• PF registration (20+ employees)
• ESI registration (10+ employees)
• Professional Tax registration (state-specific)
• Shops and Establishments registration
• Labour Welfare Fund registration (state-specific)

Mandatory Records

• Wage register
• Attendance register
• Leave register
• Overtime register
• Form-16 and salary slips

Download Free Indian Employment Contract Templates

Our website offers free, fillable employment contract templates for India in PDF and Word formats:

• Standard Employment Contract
• Probationary Employment Agreement
• Fixed-Term Contract
• Consultant Agreement
• Internship Agreement
• Offer Letter Template
• Appointment Letter Template

All templates are updated with latest Labour Code provisions and include standard PF/ESI clauses.