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Starting a Recruitment Agency in India


Starting a Recruitment Agency in India

With a population of 1.27 billion people and a vibrant younger generation, India boasts of one of the biggest and brightest talent pool in the world. This talent pool of young aspirants has attracted many of the leading companies from around the world to start their operations in India, as well as employ Indians at various roles in foreign countries. India has the second-largest non-resident citizen population in the world with over 25 million Indian living abroad, second only to China. With such human wealth potential, it is important to channelise, focus and create a productive population, and recruitment agencies play a major role in this area. The prospects for starting a recruitment agency in India is bright and growing, as more companies start their operations in India and more youngsters aspire for better employment prospects. In this article, we look at the rules and regulations surrounding the starting up of a recruitment agency in India and registering as a Recruiting Agent with the Ministry of Overseas Indian Affairs.

Business Constitution

Recruitment agencies will usually have to enter into binding contracts with their client for providing manpower, and will also enter into a contract with job-seekers for providing employment opportunities. The business constitution registers with the Service Tax Department, Ministry of Overseas Indian Affairs and  Employer State Insurance (ESI) Corporation / Provident Fund. Therefore, considering the number of contracts to be entered into with clients and job seekers, and the liability created in-terms of legal compliance, it is best for recruitment agencies to be started-off as a Company (i.e., Private Limited Company / One Person Company / Limited Company) or as a Limited Liability Partnership. It is important for the business structure to carry Limited Liability status, so the promoters are protected from unforeseen liability arising on account of the business. In addition to limited liability, a company or a limited liability partnership also offers business continuity, transferability and better access to credit, which will help the recruitment agency business scale-up quickly.

Tax Registrations

Services provided by a recruitment agency are taxable under the service tax regimen at the rate of 12.36%. The service tax is applicable on the gross amount of service fee charged by the business and recruitment agencies must obtain service tax registration. However, small service providers who do not render taxable services of more than Rs.10 lakhs in a financial year is exempt from paying service tax. In addition, services provided to Foreign Diplomatic Mission / Consular Post, services to UN Agencies, the export of services, etc., are also exempt from paying service tax.

In case the recruitment agency hires candidates on its role, ESI registration may also be mandatory. Employee’s State Insurance (ESI) is a self-financing social security and health insurance scheme for Indian workers. For all employees earning INR 15000 or less per month as wages, the employer contributes 4.75 percentage and employee contributes 1.75 percentage, total share 6.5 percentage. The ESI Corporation (ESIC) manages the fund according to rules and regulations stipulated therein the ESI Act 1948, which oversees the provision of medical and cash benefits to the employees and their family through its large network of branch offices, dispensaries and hospitals throughout India. ESIC is an autonomous corporation under the Ministry of Labour and Employment, Government of India.

Registering as Recruiting Agent with Ministry of Overseas Indian Affairs

If the Recruitment Agency involves in the business of recruiting Indian citizens for overseas employment, then register the business with the Ministry of Overseas Indian Affairs as a Recruiting Agent. The application for becoming a Recruiting Agent must be submitted to the concerned office of the Ministry of Overseas Indian Affairs in the prescribed format along with supporting documents, Demand Draft for a fee of Rs.25,000 and a Bank Guarantee of Rs.20 lakhs. Only those agents registered with the Ministry of Overseas Indian Affairs can recruit Indian Citizens for employment abroad as per The Emigration Act, 1983.

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