How to Hire Employees in India Without Setting Up a Company

You’ve found great talent in India. You want to hire them. But you don’t have a legal entity in India, and you don’t want to spend 3 months and $3,000+ setting one up — at least not yet.

Good news: you can legally hire employees in India without setting up a company. The mechanism is called an Employer of Record (EOR), and it’s become the standard approach for companies testing the India market.

Here’s everything you need to know.

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What Is an Employer of Record (EOR)?

An EOR is a company that legally employs workers in India on your behalf. They become the legal employer on paper — handling employment contracts, payroll, statutory compliance, and benefits — while you manage the employee’s day-to-day work.

Think of it this way:

• Legal employer: The EOR (an Indian entity)
• Functional employer: You (the foreign company)
• The employee: Works for you in every practical sense, employed by the EOR on paper

The EOR handles:

• Employment contracts compliant with Indian labor law
• Monthly payroll processing (salary, PF, ESI, TDS, professional tax)
• Statutory filings and deposits
• Leave management and policies
• Termination procedures and full & final settlement
• Employee benefits administration

You handle:

• Hiring decisions
• Work assignments and management
• Performance reviews
• Compensation decisions (the EOR executes them)

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Contractor vs. EOR: Why It Matters

Many foreign companies start by hiring Indian talent as “independent contractors.” It seems simpler — just sign a contractor agreement and pay invoices. But this approach carries serious risks.

The Misclassification Problem

India’s labor laws are clear about the distinction between an employee and a contractor. If someone:

• Works exclusively for your company
• Works fixed hours set by you
• Uses your tools and systems
• Doesn’t have their own business registration
• Has been working for you for months or years

…they’re likely an employee under Indian law, regardless of what your contract says.

What Happens If You Get It Wrong

Risk	Consequence
PF/ESI non-compliance	Back-payment of contributions + 12% interest + penalties
Tax misclassification	The worker may face tax issues (no Form 16, no employer TDS)
Labor law violations	Potential prosecution under various employment acts
IP ownership issues	Contractor-created IP may not automatically vest in your company
Permanent establishment risk	Ongoing contractor relationships can trigger PE exposure for your company in India

⭐ Key Point: The permanent establishment (PE) risk is the big one that keeps tax advisors up at night. If Indian tax authorities determine that your contractors’ activities constitute a fixed place of business or dependent agent PE, your foreign company could be liable for Indian corporate tax on attributed profits.

When Contractors Actually Work

Genuine contractor relationships are fine:

• Short-term project work with defined deliverables
• The person works for multiple clients
• They control their own schedule and methods
• They have their own business registration (GST, etc.)
• They invoice you, not receive a salary

💡 Tip: For everything else — especially full-time, ongoing roles — use an EOR.

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How EOR Hiring Works: Step by Step

Step 1: Choose an EOR Provider

Select an EOR with a legal entity in India. More on choosing providers below.

Step 2: Define the Role and Compensation

Decide on the role, CTC (cost to company), and benefits. The EOR will help you structure the salary in an India-compliant way (basic, HRA, allowances, PF, etc.).

Step 3: The EOR Creates the Employment Contract

The EOR drafts an employment agreement that’s compliant with Indian labor law. The employee signs with the EOR as the legal employer. You’ll typically also have a service agreement with the EOR.

Step 4: Onboarding

The EOR collects employee documents (PAN, Aadhaar, bank details), registers them for PF and ESI (if applicable), and sets up payroll.

Step 5: Monthly Payroll & Compliance

Every month, the EOR:

1. Processes salary with all statutory deductions
2. Deposits PF, ESI, and TDS with government
3. Credits salary to the employee’s bank account
4. Files required returns

You pay the EOR a consolidated invoice covering the employee’s CTC plus the EOR’s management fee.

Step 6: Ongoing Management

You manage the employee’s work. The EOR handles employment administration. When issues arise (leaves, policy questions, salary revisions, terminations), you work with the EOR to handle them compliantly.

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Choosing an EOR Provider

Not all EORs are equal. Here’s what to evaluate:

Must-Haves

• Own legal entity in India (not a sub-contracted arrangement)
• Proven payroll track record — they’re handling real statutory deposits, not just processing numbers
• Transparent pricing — no hidden costs for offboarding, amendments, or support
• Responsive support — India compliance has hard deadlines (PF by 15th, TDS by 7th); your EOR must be reliable

Nice-to-Haves

• Experience with your industry
• Ability to handle employee benefits (health insurance, meal cards)
• A platform or portal for employee self-service
• Multi-country capability if you’re hiring beyond India

Major EOR Providers Operating in India

Global platforms like Deel, Remote, Oyster, Papaya Global, and Multiplier all offer India EOR services. There are also India-focused providers that may offer better local support and pricing.

💡 Tip: Pricing typically ranges from $199–599 per employee per month for the management fee, on top of the employee’s actual compensation costs.

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Cost Comparison: EOR vs. Own Entity

This is the question everyone asks. Here’s a realistic comparison at different team sizes:

5 Employees

Cost Item	EOR	Own Subsidiary
Setup cost	$0	$2,000–3,500
Monthly compliance/admin	$0 (included in fee)	$400–800
EOR fee (5 × $350/mo)	$1,750/month	$0
Annual cost (beyond salaries)	~$21,000	~$7,500–13,000
Break-even timeline	Immediate	~4–6 months

💡 Tip: At 5 employees, EOR is more expensive annually, but you avoid setup time and commitment.

15 Employees

Cost Item	EOR	Own Subsidiary
Setup cost	$0	$2,000–3,500
Monthly compliance/admin	$0	$800–1,500
EOR fee (15 × $350/mo)	$5,250/month	$0
Annual cost (beyond salaries)	~$63,000	~$13,000–21,500

⭐ Key Point: At 15 employees, the math clearly favors a subsidiary — you’re saving $40,000+/year.

30 Employees

Cost Item	EOR	Own Subsidiary
EOR fee (30 × $350/mo)	$10,500/month	$0
Monthly compliance/admin	$0	$1,200–2,000
Annual cost (beyond salaries)	~$126,000	~$18,000–28,000

⭐ Key Point: At 30 employees, you’re paying nearly $100,000/year extra for the convenience of not having your own entity. That’s hard to justify.

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When to Transition from EOR to Subsidiary

Based on my experience working with companies at various stages, here’s when the transition makes sense:

Start Thinking About It When:

• You have 8–10 employees in India
• You’ve been operating via EOR for 12+ months
• You’re confident India is a long-term market
• You need to invoice Indian clients (EOR doesn’t help with this)
• You want more control over employment terms and benefits

Definitely Do It When:

• You have 15+ employees (the cost savings are clear)
• You need to hold IP or assets in India
• You’re hitting limitations with your EOR (benefits, policies, etc.)
• You want to build a recognized brand as an employer in India

The Transition Process

Moving from EOR to your own entity involves:

1. Incorporate the Indian subsidiary (6–12 weeks)
2. Set up PF, ESI, GST, professional tax registrations
3. Transfer employees from the EOR to your entity — this requires new employment contracts, PF transfers, and careful handling of service continuity
4. Establish payroll systems and processes
5. Wind down the EOR agreement

💡 Tip: The key concern during transition is employee experience. Service continuity for PF, gratuity eligibility, and leave balances must be handled carefully. I typically recommend a structured transition plan that we communicate transparently to employees.

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The Hybrid Model

Some companies use a smart hybrid approach:

• EOR for initial hires while the subsidiary is being incorporated
• Transition employees to the subsidiary once it’s operational
• Keep EOR for specific situations (temporary hires, contractors in states where you don’t have PT registration)

✅ Recommendation: This gives you speed now and efficiency later. Plan the transition from day one.

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Common Mistakes When Hiring via EOR

1. Not vetting the EOR’s compliance — Ask for proof that they’re actually depositing PF and TDS. Some budget providers cut corners.

2. Treating EOR employees as second-class — They work for you. Include them in team activities, give them growth paths, and treat them like your own team.

3. Not planning the exit — If you ever want to transition to your own entity (or switch EOR providers), understand the process upfront. Some EOR contracts have lock-in periods or transition fees.

4. Ignoring permanent establishment risk — Even with an EOR, if your India team is making decisions or closing deals on behalf of the foreign company, PE risk exists. Get proper tax advice.

5. Over-relying on EOR for HR — The EOR handles employment compliance, not people management. You still need to invest in managing, developing, and retaining your India team.

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FAQ

Is hiring through an EOR legal in India?

Yes, absolutely. The EOR model is well-established in India. The EOR is the legal employer with full compliance obligations. There’s no specific “EOR law,” but the arrangement works within existing employment, tax, and corporate laws.

Can my EOR employees get Indian employment benefits like PF and health insurance?

Yes. A good EOR will register employees for PF, provide ESI coverage (if applicable), and offer group health insurance. Benefits should be comparable to what they’d get at a directly employing company.

What happens to PF accumulation when transitioning from EOR to own entity?

PF accounts are portable. When the employee moves from the EOR to your entity, their Universal Account Number (UAN) stays the same. The PF balance can be transferred from the EOR’s PF account to your entity’s PF account. This should be seamless if handled properly.

Can I hire contractors AND EOR employees in India simultaneously?

Yes, as long as the contractor relationships are genuine (project-based, independent, multiple clients). Many companies have a mix — full-time roles via EOR and specialized project work via contractors.

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Hiring in India without an entity isn’t just possible — it’s often the smartest first move. The EOR model lets you access India’s talent pool quickly while you figure out your long-term strategy.

The key is choosing the right EOR, structuring things properly, and having a plan for when you outgrow the model.

Ready to hire in India? Whether you need EOR guidance or you’re planning the transition to your own entity, let’s talk. I’ll help you figure out the right approach for where you are today.