Employer of Record in India: Hiring, Compliance, Payroll, Services for Global Companies
Hiring talent in India comes with significant administrative, legal, and compliance responsibilities—especially for companies without a local entity. An Employer of Record in India offers a structured way for global companies to onboard employees, manage payroll, and comply with Indian labor laws without setting up a subsidiary. This model has become a practical solution for startups, enterprises, and expansion-focused businesses looking to build distributed teams across Indian cities.
India’s vast talent pool, especially in sectors like technology and digital marketing, makes it an attractive destination for global companies. However, the country’s intricate labor laws, tax regulations, and cultural nuances can pose challenges for foreign businesses. An Employer of Record (EOR) offers a solution by handling employment responsibilities, allowing companies to focus on their core operations.
Employer of Record in India: Definition and Scope
An Employer of Record (EOR) in India serves as the legal employer for your workforce. While the day-to-day work and supervision are handled by the client, the EOR takes care of employment contracts, payroll, taxes, and compliance with Indian labor laws.
| Aspect | Managed by EOR | Managed by Client |
| Employment contract | ✔ | ✘ |
| Payroll processing | ✔ | ✘ |
| Provident Fund & ESI | ✔ | ✘ |
| Daily task supervision | ✘ | ✔ |
| Performance evaluation | ✘ | ✔ |
This arrangement ensures that global firms can onboard talent quickly without getting into the legal and administrative intricacies of setting up an Indian subsidiary.
Why Companies Prefer the Employer of Record in India Model
Here are the main drivers behind the increasing demand for EOR services in India:
| Factor | Description |
| Cost Efficiency | Lower overhead costs compared to setting up a local entity or subsidiary. |
| Time-Saving | Avoids the long process of company registration, licensing, and banking formalities. |
| Compliance Assurance | Navigates complex Indian labor regulations without risk of penalties. |
| Pan-India Coverage | Hire from cities like Bengaluru, Hyderabad, Noida, Trivandrum, or remote regions. |
| Flexibility | Useful for pilot projects, short-term contracts, or scaling teams on demand. |
India’s large talent pool, combined with cost advantages and EOR support, makes it an attractive option for startups, GCCs, and established companies alike.
Employer of Record in India: Key Legal and Payroll Considerations
Compliance with Indian labor laws is non-negotiable. EORs help ensure that every hire is made in line with statutory requirements. Below is a breakdown of mandatory contributions and deductions under Indian employment law.
| Component | Employer Contribution | Employee Deduction | Applicability |
| Provident Fund (PF) | 12% of Basic + DA | 12% of Basic + DA | Mandatory for companies with 20+ employees |
| Employees’ State Insurance (ESI) | 3.25% of gross | 0.75% of gross | For salaries up to ₹21,000/month |
| Professional Tax | Varies by State | Yes | Applicable in most Indian states |
| Gratuity | 4.81% (when applicable) | NA | Payable after 5 years of service |
An experienced EOR provider ensures accurate monthly filings, statutory returns, and payroll disbursement—without delays or non-compliance issues.
Key Employment Laws Relevant to an Employer of Record in India
| Law Name | Covers | Applicable When | What It Means for Employers |
| Factories Act, 1948 | Working hours, safety, and conditions in factories | Manufacturing units with 10+ (using power) or 20+ (without power) workers | Must ensure safety, hygiene, and compliance with working hour limits |
| Shops & Establishments Act (State-specific) | Work timings, holidays, leave policies | All commercial offices, startups, and retail outlets | Need to register with local authorities and follow state rules |
| EPF Act, 1952 | Provident Fund (retirement savings) | 20+ employees | Monthly PF contributions (12%) from both employer and employee |
| ESI Act, 1948 | Health and insurance benefits | 10+ employees earning up to ₹21,000/month | Mandatory health insurance and maternity cover through ESI contributions |
| Gratuity Act, 1972 | Post-employment benefits | 10+ employees, after 5 years’ service | One-time lump sum payment when employee leaves or retires |
| Wages Code, 2019 (Pending Implementation) | Minimum wages, bonus, wage payments | All sectors | Aims to unify and standardize wage laws (pending full rollout) |
Taxation and Payroll Considerations for Employer of Record in India
| Component | Description | Employer’s Role | Applicable Rate/Threshold |
| Income Tax (TDS) | Tax deducted at source from employee salaries | Deduct and deposit TDS monthly; file quarterly returns | Varies by salary slab (from 5% to 30%) |
| Provident Fund (PF) | Mandatory retirement benefit | Deduct 12% from employee; match 12% as employer | Mandatory for employees earning up to ₹15,000/month (can be higher voluntarily) |
| Employee State Insurance (ESI) | Health and insurance cover | Contribute 3.25% of wages; employee contributes 0.75% | Applicable for employees earning ≤ ₹21,000/month |
| Professional Tax | State-level employment tax | Deduct and pay to state authority monthly | Varies by state (e.g., up to ₹2,500/year in Maharashtra) |
| Gratuity | Long-term service benefit | Pay when employee completes 5+ years | 15 days’ wages for every completed year of service |
| Labour Welfare Fund (LWF) | Welfare of workers | Deduct employee share and contribute employer share | Varies by state (e.g., ₹20–₹50 per employee per month) |
| Bonus Payment | Statutory annual bonus | Pay annual bonus if applicable | 8.33% to 20% of annual salary for eligible employees (earning ≤ ₹21,000/month) |
Employee Benefits, Welfare and Compensation in India
| Benefit Type | Description |
| Provident Fund | Retirement savings with contributions from both employer and employee. |
| Gratuity | Lump-sum payment upon completion of five years of service. |
| Leave Entitlements | Paid leaves, including casual, sick, and earned leaves. |
| Health Insurance | Coverage for medical expenses, often extended to family members. |
Step-by-Step: Hiring Through an EOR in India
| Step | Description |
|---|---|
| 1. Identify Needs | Determine roles, responsibilities, and required qualifications. |
| 2. Select an EOR Partner | Choose a reputable EOR with experience in your industry. |
| 3. Contractual Agreement | Sign a service agreement outlining terms and responsibilities. |
| 4. Candidate Selection | Recruit and select candidates, with the EOR facilitating the process. |
| 5. Onboarding | The EOR manages documentation, compliance checks, and orientation. |
| 6. Ongoing Management | The EOR handles payroll, benefits, and compliance, while you oversee daily operations. |
When to Consider Setting Up a Legal Entity Instead
While EORs offer numerous advantages, establishing a local entity may be preferable if:
| Consideration | When to Choose a Legal Entity |
|---|---|
| Long-Term Commitment | Planning sustained operations in India. |
| Large Workforce | Hiring a substantial number of employees. |
| Brand Presence | Seeking to establish a strong local brand identity. |
| Full Control | Desiring complete control over HR and administrative functions. |
Hiring in India Made Easy with an Employer of Record
Engaging an Employer of Record in India simplifies the complexities of international hiring, ensuring compliance and operational efficiency. For businesses aiming to tap into India’s rich talent pool without the intricacies of setting up a local entity, partnering with an EOR is a strategic move.