Employer of Record (EOR) in India:
the complete guide.
Everything a foreign company needs to employ people in India without setting up a local entity — how an EOR works, what the statutory system actually requires, what it costs, and how to tell a real India specialist from a global platform with an India module bolted on.
What an EOR actually is
An Employer of Record is a company that already holds an Indian legal entity and becomes the legal employer of your team member on paper. It issues the employment contract, runs payroll, deducts and deposits statutory contributions, files the returns, and carries the compliance obligations that come with employing someone in India.
What it does not do is manage the person. You decide what they work on, who they report to, how they are evaluated and when they are promoted. The EOR relationship is an administrative and legal one; the working relationship stays entirely yours.
The reason the model exists is simple. To legally pay someone in India you need a registered Indian entity with PF, ESI and Professional Tax registrations, a local bank account, and the capacity to file monthly and quarterly returns. Building that takes the better part of a year and carries permanent overhead. An EOR lets you skip it and hire this week.
How it works, step by step
The mechanics are consistent across providers, even if the speed and the depth of compliance are not:
- 1You choose the person and the package. You run your own hiring process and agree the role, compensation and start date.
- 2The EOR issues a compliant employment agreement. India-specific, with probation, notice period, confidentiality and IP assignment enforceable under Indian law.
- 3The employee is onboarded and registered. KYC collected, and the employee registered for Provident Fund and ESI where applicable.
- 4Payroll runs monthly. Gross is computed, statutory deductions applied, payslips issued, and dues deposited with the authorities.
- 5Returns are filed on schedule. Monthly PF and ESI, quarterly TDS returns, annual Form 16 and related filings.
- 6You are invoiced. Typically the employee's total cost of employment plus a management fee.
EOR vs entity vs contractor
There are three ways to engage someone in India, and they are not interchangeable.
| EOR | Own entity | Contractor | |
|---|---|---|---|
| Time to first hire | Days | 6–12 months | Days |
| Setup cost | None | Substantial | None |
| Who employs them | The EOR | You | Nobody — they invoice you |
| Statutory cover | Full | Full, run by you | Not applicable |
| Misclassification risk | Low | Low | High |
| Best for | 1–25 hires, market entry | Large, long-term teams | Genuine project work |
The contractor route deserves particular care. Engaging someone full-time, exclusively, on your schedule and under your direction, and calling them a contractor, is misclassification — and Indian authorities assess the substance of the relationship, not the label on the invoice. The exposure includes back contributions, interest and penalties.
For a fuller treatment of the first two options, see EOR vs setting up a subsidiary in India.
What India’s statutory system requires
This is where India differs most from the markets foreign employers usually come from. Employment here carries several mandatory contributions and taxes, each with its own rules, thresholds and filing calendar.
Provident Fund (PF / EPF)
A retirement savings scheme funded at 12% employee and 12% employer on basic wages. Registration, monthly contribution and the electronic return are all mandatory once applicable.
ESI
State health insurance for employees earning up to ₹21,000 per month, funded at 0.75% employee and 3.25% employer. Below the threshold it is mandatory; above it, employers typically provide private medical cover instead.
Professional Tax
A small state-level tax — often around ₹200 per month — but the rates, slabs and filing rules differ from state to state. A team spread across Karnataka, Maharashtra and Tamil Nadu is subject to three different sets of rules, which is precisely the kind of detail a globally-designed payroll engine tends to flatten.
TDS (tax deducted at source)
Income tax is withheld from salary at source and deposited monthly, with quarterly returns on Form 24Q and an annual Form 16 issued to each employee. Contractor and consultant payments follow a different path entirely — sections 194C and 194J, with reporting on Form 26Q.
Gratuity
Payable under the Payment of Gratuity Act once an employee completes five years of continuous service, and commonly accrued at around 4.81% of basic. The point most foreign employers miss is that the liability starts accruing from day one, not at the five-year mark. It is a growing balance-sheet obligation, not a one-off exit payment.
Statutory bonus and leave
Eligible employees are entitled to a bonus under the Payment of Bonus Act. Leave entitlements follow state Shops & Establishments rules. A POSH (Prevention of Sexual Harassment) policy and internal committee are mandatory, not optional.
What it costs
Budget for two things, and be sceptical of anyone who only quotes you one.
Total cost of employment is the gross salary plus everything the employer owes on top — employer PF, ESI where applicable, gratuity accrual, and insurance. Depending on the package this typically adds a meaningful percentage above gross, and it is a real cost regardless of which route you choose.
The management fee is what the EOR charges to be the legal employer. Connect by Vinpro charges a flat US$299 per employee per month, published on the site rather than quoted on request. Rates across the market vary widely, and several large providers do not publish them at all.
To model a specific hire end-to-end, use the EOR cost calculator, which shows gross pay, employer contributions and the management fee in your billing currency. For structuring the package itself, the salary calculator shows gross-to-net across basic, HRA and allowances. A deeper narrative treatment is in the real cost of employing someone in India.
How fast you can hire
The honest answer is that the EOR is rarely the bottleneck — your own hiring process is. Once an offer is accepted, a well-run EOR onboarding takes about a working week: the compliant offer and agreement issued and signed, KYC and statutory registration completed, payroll configured, and the employee live for the next cycle.
Connect onboards a first hire in five working days. Compare that with six to twelve months to incorporate an Indian entity and complete its registrations before you can legally pay anyone. The day-by-day breakdown is in onboard your first India employee in 5 days.
The compliance calendar
Indian statutory compliance is a rhythm, not a project. Monthly: TDS deposit, the PF electronic return, and ESI contributions. Quarterly: TDS returns on Form 24Q. Annually: Form 16 to every employee, PF and ESI annual returns, Professional Tax and POSH reporting.
Missing a deadline attracts interest and penalties, and a pattern of late filing creates problems well beyond the fines. The live schedule is maintained on our India compliance calendar.
India’s labour legislation has also been consolidated into a smaller set of labour codes, which change how components like CTC and gratuity are treated. We cover the implications for foreign employers in India’s labour codes and the CTC, gratuity and full-and-final rules.
The risks an EOR removes
Three exposures account for most of the trouble foreign employers run into in India.
Misclassification
Paying a full-time team member as a contractor to avoid statutory obligations is the single most common mistake. If the working relationship looks like employment, it is employment, and the liability is retrospective.
Permanent establishment
Employing people directly in India without a local entity can create a taxable presence for your overseas company. An EOR employs them through its own entity, which is precisely why the model exists.
Statutory drift
Rates, thresholds and forms change. Professional Tax rules differ by state. A provider whose compliance depth is genuinely India-first tracks this as core product; a provider covering 150 countries treats it as one row in a large matrix.
How to choose an EOR for India
Questions worth asking any provider before you sign:
- Do you own the Indian entity my employee will be hired into, or is employment routed through a local partner?
- Are PF, ESI, Professional Tax, TDS and Labour Welfare Fund calculated and filed natively in your platform, or handled by a service team behind it?
- Is Professional Tax handled per state, correctly, for a distributed team?
- How do you treat gratuity — do you accrue the liability from day one, or only calculate a payout at exit?
- How are contractors and consultants classified for TDS, and do you file Form 26Q?
- Is your pricing published, and does it change by country or headcount?
- What is the actual onboarding time for a first hire, and what have you seen in practice?
We have published a verified, feature-by-feature comparison against global EOR platforms — checked directly against their own public documentation, including the rows where capability is genuinely equivalent.
Frequently asked questions.
An Employer of Record is a company that already holds an Indian legal entity and becomes the legal employer of your team member on paper. It issues the employment contract, runs payroll, deducts and deposits statutory contributions, and carries the compliance obligations. You direct the person's day-to-day work exactly as you would any other member of your team.
Yes. Employing people through a third-party employer is a well-established and compliant model in India, provided the EOR holds its own entity, issues compliant contracts, and meets every statutory obligation — PF, ESI, Professional Tax, TDS and the associated filings. The risk lies in providers who route employment through undisclosed local partners, or who misclassify employees as contractors.
Days rather than months. With Connect by Vinpro a first hire is typically live in five working days, covering the compliant offer and employment agreement, KYC and statutory registration, and payroll setup. Setting up your own Indian entity to do the same thing generally takes six to twelve months before you can legally pay anyone.
Two components: the employee's total cost of employment (gross salary plus employer contributions such as PF, ESI and gratuity accrual), and the provider's management fee. Connect by Vinpro charges a flat US$299 per employee per month, published upfront. Many global providers quote per-country rates on request rather than publishing them.
Most companies start on an EOR and migrate once the India team is large enough that the fixed cost of an entity — incorporation, registrations, accounting, payroll staff and ongoing filings — is lower than the per-employee fee, and once India is a long-term commitment rather than a market test. An EOR also lets you start hiring immediately while an entity is being incorporated in parallel.
It should. Gratuity becomes payable under the Payment of Gratuity Act once an employee completes five years of continuous service, and the liability accrues from the start of employment — not at exit. A capable EOR accrues for it properly and runs a compliant full-and-final settlement on offboarding, including notice, leave encashment and the relieving letter.
Yes, but the tax treatment is different and the distinction matters. Contractor and consultant payments carry TDS under specific sections — 194C for contract work and 194J for professional or consultancy fees — and are reported on Form 26Q rather than the Form 24Q used for salaried employees. Applying a generic global contractor-payment flow to Indian engagements is a common source of non-compliance.
Hire in India without an entity.
We become the legal employer, handle payroll and statutory compliance, and have your first hire live in five days.