Employer of Record in India for Global Companies
/ EOR

What Is an Employer of Record in India? How It Works for Global Companies

Expanding into India can offer the opportunity to tap into one of the largest and fastest-growing talent pools in the world. However, the process of hiring employees in India involves more than locating a qualified candidate and extending an offer.

Global companies going to India may face employment contracts, payroll, tax, statutory benefit, labor law and compliance, and local HR issues. Any of these can lead to unnecessary headaches in compliance and other operational delays and costs.

Which is where Employer of Record (EOR) in India can come in.

An Employer of Record enables a business to hire a staff member in India without creating a legal entity in India. The EOR becomes the legal employer of the employee, responsible for key employment functions and retains day-to-day control over the employee’s work.

Let’s get into the detail of what an Employer of Record in India is, how it works, its benefits, compliance responsibilities, and why is it that EOR service is being adopted by global companies to hire Indian talent in a faster time?

What Is an Employer of Record in India?

An EOR (Employer of Record) is an outside company that serves as the legal employer of employees for a company in international markets.

The EOR handles key employment responsibilities such as:

  • Employment contracts
  • Payroll processing
  • Income tax withholding
  • Statutory contributions
  • Employee benefits administration
  • Leave and attendance administration
  • Employment compliance
  • HR documentation
  • Employee onboarding and offboarding

The client company is usually the global business that oversees the day to day work, responsibilities, performance, projects and reporting of the employee.

Simply put:
The EOR is responsible for the legal employment relationship, and the global company is responsible for the employee’s work.

This arrangement is particularly useful for companies that want to hire employees in India without immediately setting up an Indian subsidiary or other local legal entity.

How Does an Employer of Record in India Work?

The EOR model usually consists of three parties:

  1. A global company –Locates and hires the employee.
  2. EOR provider – Legal employer in India.
  3. Employee – Works for the global company while being legally employed by the EOR. As this process normally unfolds.

Here’s how the process generally works.

  1. The Global Company Identifies a Candidate
    An international company hires and selects a candidate from India as per its need.
    The company will make the decision in general about the employee’s:
    • Role
    • Salary
    • Working arrangements
    • Responsibilities
    • Reporting manager
    • Performance expectations
    • Start date 
  1. The EOR Hires the Employee
    After the candidate is picked, the EOR signs an employment agreement with the employee.
    The agreement is designed to meet the Indian employment requirements.
    The employee then turns into a legally employed employee of the EOR.
  1. The Employee Works for the Global Company
    The EOR is the legal entity, but an employee usually works for the international company on a day-to-day basis.The global company manages the employee’s:
    • Daily activities
    • Projects
    • Team collaboration
    • Performance
    • Work objectives
    • Professional development
  1. The EOR Manages Payroll and Compliance
    The EOR prepares and processes payroll and takes care of all applicable statutory requirements.
    This can involve workplace areas such as:
    • Salary processing
    • Tax deductions
    • Provident Fund
    • Employee State Insurance, where applicable
    • Professional tax, where applicable
    • Gratuity obligations
    • Statutory leave requirements
    • Other applicable employment-related contributions
  1. The EOR Supports Employee Offboarding
    Once the employment relationship is terminated, the EOR can help with the termination and offboarding procedure.This can include:
    • Final payroll
    • Statutory settlements
    • Required documentation
    • Benefits closure
    • Compliance-related processes

The exact duties will vary based on the employment arrangement, laws that apply, and the employment contract with the EOR.

Why Do Global Companies Use an EOR in India?

India boasts a vast reservoir of skilled technology, engineering, finance, sales, operations and a lot more.
But developing a local job structure will take a while and will need to be continually managed for compliance.

An EOR provides an alternative. 

Hire Employees Without Setting Up an Indian Entity
An EOR offers one of the major benefits that companies can potentially hire employees in India without creating a legal entity in India.

Thus, EOR is an appealing option for businesses that are looking to expand their presence in India, recruit a small workforce, or test the market.

Enter the Indian Market Faster
Creating a new entity, initiating payroll systems, recruiting HR staff and creating a compliance system can drag out the international expansion process.

An EOR can offer a current employment model that frees businesses to concentrate on recruiting and running their business.

Simplify Indian Payroll
Indian payroll is not just about the calculation of gross pay and transferring funds to an employee’s bank account.

Employers may have to deal with tax deductions, statutory contributions, payslips, record keeping and more.

Experienced EOR will be able to handle these processes for the company.

Reduce Compliance Risk
India’s employment and regulatory landscape is complicated and varied, and can differ based on factors including the laws in force, the category of employee, and location.

An EOR simplifies compliance and document management for companies.

But, companies are recommended to do due diligence and ensure that their situation aligns with the EOR’s model..

Improve Employee Onboarding

Companies can leverage the existing process of an EOR to onboard an Indian workforce rather than developing its own employment process.

This can help to speed up and streamline the hiring process.

EOR vs. Setting Up a Legal Entity in India

The decision for a global business of whether to go with an EOR or set up its own Indian business is one of the most critical questions.

The right one will vary depending on the business’ long-term plan.

Factor Employer of Record Own Indian Entity
Entity setup Not generally required Required
Hiring speed Typically faster Typically slower
Initial infrastructure Lower Higher
Payroll administration Managed by EOR Managed internally or outsourced
Employment compliance EOR-supported Company responsibility
HR infrastructure EOR-supported Company responsibility
Long-term control Less direct legal-employer control Full direct employment control
Best suited for Market entry, testing, smaller teams Long-term established operations

An EOR can be a powerful option for businesses intending to expand their hiring in India before committing substantial investments in their country’s infrastructure.

If a company is thinking about making a long-term commitment, it might be better to form their own company.

What Services Does an EOR in India Provide?

A full-service India EOR service can span various phases of the employment process. 

Recruitment and Onboarding Support

An EOR may support:

  • Offer documentation
  • Employment agreements
  • Employee onboarding
  • Required employee records
  • Payroll registration and setup

Payroll Management
EOR providers commonly manage:

  • Monthly payroll
  • Salary calculations
  • Tax deductions
  • Payslips
  • Statutory deductions
  • Payroll reporting

Tax and Statutory Compliance
Depending on the arrangement, an EOR may be responsible for the management of the applicable requirements of:

  • Income tax withholding
  • Provident Fund
  • Employee State Insurance
  • Professional tax
  • Gratuity
  • Other statutory obligations

Employee Benefits
An EOR might be the entity that determines the following benefits:

  • Health insurance
  • Leave
  • Statutory benefits
  • Other company-provided benefits

Benefits offered are dependent on provider and employment.

Employment Documentation
The EOR will usually have employment-related records and documents that correspond to those required by the applicable framework.

Termination and Offboarding
The EOR will help you with employee exits, final settlements, and documentation.

How Much Does an Employer of Record Cost in India?

The price of an Employer of Record in India will be influenced by some factors.

There are three pricing options in general for EOR providers: fixed monthly fees, percentage pricing, or custom pricing.

The overall cost can depend on:

  • Employee salary
  • Number of employees
  • Employee location
  • Benefits package
  • Payroll complexity
  • Employment type
  • Compliance requirements
  • EOR service level
  • Additional HR services

If an estimate is desired, the company should make sure the quotation includes a breakdown of the employment-related expenses that would fall upon the employee, in addition to the EOR service fee. 

What Should You Look for in an India EOR Pricing Proposal?

When negotiating a price, make sure you ask whether they quote the price for:

  • EOR service fees
  • Payroll processing
  • Statutory contributions
  • Employee benefits
  • Insurance
  • Onboarding
  • Offboarding
  • Compliance support
  • Additional administrative fees

A clear pricing model helps in making it simpler to determine the actual price tag of employing employees in India.

Is an EOR Legal in India?

EOR arrangements are possible in India, but the legal framework and practical implementation of the arrangement is important.

Companies should carefully assess:

  • Who is the legal employer?
  • Who controls the employee’s work?
  • How is the employment agreement structured?
  • Which Labor and Employment regulations are applicable?
  • How is payroll and statutory work done?
  • Is the arrangement compliant with the applicable Indian law?

A reliable EOR should be able to easily outline their legal-employment model and compliance practices.

Indian employment laws and regulatory requirements may evolve and should therefore be treated with caution in high value or complex arrangements and professional legal and tax advice should be sought.

EOR and Permanent Establishment Risk in India

One of the other aspects of global companies considering an EOR should be aware of is permanent establishment (PE) and tax exposure.

Note that simply utilizing an EOR won’t eliminate tax or PE risk.

Depending on the nature of the company’s activities, contractual provisions, employees’ power and other factors, there may be other tax aspects to consider.

That is why companies should consider their Indian operational model with competent tax and legal experts and not presume that an EOR means that they are protected from all local tax liabilities.

Advantages of Using an Employer of Record in India

The EOR model has several strategic benefits for many international businesses.

Faster Market Entry
Businesses can start hiring without having to develop a full-fledged local workforce development system.

Lower Initial Investment
One of the advantages of hiring an EOR is that it minimizes the initial paperwork and HR set-up required to create a local entity and HR system.

Access to Indian Talent
The companies can hire proficient talent from the major technology, business, finance, engineering and operations markets of India.

Simplified HR Administration
The EOR can manage payroll, employment records, statutory procedures and other administrative tasks.

Greater Flexibility
The EOR may come in handy when an organization wishes to:

  • Test the Indian market
  • Hire one or a few employees
  • Build a remote team
  • Hire specialized talent
  • Launch an India-focused project
  • Evaluate long-term expansion

Potential Disadvantages of an EOR 

But an EOR is not the optimal solution for all businesses.

Potential drawbacks can include:

  • Ongoing EOR service fees
  • There is less direct control of the legal employment relationship
  • This is especially related to reliance on the EOR’s compliance procedures.
  • Potential restrictions on some employment arrangements
  • Additional complexity as the workforce grows
  • The need to carefully review contracts and service-level agreements

Businesses should contrast the EOR model to creating their own entity, based on the size of the workforce they are anticipating, the nature of the business as well as the duration of engagement and long-term plans.

When Should a Global Company Use an EOR in India?

It might be worthwhile to hire an EOR when your business:

  • Wants to hire in India quickly
  • Does not have an Indian entity
  • Is testing the Indian market
  • Needs to hire a small initial team
  • Wants to recruit specialized Indian talent
  • Wants to simplify payroll administration
  • Needs support with local employment compliance
  • Is not yet ready to establish a subsidiary

If the company already has a significant Indian presence and needs to manage all aspects of their local employment infrastructure, it may not be appropriate to use an EOR.

How to Choose the Best Employer of Record in India

Your selection of an EOR will have a huge impact on your employees’ legal relationship with you and will be integral to how you process payroll.

Before choosing a provider, evaluate these areas.

  1. India-Specific Expertise
    Choose a provider with demonstrated experience handling Indian employment and payroll requirements.
  1. Transparent Pricing
    Be aware of the details of the monthly plans and what is covered and what may need to be paid for separately.
  1. Compliance Capabilities
    Inquire in how the provider keeps track of regulatory changes and how they handle statutory requirements.
  1. Payroll Accuracy
    Payroll mistakes can have a negative impact on employee trust. Inquire about the payroll control, processing time and support systems.
  1. Employee Benefits
    Examine the advantages to employees and check if they are in line with your company’s expectations.
  1. Customer Support
    Find out who to contact in HR and payroll and how quickly it will get done.
  1. Contract Terms
    Review:
    • Termination provisions
    • Liability
    • Data protection
    • Confidentiality
    • Service levels
    • Fees
    • Employee transfer provisions
    • Dispute resolution

Employer of Record in India: A Simple Example

Suppose a software company based out of United States has to hire 5 software engineers in Bengaluru.

The company has identified the candidates but it does not have any entity in India.

Rather than forming a subsidiary as soon as possible, it joins forces with the EOR.

The process could look like this: 

U.S. Company hires candidates and then the U.S. company relies on the EOR to handle payroll and employment administration, while the employees work for the U.S. company.

The global company is responsible for managing the work of the engineers, and the EOR for the legal-employment/payroll side.

This enables the company to test if it would be strategically viable to increase its size in India as well as form an Indian team.

EOR in India vs. PEO in India

While EOR and PEO may be synonymous, they can represent different models of operation and legal structures.

Typically, an EOR takes on the legal obligation to be the employer of the worker and to be responsible for various other duties associated with employment.

The distribution of employer responsibilities might be different in a PEO or co-employment agreement.

As terminology and legal mechanisms differ from provider to provider and from country to country, companies need to pay more attention to understanding than to the name.

  • Who legally employs the worker?
  • Who handles payroll?
  • Who assumes statutory obligations?
  • Who manages benefits?
  • Who controls day-to-day work?
  • What liabilities does each party assume?

Conclusion | EOR in India

An Employer of Record in India offers a solution for global companies to hire and have Indian employees working without forming a local company right away.

The EOR usually takes care of legal and administrative aspects of the employment such as payroll, statutory processes, documentation, etc. and employee administration.

For international companies entering India, an EOR can offer:

  • Faster hiring
  • Simplified payroll
  • Local employment support
  • Reduced administrative burden
  • Greater flexibility
  • Easier market entry

But companies need to be mindful of the EOR they choose, and seek relevant legal and tax guidance in the aspects of employment structure, permanent establishment, taxation and long-term operations.

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FAQs | Employer of Record in India 

  1. What is an Employer of Record in India?
    An Employer of Record in India is a third-party organization that legally employs workers on behalf of another company and manages designated employment, payroll, and compliance responsibilities. 
  1. Can a foreign company hire employees in India without an entity?
    Under many circumstances, an EOR can allow for a foreign company to employ people in India without having to create a legal entity in the country. The precise structure will need to be reviewed in light of legal and tax considerations. 
  1. Who pays the employee when using an EOR?
    The EOR usually handles and processes the employee’s salary as the legal employer, and the client company will cover the salary costs based on the agreement established with the EOR. 
  1. Who manages the employee?
    The general administration of the employee’s daily work, projects, responsibilities and performance is handled by the global company, and the legal relationship of the employee’s employment and administration is handled by the EOR. 
  1. Does an EOR handle Indian payroll?
    Yes. One of the essential services an EOR typically offers is payroll processing, which includes any deductions or statutory obligations. 
  1. Is an EOR cheaper than setting up an Indian company?
    Not always with all situations. The EOR will help lower initial set-up and administration fees, but will also impose a service fee. This will be determined by the size of the workforce, activity of the business and long-term plans. 
  1. How quickly can a company hire through an EOR?
    The timeframe for hiring depends on the provider, employee, location, documentation and compliance. Overall, the hiring of an EOR can be much quicker and easier than establishing a new local employment infrastructure. 
  1. Can an EOR help with employee benefits in India?
    Yes. Numerous EOR companies offer both statutory and supplemental employee benefits. The exact advantages offered vary with the provider and the employment contract.