How to Hire Employees in India Without a Legal Entity Using an Employer of Record

Every year, companies from Israel, Portugal, Poland, Lithuania, and across the globe look to hire in India and run into the same wall: without a registered Indian entity, you cannot issue a compliant employment contract, process INR payroll, or make the statutory contributions Indian law requires.

An Employer of Record removes that wall entirely, stepping in as the legal employer of your India-based team while you retain full operational control. Vandey Global has been doing exactly this since 2017, an ISO-certified, India-first EOR that has managed 500+ professionals globally across 500+ professionals across 50+ international clients.

Why Global Companies Are Hiring in India Without Setting Up an Entity

India produces over 1.5 million engineering graduates annually, the largest pipeline of technical talent in the world. Hiring in India delivers a 60-70% cost advantage over equivalent US or UK roles. An IT services manager costs $1,365/month in India vs $5,800–$6,500/month in the US or UK. Now, for a team of 10, that gap alone funds a second product line.

Yet most foreign companies looking to hire employees in India for the first time cannot justify the overhead of a legal entity. Setting up a private limited company in India takes 6-12 months, and costs ₹1.5–3 lakh in year-one legal and registration fees before even a single hire is made. For a company testing a 3-5 person team, those are disproportionate commitments of capital and time.

The Legal Reality of Hiring Directly Without a Registered Presence

Foreign companies that attempt to hire in India without an entity face three immediate legal problems:

• No complaint employment contract: Indian employment law requires that contracts specify statutory benefits, EPF enrollment, ESI applicability, gratuity eligibility, leave entitlements, and applicable labor codes. A foreign entity with no Indian registration cannot issue a legally valid Indian employment contract. Any contract issued without a registered employer is unacceptable in Indian courts and exposes both the company and the employee to legal risk.
• No INR payroll or statutory contributions: Processing payroll in India needs an EPF registration number, ESI code, TDS deduction and remittance capability, and professional tax registration, all of which require an Indian entity or an Employer of Record as the registered legal employer. Without this, you cannot legally pay an Indian employee's salary in INR or make the contributions the law requires. Paying via wire transfer in USD is not a compliant substitute.
• No statutory compliance capability: India’s compliance framework is not just a single national system; it operates at the central level (EPF, ESI, and TDS), state level (professional tax, Shops & Establishment Act, and minimum wages), and sector level simultaneously. A foreign company without a registered presence has no legal right to file, no registration numbers to file under and no easy-to-issue Form 16 or process a full & final settlement on exit.

Beyond these three operational blocks, two legal exposures carry the highest financial risk for foreign companies:

• Permanent Establishment (PE) risk: A PE is triggered when Indian tax authorities determine that a foreign company has a taxable business presence in India. The three specific triggers here are: (1) an employee habitually concluding contracts in India on behalf of the foreign company, (2) maintaining a fixed place of business in India, including a home office used regularly, and (3) operating as a dependent agent. A confirmed PE exposes the foreign parent to Indian corporate tax at 35% on India-attributable profits, plus surcharge, assessed retrospectively, sometimes covering two to three years of back liability. This can be a seven-figure exposure for a company that assured it was operating cleanly from abroad.
• Contractor misclassification: Many foreign companies attempt to bypass entity and EOR requirements by engaging Indian workers as "freelance contractors." Indian labor authorities do not evaluate the contract label; they evaluate the substance of the working relationship. If the worker operates under the company’s direction, uses company tools, works fixed hours, and functions as an integrated team member, Indian law treats them as an employee regardless of what the agreement says. So, when reclassification happens, the company owes backdated EPF, ESI, gratuity provisions, TDS, and statutory bonuses, often covering two to three years, plus penalties and interest. The 2025 Labor Codes have made this exposure build faster. Gratuity now accrues from year one for fixed-term workers, down from the previous five-year threshold.

What is an Employer of Record - And How Does it Work in India?

An employer of record in India is a registered third-party entity that takes on full legal employment responsibility for a company’s workforce in a given country, issuing compliant contracts, processing payroll, making statutory contributions, and managing all HR compliance. While the client company retains complete control over the employee's work, targets, and day-by-day activities.

Here's how the three-party relationship works:

Foreign Company	Employer of Record	Employee
Defines the role, sets KPIs, directs day-to-day work	Acts as legal employer, issues contracts, files statutory returns, and runs INR payroll	Works under the foreign company's direction; employed on record by EO
Retains full operational control	Bears all employer liability, EPF, ESI, TDS, gratuity, and Professional Tax	Receives compliant salary, payslips, Form 16, and statutory benefits
Pays EOR service fee, no payroll or compliance burden	Manages onboarding, offboarding, and Full & final settlement.	Has no legal employment relationship with the foreign company

What Does an Employer of Record in India Actually Handle?

A compliant Employer of Record in India manages every statutory and administrative obligation attached to employment, from India payroll services and TDS filings to gratuity provisioning and Full & Final Settlement.

• EPF (Employees' Provident Fund): Employer contributes 12% of basic salary; employee contributes 12% of basic salary. Filed monthly by the 15th of the following month.
• ESI (Employee State Insurance): Employer contributes 3.25% of gross salary; employee contributes 0.75% of gross salary. Applicable for employees earning ≤ ₹21,000/month gross.
• TDS (Tax Deducted at Source): Deducted per the employee's income tax slab, remitted monthly. Form 16 is issued to each employee annually, required for their personal tax filing.
• Gratuity: Provisioned at 4.81% of basic salary monthly. Under the 2025 November labor codes, gratuity accrues from year one for fixed-term employees, a material change from the previous five-year threshold.
• Statutory Bonus: 8.33%–20% of basic salary plus DA for eligible employees (earning ≤ ₹21,000/month). Paid annually.
• Professional Tax: State-specific. Karnataka (Bengaluru): ₹2,400/year; Maharashtra (Pune/Mumbai): ₹2,500/year; Delhi/Haryana: not applicable.
• India-compliant employment contracts: Drafted per the 2025 Labor Codes, including the 50% basic wage rule, applicable state labor laws, and correct leave entitlements.
• Full & Final Settlement: Managed by the EOR on employee exit, covering notice pay, leave encashment, gratuity payment (where eligible), and PF settlement.

At Vandey Global, every one of these obligations is managed by a dedicated India compliance team, not a global platform operating through a local partner. That distinction matters: when the 2025 labor codes came into force on November 21, 2025, our team had updated contract templates and recalculated EPF liabilities the same day. A third-party local partner working under a global platform cannot offer the same response time or accountability.

Step-by-Step Process of How EOR Hiring Works in India

Most foreign companies are surprised by how fast the process moves when the compliance infrastructure is already in place. Here is how Vandey Global structures every EOR onboarding from offer acceptance to first payroll, typically completed in 7-10 business days, including all statutory registrations.

Step 1: Define the Role, Compensation, and Terms (1 Day)

The foreign company shared the job title, scope, reporting structure, compensation in INR, and any viable pay or benefit expectations. Vandey reviews the compensation structure for compliance with the 50% basic wage rule under the 2025 Labor Codes and confirms statutory eligibility (EPF, ESI, and bonus). This is also where any multi-state considerations are flagged; the employee’s work location, not Vandey’s registration state, determines what state-level compliance framework applies.

Step 2: EOR Drafts the India-Compliant Employment Contract (2-3 Days)

Vandey issues a labor code-compliant employment contract reflecting the agreed salary structure, leave entitlements (12 days sick leave, 12 statutory holidays, and 26 weeks paid maternity leave per the Maternity Benefit Act of 1961), applicable state Shops & Establishment Act provisions, and all statutory deduction clauses. The foreign company reviews and approves. The employee signs.

Step 3: Employee Onboarding - Documentation and Verification (3-5 days)

Vandey collects PAN, Aadhaar, bank account details, identity proof, and employment records. Background verification has started. Health insurance enrollment under Bajaj Allianz Corporate Health Insurance is triggered. The employee is added to the GreytHR payroll platform.

Step 4: Statutory Registrations Completed (Days 5-8)

The EPF Universal Account Number (UAN) is linked or created. ESI registration is completed if applicable. Professional tax registration is confirmed for the employee’s state. All registrations are done under Vandey's employer codes; the foreign company requires none of its own.

Step 5: First Payroll Processed - Employee is Operational (Days 8-10 )

Salary is disbursed in INR directly to the employee’s bank account. TDS is deducted and scheduled for remittance. EPF and ESI contributions are calculated and filed. A payslip is generated via GreytHR. The employee is now fully operational, compliant from day one, with no statutory coverage gap.

EOR vs. Setting Up Your Own Entity in India - Cost & Risk Compared

Once you understand what it costs to employ someone in India compliantly, the choice between EOR services in India and setting up your own entity becomes a lot clearer. Here is a complete comparison:

Factor	EOR service in India	Own Legal Entity
Setup Cost	₹0 to no registration required	$16,000–$32,000+ (incorporation, PAN/TAN, GST, bank account, labour registrations, first-year legal fees)
Time to First Hire	7–10 business days, including all statutory registrations	6–12 months, incorporation, PAN/TAN, GST, bank account, labour registrations
Payroll & Compliance	Fully managed, EPF, ESI, TDS, gratuity, PT, payslips, Form 16	You manage everything in-house or via retained consultants
PE Risk	Ring-fenced, EOR is the legal employer; your entity stays outside Indian tax jurisdiction	Directly exposed, your entity is the registered presence
Monthly Overhead	$200–$650/employee (EOR service fee, all-inclusive	$540–$1,600/month (ROC filings, audit, GST compliance, HR ops)
Flexibility	High, scale up or exit without winding down an entity	Low, entity closure in India is a regulated, multi-month process
Employer Brand in India	Employees are on EOR payroll but work fully for you, brand experience is driven by your culture, tools, and management	Full employer brand ownership: employees see your entity as their legal employer
Best For	Foreign companies hiring 1–15 employees; testing India; speed priority	Companies with 15+ employees committed to India for the long term

Also compare: Employer of Record India vs GCC: Which Model Fits Your Company Size and Growth Stage?

When Should You Transition from EOR to Your Own Entity?

Most companies that begin with an Employer of Record in India graduate to their own entity as their team grows. The EOR vs. legal entity decision in India is not just about headcount, it evolves as your operational costs shift. The clearest financial signal is when your monthly EOR fees approach ₹150,000/month, roughly the cost of running lean ROC compliance, GST filing, and basic HR operations under your own entity. At a headcount of 15–20 employees, EOR service fees often reach or exceed that threshold, and the economics of entity ownership begin to make sense.

The operational triggers matter just as much as the financial ones. If your India team needs to invoice Indian clients directly, that requires a GST-registered entity, an EOR cannot invoice on your behalf for revenue-generating activity. Similarly, formal procurement relationships with Indian suppliers or vendors require a registered legal presence. And if India has moved from a short-term market test to a permanent strategic commitment, entity ownership gives you direct employment relationships and full employer brand control that an EOR arrangement, by design, cannot replicate.

Many companies that begin their India journey with Vandey Global's EOR services in India are hiring compliantly from day one while building toward entity readiness. We support the transition when that point comes.

What Compliance Obligations Does an Employer of Record Handle in India?

Indian employment compliance is not just a single national framework; it operates at the central level, state level, and sector level simultaneously. Here is the actual breakdown of what a compliant Employer of record manages on your behalf.

What Statutory Contributions Must Employers Pay in India?

What the 2025 Labour Codes Mean for EOR-Structured Hiring

All four labor codes, covering wages, industrial relations, social security, and occupational safety, came into legal force on November 21, 2025, replacing 29 previously fragmented statutes.

The most important change for any foreign company hiring in India is the 50% wage rule: basic salary plus Dearness Allowance must now constitute at least 50% of an employee's total CTC. The practical impact is immediate, for a ₹100,000/month CTC employee, structuring the basic at 50% (₹50,000) instead of the previously common 30% (₹30,000) increases the EPF base by ₹20,000/month, adding approximately ₹2,400/month in employer EPF contributions and raising monthly gratuity provisioning from ₹1,443 to ₹2,405, a combined additional statutory cost of approximately ₹3,362 per employee per month.

A compliant Employer of Record must have updated contract templates that reflect the 50% wage rule, recalculated EPF liabilities across all active employees, and started gratuity provisioning from month one for all fixed-term hires.

So, before signing with any EOR provider, ask them directly: "How has your payroll methodology changed to reflect the four labor codes that came into force in November 2025?” The answer will tell you everything you need to know about their compliance readiness.

For the full breakdown of PE risk triggers and how an EOR structure ring-fences your foreign parent, see the section above.

A good Employer of Record manages this multi-state complexity under its own registrations; your company needs no state-level filings on its own

On PE risk: three specific triggers can create a table presence for your foreign parent company in India.

• An employee habitually concludes contracts on behalf of your company
• A fixed place of business maintained in India (including a regularly used home office)
• Operating as a dependent agent

When any of these are triggered, the consequences are a corporate tax of 35% on India-attributable profits, plus a surcharge, potentially assessed retrospectively. A well-structured EOR arrangement protects your entity from these triggers by making the EOR, not your foreign parent, the legal employer of record.

How to Choose the Right Employer of Record in India

Not all EOR providers work the same way, and when choosing a global employer of record, the difference between an India-native EOR and a global platform with a local partner matters more than most companies realize. A global platform contracts out India compliance to a third-party local partner, adding a layer of distance between you and the team actually managing your employees’ payroll and statutory filings.

At Vandey Global, we have an in-house compliance team that updated employment contracts the day the November 2025 labor codes came into force.

So, before signing with any EOR provider for India, ask these questions:

1. Are you India-registered first, or do you use a local partner for Indian compliance?
2. What are your payroll filing deadlines, and what is your track record for on-time statutory remittance?
3. Do you manage multi-state compliance, and can you show state-specific registration experience for the cities where we plan to hire?
4. What is your typical onboarding timeline from contract signing to first payroll?
5. What exactly does your monthly fee include, and what is billed separately?
6. Do you have director experience working with companies from my home country?

At Vandey Global, we are ISO certified, India-first, and have been managing EOR services in India since 2017, with 500+ professionals supported globally and direct working experiences with companies from Israel, Portugal, and Lithuania.

Read more here: 7 Critical Questions to Ask Before Choosing EOR Services in India

Conclusion

For any foreign company looking to hire employees in India without a legal entity, the Employer of Record model is not just the fastest route; it is the only fully compliant one. Without a registered Indian entity or an EOR as your legal employer, you cannot issue valid contracts, process compliant payroll, or make the statutory contributions required by law.

The consequences of getting it wrong, PE exposure at 35% corporate tax, contractor reclassification with backdated liabilities, or statutory non-compliance penalties routinely cost more than years of compliant EOR fees. ₹0 to set up, 7–10 business days to your first hire, and $200–$650 per employee per month, all-inclusive, versus ₹1.5–3 lakh and 6-12 months for your own entity. For most foreign companies in the early stages of India, that is not a close call.

Ready to hire your first employee in India without an entity? Get started with Vandey Global EOR onboarding process, built for exactly this, by a team that has been doing it since 2017.

Contact us to get your first India hire moving within 7-10 business days or download our India EOR Compliance Checklist, a practical tool covering every statutory obligation, state-specific filing requirement, and 2025 labor code update you need to know before making your first India hire.

FAQS

1. Can a foreign company hire employees in India without registering a legal entity?

Yes, through an Employer of Record (EOR). The EOR becomes the legal employer in India, issuing compliant contracts, processing INR payroll, and managing all statutory contributions (EPF, ESI, TDS, and gratuity) while the foreign company retains full operational control.

2. What is the difference between an Employer of Record and setting up a legal entity in India?

An EOR costs $0 to set up, gets your first hire operational in 7–10 business days, and runs at $200–$650 per employee per month. A legal entity costs $16,000–$32,000+, takes 6–12 months, and carries ongoing compliance overhead. EOR is the right structure for foreign companies hiring 1–15 employees or testing India before committing.

3. What statutory contributions does an Employer of Record handle in India?

EPF (12% of basic), ESI (3.25% of gross for eligible employees), TDS (per income tax slab, Form 16 issued annually), Gratuity (4.81% of basic from year one under the 2025 Labour Codes), Statutory Bonus where applicable, and state-specific Professional Tax, all filed under the EOR's registration numbers.

4. What is Permanent Establishment risk, and how does an EOR prevent it?

PE risk is triggered when Indian tax authorities determine a foreign company has a taxable presence in India, exposing the foreign parent to 35% corporate tax on India-attributable profits, assessed retrospectively. A correctly structured EOR prevents this by making the EOR, not the foreign company, the registered legal employer.

5. How did the 2025 Labour Codes change the cost of hiring in India?

The 50% wage rule now requires the basic salary to be at least 50% of the total CTC. For a ₹100,000/month CTC employee, this adds ₹2,400/month in employer EPF contributions and raises gratuity provisioning from ₹1,443 to ₹2,405, a combined additional statutory cost of ₹3,362 per employee per month.