Employer of record in India: costs, rules and how to hire

Seven checks separate an Indian EOR quote you can rely on from one you cannot, and the first is always the state and the employee category. Every one of these has cost somebody money, usually because a national figure was applied to a hire the state rules governed. Put them to the provider in writing before you sign anything.

Seven checks before accepting an EOR quote

Each check names the thing to identify before a number is agreed.

• State and employee category: identify the workplace, duties and applicable rules before choosing wage, leave or notice figures.
• Current labour rules: distinguish the final central rules from draft state rules.
• Lawful assignment: check contract-labour coverage, licensing, core-activity restrictions and client responsibilities.
• Cost basis: separate gross salary, CTC, statutory wages and employee deductions.
• Annual liabilities: assess bonus and gratuity eligibility instead of assuming a universal thirteenth salary.
• Tax period: use tax year 2026-27 for current salary rules; assessment year 2026-27 can concern earlier income.
• Exit process: distinguish wages due in two working days from other settlement items and their own deadlines.

An Indian office hire needs a written contract before work starts, plus the appointment letter the covered establishment requires, and in Delhi the Shops Act demands appointment information on its own account. The clause that matters most is not one you write, though: it is the employee's category, because the Industrial Relations Code's worker definition decides which hours, leave and termination rules apply at all. Duties settle that, not job title and not salary.

What belongs in the employment contract?

Specify the legal employer, job, location, start date, pay components, hours, leave, probation, notice, benefits, confidentiality and IP arrangements, and record the EOR and client division of duties in the service agreement, including payroll inputs, leave approvals, equipment and complaint handling.

On category, the Industrial Relations Code excludes people mainly in managerial or administrative roles from its ordinary worker definition, and the ₹18,000 monthly threshold concerns supervisory employees. It is not a salary ceiling that excludes every technical, clerical or operational employee, which is how it is often misread.

Agree the EOR and client responsibilities

For covered contract labour the contractor pays wages, but the principal employer can become liable for unpaid or short-paid wages and recover the amount from the contractor. That single rule is why evidence of payment belongs in the service agreement as a routine deliverable rather than something you request after a problem.

Probation and fixed terms

There is no single three-to-six-month probation rule that governs every Indian hire; the applicable state law, standing orders and employee category decide it. Delhi's covered employees, for example, acquire its ordinary one-month notice protection after three months of continuous service.

Fixed-term employment under the Industrial Relations Code uses a written contract for a specified period, and covered fixed-term workers must receive hours, wages, allowances and benefits at least equivalent to permanent workers doing similar work. The government's clarification gives direct fixed-term employees gratuity eligibility after exactly one year, while agency contract labour is a separate category. And a migration between arrangements is not a fresh start: section 73 protects notice and compensation rights of workers with at least one year of service on a qualifying transfer.

Moving an existing employee

A migration between arrangements is not a fresh start: for a qualifying transfer of an establishment, Industrial Relations Code section 73 protects notice and compensation rights of workers with at least one year of service unless its continuity, no-less-favourable-terms and successor-liability conditions are satisfied, so an EOR migration should address accrued leave, service, gratuity, benefits and records explicitly.

When a contractor arrangement fits

Choose a contractor for a properly independent service, with deliverables and commercial responsibilities that reflect the actual relationship, because a service agreement's label does not decide whether someone is working as an employee.

Misclassification risk, and what it costs the client

In India the exposure I would price is less about a label being wrong and more about liability flowing upward to you. A service agreement's description does not decide whether someone is working as an employee, and the guide's section on choosing a contractor arrangement sets out the independence the relationship actually has to show.

The specific consequence on this page is worth reading twice: for covered contract labour the contractor pays the wages, but the principal employer can become liable for unpaid or short-paid wages and then recover the amount from the contractor. Being able to recover money is not the same as not having to pay it, and the recovery is your problem to pursue. That is why evidence of payment belongs in the service agreement as a routine monthly deliverable rather than as something you request after a complaint.

What a hirer does about it: decide before the engagement whether the work is a genuinely independent service or a role inside your team, keep the direction of day-to-day work with whoever the contract says employs the person, and hold the wage and contribution evidence rather than trusting that it exists. I have not found an Indian government source in our registry that sets out a penalty schedule for misclassifying an individual contractor, so I am not going to quote one; the liability route above is the one our own sources support.

Payroll dates and annual bonus

For a monthly wage period the Code on Wages ordinarily requires payment before the end of the seventh day of the following month, and a wage period cannot exceed one month. Issue the required wage slip showing earnings and authorised deductions, so the employee can reconcile gross pay with the bank payment.

Statutory annual bonus is not a guaranteed thirteenth salary, and treating it as one is a common budgeting error in both directions. Eligible employees within the applicable notified wage limits who work at least thirty days in the accounting year can be entitled to it, at a minimum of 8⅓% of the relevant wages or ₹100, whichever is higher, and up to 20% under the surplus rules, subject to coverage and exceptions.

Ordinary covered employer contributions run at 12% of applicable provident-fund wages and 3.25% of applicable ESI wages, and both sit on capped bases: ₹15,000 a month for ordinary PF and ₹21,000 for ESI coverage. That capping is the single most useful thing to know before reading an Indian quote, because it means a senior salary does not carry those percentages all the way up. What decides your actual exposure is the EOR establishment's coverage, not your own team size.

The current income-tax year

The table below shows marginal rates on portions of income, so the top rate never applies to a whole salary, and the default regime allows a salary standard deduction of ₹75,000 or salary, whichever is less, plus a rebate of up to ₹60,000 at total income up to ₹1.2 million for eligible residents. Two periods are live at once, and mixing them is the fastest way to a wrong payslip. The Income-tax Act, 2025 framework applies from the tax year beginning 1 April 2026, while payroll guidance for assessment year 2026-27 can refer to income earned in the preceding financial year under the old Act.

Declarations and reporting

The 2026 rules map the salary TDS certificate to Form 130, replacing Form 16, the quarterly salary TDS statement to Form 138, replacing Form 24Q, and employee deduction claims to Form 124, mapped from Form 12BB; use the forms and deadlines for the relevant period, because older-year filings remain separate.

Work permission and visas

Foreign nationals need an immigration status that permits the proposed work, and an EOR cannot promise sponsorship for every role. Employment Visa requirements include an employment contract, evidence of the Indian employer's registration and the applicant's expertise, with a normal salary benchmark around ₹16.25 lakh annually and defined exceptions.

There is no single Indian minimum wage: the rate is fixed by the appropriate government for the employee's work, and it varies by state, occupation, skill, zone and variable dearness allowance. A provider quoting one national rupee figure has skipped the check, which is the clearest early signal about how the rest of the payroll will be run. What decides the floor for your hire is the wage order for that workplace and occupation, with its effective date.

Set salary for the job and location

Ask the provider to name the wage order and effective date used in its quote. For a market benchmark, MoSPI's PLFS 2025 reports average preceding-month earnings of ₹22,699 for regular wage and salaried employees in current weekly status across rural and urban India, with the urban figure at ₹26,247, for January to December 2025. Those are broad survey averages across the whole employed population, not a salary for an office or technology role, so price the role, city and experience separately.

Working hours and overtime

For covered workers the OSH framework uses an eight-hour day and forty-eight-hour week, with double-rate overtime and the applicable consent, rest and scheduling rules, and the Code on Wages gives overtime protection to employees whose minimum wage is fixed under it. Check the employee category, state law and any more favourable agreement before setting a schedule.

A covered adult worker under the OSH Code earns one day of paid leave for every twenty days worked, while a covered Delhi employee gets fifteen days of privilege leave after twelve months plus twelve days of sickness or casual leave. Those are two different answers for the same job in two different places, which is the whole reason there is no uniform Indian leave allowance. What decides which applies is the establishment, the state and the employee category.

Annual leave depends on coverage and state law

The OSH Code entitlement follows the 180-day calendar-year qualifying rule, ordinary carry-over is up to thirty days, accrued leave is payable at exit, and state law or the contract can provide more.

Public holidays and sickness

Public and festival holidays depend on state legislation and establishment arrangements, so agree the calendar and the pay treatment for holiday work before the year starts. Employer-paid sick or casual leave follows state law and the contract; eligible insured employees can separately receive ESI sickness benefit at 70% of the standard benefit rate, generally after contributions for seventy-eight days in the corresponding contribution period.

Maternity and family leave

Up to twenty-six weeks of maternity benefit is the headline number, and it is the largest single leave liability on an Indian hire, so model it before you make the offer rather than after.

The Social Security Code provides that twenty-six weeks including at most eight weeks before expected delivery, falling to twelve weeks where there are two or more surviving children. The ordinary employer-paid route requires eighty days of work in the preceding twelve months, while ESI eligibility can change who pays, so do not budget both as full employer salary. The chapter also provides nursing breaks until the child is fifteen months old and a crèche at establishments with fifty employees. Paternity and bereavement leave are policy choices for a private employer.

Gratuity and additional benefits

Gratuity is an employer liability rather than an employee deduction, and it accrues quietly from the first year even though it usually vests at five.

The ordinary rule requires five years of continuous service, with exceptions including death, disablement and qualifying fixed-term expiry, and for monthly-paid employees the amount uses last-drawn statutory monthly wages divided by 26, multiplied by 15, for each completed service year, subject to the statutory ceiling. Build insurance, equipment and extra leave around the mandatory package rather than describing a market perk as a statutory entitlement.