Employer of record in India: costs, rules and how to hire
Everything you need to know about hiring employees in India through an employer of record.
India's employer social contribution rate sits at roughly 16.3% on top of gross salary, covering provident fund, insurance, and administrative charges. That number is lower than most European markets, but it tells only part of the story. The mandatory thirteenth salary, statutory gratuity after five years of service, and a layered state-by-state compliance regime mean the true cost of an Indian hire is meaningfully higher than the headline contribution rate suggests.
With a labour force of over 617 million people and an average monthly wage of around 22,220 INR, India offers genuine depth of talent across technology, finance, and professional services. What employers are buying, alongside that talent, is a compliance obligation that spans central labour codes, state-specific registration requirements, and multiple payroll deductions that vary by location, industry, and employee skill category.
Maternity leave runs to 26 weeks at full pay, overtime is paid at double the regular rate, and annual statutory leave is 12 days, which is on the low end compared with most countries we track. Public holidays, however, reach 17 days per year, which is higher than most markets we cover. Understanding how those entitlements stack together is essential before you make your first hire.
How should you hire in India?
| Employer of Record (EOR) | Your own legal entity | Independent contractor | |
|---|---|---|---|
| Time to first hire | Days | Months | Immediate |
| Upfront cost | None | Incorporation, registrations, local counsel | None |
| Ongoing cost | From $99–$699/employee/month | Payroll, accounting, filings, benefits administration | Contractor invoices only |
| Best when | You want 1–5 hires fast, without a local entity or in-house payroll expertise. | You are building a long-term team (roughly 10+ employees) and want full control. | Genuinely project-based, independent work. Misclassifying an employee as a contractor carries real penalties. |
- Time to first hire
- Days
- Upfront cost
- None
- Ongoing cost
- From $99–$699/employee/month
- Best when
- You want 1–5 hires fast, without a local entity or in-house payroll expertise.
- Time to first hire
- Months
- Upfront cost
- Incorporation, registrations, local counsel
- Ongoing cost
- Payroll, accounting, filings, benefits administration
- Best when
- You are building a long-term team (roughly 10+ employees) and want full control.
- Time to first hire
- Immediate
- Upfront cost
- None
- Ongoing cost
- Contractor invoices only
- Best when
- Genuinely project-based, independent work. Misclassifying an employee as a contractor carries real penalties.
Rule of thumb: an EOR wins on speed and simplicity for the first handful of hires; once a team in India passes roughly ten people, running your own entity usually starts to win. Treat that as a risk-adjusted rule of thumb rather than a calculation. Registration and accounting are the cheap part; the costs that decide it are payroll software, local employment-law advice, pension administration and the statutory sick-pay and termination exposure you take on directly once you are the employer. 52 EOR providers currently offer employment in India. See our independent ranking.
EOR pricing in India: providers covering India publish base fees from $99 to $699 per employee per month, before statutory employer costs. How EOR pricing works.
The break-even question in India is sharper than in most markets because entity setup here is not just a paperwork exercise. Incorporating a foreign subsidiary, registering under the applicable State Shops and Establishments Act, enrolling in the Employees' Provident Fund and Employees' State Insurance schemes, and appointing a local compliance officer typically takes three to six months and carries ongoing administrative overhead that is hard to justify for fewer than a handful of employees. An Employer of Record hire, by contrast, can be live in three to five days. For companies testing the Indian market with one to five people, the economics of an EOR are straightforward: you pay a service fee and avoid the entity overhead entirely. As headcount grows past a threshold where that fee exceeds the annualised cost of maintaining your own entity, the calculation shifts, but that threshold is higher in India than in simpler jurisdictions because local compliance is genuinely complex.
In my experience, the legal risk dimension in India is what catches employers off guard after they have already made the hire. India's Industrial Relations Code 2020 requires government permission before terminating employees in establishments with 100 or more workers. Even below that threshold, termination without cause is routinely contested through labour courts, and the notice and severance obligations in the record reflect a system designed to protect workers rather than give employers flexibility. An EOR absorbs that risk structurally: the EOR is the legal employer, so disputes, filings, and government interactions sit with them rather than with you. For a foreign company without local legal counsel, that matters more than the fee.
Contractor arrangements deserve a direct word here. India's labour authorities look at the actual working relationship, and a contractor who works exclusively for one foreign client, follows set hours, and uses company tools is likely to be treated as an employee under Indian law. The consequences include mandatory social security enrolment, provident fund contributions, and potential gratuity liability. Given how actively Indian authorities enforce these rules, I would not rely on a contractor structure for anyone doing ongoing, core work unless you have specific local legal advice confirming it holds.
India employment facts at a glance
Each row shows the year of the most recent citable source for that figure. Where a year looks old, that is the newest comprehensive source available, and we keep the sourced figure rather than substitute an unsourced newer one. Statutes may have changed since.
Average salary in India by occupation
Gross monthly earnings of employees per ISCO-08 occupation group, in INR, from the ILO's official labour statistics. These are the latest published survey figures for India(reference year 2025), refreshed automatically when the ILO releases newer data. Survey earnings, not the statutory minimum wage above. Use them to benchmark an offer before an EOR quote turns it into total employer cost.
Source: ILOSTAT, the International Labour Organization's statistics database (average monthly earnings of employees, both sexes), reference year 2025.
What it costs to employ in India
Based on OECD 2026 aggregate data for a single earner at average wage.
Termination and severance in India
India has strong employee protections requiring government permission for termination in establishments with 100+ workers under the Industrial Relations Code 2020. Employers must provide 30 days notice and severance pay of 15 days salary per year of service for employees with 1+ years tenure. Termination without cause is difficult and typically contested through labor courts.
The 30 days above is the employer's notice for a workman under section 25F of the Industrial Disputes Act, or the equivalent one month in most state Shops and Establishments Acts. A resigning employee's notice is contractual, not statutory. India has no single national employment code here: the applicable rules turn on the state and on whether the employee is a workman.
Source: National government · 2026. Statutory minimums; collective agreements and contracts can set higher terms. During the probation period (no statutory probation period; 3 to 6 months is contractual practice and some state Shops and Establishments Acts set their own limits) shorter or no notice may apply.
What catches employers out in India
India's compliance landscape has several features that regularly surprise foreign employers. These are the ones worth understanding before you hire.
Statutory gratuity after five years of continuous service
Under the Payment of Gratuity Act 1972, any employee who completes five or more years of continuous service is entitled to a statutory lump-sum gratuity payment on resignation, retirement, or death. This applies to white-collar staff as much as to factory workers, and the amount is calculated under a statutory formula, not whatever your contract says. Foreign employers who treat long-service awards as purely discretionary find themselves facing an unexpected mandatory liability.
State Shops and Establishments Act registration from day one
Before you hire even a single employee, most office, retail, and service businesses must register under the relevant State Shops and Establishments Act. Each state has its own version, with its own rules on working hours, leave, and employment conditions. Foreign employers who treat a small Indian office or a remote hire as low-risk often skip this step and find themselves out of compliance from the start.
Minimum wages vary by state, industry, and skill category
India does not have a single national minimum wage floor. The rate that applies to your employee depends on the state they work in, the scheduled industry or employment category, and their skill classification. Employers relying on generic global salary bands frequently underpay without realising it, and the applicable rates are revised periodically by state governments.
Mandatory provident fund and ESI contributions
EPF and ESI registration and contribution are not optional for covered establishments, and the definition of covered is broader than many foreign employers assume. Failure to register and remit contributions on time exposes employers to back contributions and penalties. An EOR handles this automatically; a foreign company running its own payroll needs to get this right from the first pay cycle.
State-level professional tax on top of national income tax
Several Indian states levy a professional tax on salaried employees, which employers must deduct and remit separately from national income tax withholding. This is an additional payroll obligation that does not exist in most other jurisdictions, and foreign employers often discover it only after their first payroll audit.
Your next step
Our current top-rated EOR providers for India:
52 EOR providers can employ for you in India. Compare them independently, or tell us about your hire and get a shortlist matched to your situation.
Common questions about hiring in India
What does it cost an employer to hire someone in India on top of gross salary?
How long does it take to hire through an EOR in India versus setting up a local entity?
Is the thirteenth salary mandatory in India?
What are the notice and severance rules when terminating an employee in India?
What maternity and paternity leave are employees entitled to in India?
Can I hire someone in India as an independent contractor instead of an employee?
How many paid leave days are employees entitled to in India?
Can I use a PEO in India?
Not in the US sense of the word. A PEO (professional employer organization) is a co-employment model under US law and needs your own local entity; India has no equivalent. When a provider offers a "PEO in India", it is in practice an employer of record: the provider is the legal employer and you direct the work. That is the route this guide describes. EOR vs PEO explains where the two models differ.