Hiring in India is not just an international bank transfer. The correct structure depends on where the person works, who directs the work, the employment relationship, the state, the pay structure, the benefits that apply, and whether the company creates a taxable or permanent establishment presence.
This guide is an operational starting point, not legal or tax advice. India is implementing and updating labour-code rules, and state requirements can differ. Have an Indian employment lawyer, payroll specialist, or qualified tax adviser confirm the structure before making an offer.
The three common structures
1. Employer of Record (EOR)
An EOR that is legally permitted to operate in India employs the worker locally, runs payroll, and handles the statutory employer obligations under its agreement. Your company directs the day-to-day work, but the EOR should explain exactly who is the legal employer, which entity signs the employment contract, where the employee is registered, how benefits are funded, and how termination is handled.
An EOR can be practical for a small initial team or a short market test. It is not a blanket exemption from your company's tax, data-protection, intellectual-property, or permanent-establishment analysis. Review the service agreement with counsel.
If you use Deel's India EOR information, treat the page as a commercial proposal, not independent legal verification. Pricing, entity coverage, benefits, and contract terms can change. This page may earn an affiliate commission from a referral; the recommendation is not a guarantee of compliance or service quality.
2. Local Indian entity
A subsidiary or other local entity can make sense when the business expects a durable Indian operation, several employees, local contracting, invoicing, or direct control of payroll and benefits. Incorporation is only the beginning. The entity may need registrations, payroll processes, accounting, tax filings, employment policies, data controls, and local professional support.
The Companies Act requires a company to have at least one director who has stayed in India for the required period; the Ministry of Corporate Affairs has published guidance on the resident-director requirement.[1] Do not assume a foreign parent can simply hire staff through a representative office or a bank account without checking corporate, tax, and employment consequences.
3. Independent contractor
A contractor agreement does not decide the legal relationship by itself. Classification risk rises when the person works fixed hours, is economically dependent on one client, reports like an employee, uses company equipment, receives employee-style benefits, or performs an ongoing core role under close supervision.
Document the actual independence: scope and deliverables, control over method and schedule, multiple clients where genuine, invoices, intellectual-property assignment, confidentiality, equipment, substitution rights, and termination. Obtain local advice on the facts; do not use “contractor” as a shortcut around payroll or social-security obligations.
Payroll and statutory checks
The applicable rules depend on the employee's wages, establishment, state, role, and the version of the law and rules in force. The following are checkpoints, not universal rates.
Employees' Provident Fund (EPF)
EPFO's current FAQ describes a 12% employee contribution and a matching employer contribution, with the statutory contribution commonly limited to a wage ceiling of INR 15,000 unless the applicable higher-wage option and conditions are satisfied.[2] The employer share is allocated between EPF and pension components under the rules. Confirm coverage, wage definitions, international-worker treatment, and any current labour-code transition before calculating an offer.
Employees' State Insurance (ESI)
ESIC's FAQ currently identifies INR 21,000 per month as the general wage ceiling for coverage, with different treatment for employees with disabilities and other statutory exceptions.[3] Coverage also depends on the establishment, location, and legal status of the worker. Ask payroll counsel to confirm whether ESI applies rather than treating the ceiling as a universal eligibility test.
Tax deducted at source (TDS)
The Income Tax Department explains that employers deduct tax under Section 192 based on the employee's estimated annual salary liability, and issue Form 16 where tax is deducted.[4] Payroll must collect the information needed for the applicable tax regime, benefits, perquisites, and declarations, then file the required statements. A contractor's withholding analysis is different from an employee's salary TDS analysis.
Gratuity and leave
Gratuity, leave, notice, working hours, social security, and termination obligations depend on the applicable statute, rules, establishment, and employment contract. Do not copy a five-year gratuity sentence or a leave number from an old guide into an offer without checking the current Code on Social Security and state rules. The Ministry of Labour publishes the current labour-code material, rules, and FAQs.[5]
A responsible hiring workflow
- Define the role, work location, reporting line, expected schedule, and whether the work is core and ongoing.
- Decide whether the intended relationship is employment or genuinely independent contracting; document the reasons.
- Obtain written advice on permanent-establishment, corporate-tax, payroll, data-protection, IP, and export-control issues.
- Compare an EOR quote with the full cost of a local entity, including payroll, benefits, professional fees, compliance, severance, and exit.
- Verify the provider's Indian legal entity, registration, insurance, data-processing terms, funds flow, payroll calendar, benefits, and termination process.
- Draft a local employment or contractor agreement reviewed for the employee's state and role.
- Collect right-to-work, identity, bank, tax, and benefits information through a secure process.
- Run a payroll test, confirm statutory registrations, and document who files each return and keeps each record.
- Review the arrangement periodically as headcount, role, location, and labour-code rules change.
Questions to ask an EOR
- Which Indian entity is the legal employer, and can you provide its registration details?
- Who owns the employee record and who handles data-subject requests?
- Which benefits, statutory contributions, leave, and insurance are included in the quote?
- What is the exact payroll calendar, currency conversion method, and invoice timing?
- How are bonuses, equity, expenses, equipment, IP, and inventions handled?
- Who handles complaints, investigations, notice, termination, severance, and disputes?
- What happens if the worker changes state, becomes an international worker, or takes extended leave?
- What are the refund, replacement, indemnity, liability, and exit terms?
Budgeting without false precision
Do not promise that an EOR is always cheaper below a particular headcount or that an entity always becomes worthwhile above another number. Model at least three scenarios:
- One employee for twelve months.
- A small team with benefits and payroll changes.
- A durable operation with local contracts, premises, and an eventual exit.
Include base pay, employer contributions, leave and bonus accruals, benefits, EOR fees or entity overhead, payroll and tax professionals, currency costs, equipment, legal review, and termination exposure. Compare the model with the cost of correcting a misclassified or noncompliant arrangement.
Bottom line
An EOR can be a useful bridge for a small team, a local entity can provide control for a durable operation, and a contractor is appropriate only when the working relationship is genuinely independent. None of the three removes the need to analyze Indian employment, tax, social-security, data, and state-specific rules.
Verify the current law, the worker's location, the provider's legal entity, and the contract before hiring. Treat vendor pricing and marketing claims as inputs to diligence—not as proof of compliance.