EOR vs Entity Setup Cost
Compare using an Employer of Record against setting up your own India entity. The full report gives the break-even headcount and the multi-year cost difference.
Statutory rates verified by the TMS compliance team · 2026-07-06EOR overhead / year
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EOR vs Entity Setup in India [2026]
EOR vs Company Incorporation in India: Which Path Is Right for Your Business?
Every global company expanding to India faces a foundational decision: should you set up your own legal entity, or use an Employer of Record to hire employees without incorporation? The answer depends on your headcount projections, timeline, budget, and long-term India strategy. An EOR gets you operational in days at a variable monthly cost. Entity incorporation takes 10-16 weeks and requires significant upfront capital, but gives you full operational control. This guide provides the data you need to make the right choice and identifies the crossover point where switching from EOR to entity makes financial sense.
Quick Comparison: EOR vs Entity Setup
| Parameter | EOR (Employer of Record) | Company Incorporation |
|---|---|---|
| Setup Time | 24–48 hours from signed MSA | 10-16 weeks |
| Upfront Capital Required | None | Rs 1 lakh+ (authorized share capital) |
| Monthly Cost per Employee | From USD 300/employee/month, all-inclusive (TMS) — market ranges vary | Varies (internal payroll + overhead) |
| Entity Type | Use provider’s existing entity | Private Limited Company, LLP, or Branch Office |
| ROC Registration | Not required | Required under Companies Act, 2013 |
| PF/ESI Registrations | Under EOR’s registrations | Must obtain independently |
| GST Registration | Not required for client | Required if turnover exceeds Rs 20L |
| Annual Compliance Filings | Handled by EOR | 15+ annual filings with MCA, IT, GST |
| Bank Account | Not required in India | Required – Indian corporate bank account |
| Director Requirements | None | At least 1 Indian resident director |
| IP Ownership | Requires assignment clauses | Direct ownership possible |
| Scalability | Best for 1-30 employees | Better economics at 30+ employees |
| Exit Complexity | End EOR agreement | Company winding up takes 6-24 months |
| Office Lease | Optional | Typically required for registered office |
The True Cost of Entity Setup in India
Incorporation Costs
Setting up a Private Limited Company in India involves several stages, each with associated costs and timelines.
The first step is obtaining a Digital Signature Certificate (DSC) for the proposed directors, which costs Rs 1,500-3,000 per director and takes 1-3 days. Next, you apply for Director Identification Number (DIN) through the SPICe+ form, which is included in the incorporation application.
The SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus) form is filed with the Ministry of Corporate Affairs. Government fees for incorporation include name reservation at Rs 1,000, incorporation fee based on authorized capital at Rs 500-5,000, and stamp duty which varies by state from Rs 1,000 to Rs 15,000. Professional fees for a chartered accountant or company secretary to handle incorporation typically range from Rs 15,000 to Rs 50,000.
The minimum authorized share capital must be declared, and while there is no statutory minimum for a private limited company, most companies start with Rs 1 lakh to Rs 10 lakh. For a wholly-owned subsidiary of a foreign company, the initial capital infusion through the FDI route often starts at Rs 10 lakh or more to demonstrate serious intent and meet operational needs.
Post-incorporation registrations add further costs and time. PF registration takes 7-15 days and is mandatory if you plan to hire more than 20 employees, though voluntary registration is advisable from day one. ESI registration takes 7-15 days and applies when employees earn below Rs 21,000 per month. Professional Tax registration timelines and costs vary by state. Shops and Establishments registration with local authorities takes 7-30 days. GST registration is required if annual turnover exceeds Rs 20 lakh and takes 7-15 days.
When you add up all incorporation costs including professional fees, government charges, initial capital, and post-incorporation registrations, the total comes to Rs 2-5 lakh before you hire your first employee. Ongoing annual compliance costs, including statutory audits, MCA filings, income tax returns, and GST returns, add Rs 3-8 lakh per year depending on the complexity of operations.
The 10-16 Week Timeline Reality
The fastest possible incorporation timeline is approximately 10 weeks. This assumes no delays in document verification, no name rejection by the Registrar of Companies, and all directors having their documentation ready.
A realistic timeline looks like this. Weeks 1-2 involve document preparation, DSC procurement, and DIN applications. Weeks 3-5 cover SPICe+ filing and MCA processing. Weeks 6-8 are for post-incorporation registrations including PAN, TAN, PF, ESI, and GST. Weeks 9-10 address bank account opening, which often requires physical presence and can be delayed by documentation requirements. Weeks 11-14 handle setting up payroll systems, HR policies, and employment contracts. Weeks 15-16 are for onboarding your first employees.
During these 10-16 weeks, your competitors are already hiring talent. An EOR eliminates this delay entirely.
The EOR Alternative: Speed and Simplicity
How EOR Works for India Entry
With an EOR, you sign a service agreement with a provider that already has a fully compliant Indian entity. The EOR hires your employees on its payroll, manages all statutory compliance, and invoices you a consolidated monthly fee. Your employees work exclusively for your company under your direction.
Setup takes 24–48 hours. There is no capital requirement, no director appointment, no government filings, and no bank account needed in India. You go from decision to having an employee on payroll within the same week.
The EOR model is especially compelling for companies that need to hire urgently. If you have identified a great candidate in India who has other offers on the table, waiting 16 weeks for entity setup means losing that candidate. An EOR lets you extend an offer and onboard within days.
The Breakeven Analysis: When to Switch
EOR makes strong financial sense for small teams. At $300 per employee per month (mid-range EOR pricing), a team of 10 costs $3,000 monthly, or approximately Rs 3 lakh. Compare this to the entity overhead of Rs 5-10 lakh in setup costs plus Rs 3-8 lakh in annual compliance, plus internal payroll team costs.
The crossover point typically occurs at 25-35 employees. At this scale, the per-employee EOR cost exceeds what you would spend managing payroll through your own entity. Here is a simplified comparison at different team sizes.
For a team of 5 employees, EOR costs approximately Rs 15 lakh annually while entity costs including setup amortization run Rs 12-15 lakh, making EOR the better choice due to lower hassle and faster deployment. At 15 employees, EOR costs approximately Rs 45 lakh annually while entity costs run Rs 25-30 lakh, but EOR still wins when you factor in management bandwidth, compliance risk, and the distraction of running a local entity. At 30 employees, EOR costs approximately Rs 90 lakh annually while entity costs run Rs 45-55 lakh, making this the tipping point where entity setup should be underway. At 50 or more employees, EOR costs Rs 1.5 crore or more annually while entity costs run Rs 65-80 lakh, making your own entity the clear financial winner.
Many companies use a phased approach. They start with EOR for the first 12-18 months, validate the Indian market, and initiate entity setup once the team reaches 50–75 employees. The EOR provider can then transition employees to the new entity once it is operational. This is the lowest-risk path to building an India presence.
EOR vs Subsidiary in India: 3-Year Cost Comparison
Most comparisons show you month one. The honest comparison is three years — because entity costs are front-loaded and EOR costs scale linearly with headcount.
Scenario: a growing team — 5 heads in year 1, 15 in year 2, 30 in year 3. Figures below are illustrative and use an indicative rate of ₹95/USD (updated monthly); entity lines are indicative market ranges, and statutory rates are standard national figures confirmed in your quote.
| Cost line | EOR (TMS) | Your own subsidiary |
|---|---|---|
| Incorporation & registrations | — | Indicative ₹2–5 lakh in professional fees, once |
| Annual compliance (ROC, audit, filings) | Included in the fee | Indicative ₹3–8 lakh per year |
| In-house finance/HR to run it | Not needed | 1–2 hires from year 1 (indicatively ₹8–15 lakh per year) |
| EOR fee | From USD 300/employee/month — approx. ₹17 lakh in year 1 (5 heads), scaling to roughly ₹1.7 crore cumulative over three years on this growth curve (full-year basis at ₹95/USD; less with mid-year joins — rate updated monthly) | — |
| Salaries + ~9–11% statutory add-ons | Same under both | Same under both |
| Time to first compliant hire | 24–48 hours | 10–16 weeks |
| 3-year picture | Cheaper and faster at 5–30 heads; the fee grows with every head | Expensive to start; fixed costs amortise — wins past roughly 50–75 heads |
The crossover isn’t month one and it isn’t never — for most companies it’s 50–75 employees. Which is why the real question isn’t “EOR or subsidiary.” It’s “EOR then subsidiary — and when.”
Want the exact monthly number for a specific salary and state? Use our EOR cost calculator, or see the full EOR pricing in India breakdown.
The Graduation Path: From EOR to Your Own Subsidiary
EOR is a stage, not a trap — and we’ll tell you when you’ve outgrown it.
Most TMS clients run on EOR until they reach 50–75 employees. Around that headcount, a subsidiary’s fixed compliance overhead beats a per-employee fee, and TMS manages the graduation end to end:
- Entity readiness — CA/CS firm introductions for incorporation, registrations and ongoing filings (see our guide to registering a company in India)
- Employee transfer — offer letters from your new entity, with statutory continuity: PF balance transfers, gratuity service continuity, leave carry-over
- Parallel payroll runs during cut-over, so nobody’s salary is ever at risk
- Infrastructure — office space and IT equipment partner network
- Your HR function — we recruit and train your in-house HR team, then hand over cleanly
One TMS client started with 5 EOR engineers and grew into a 400-person GCC with its own entity — with TMS managing the incorporation transition and still supporting them today on talent acquisition and compliance. Many graduated clients stay with TMS for talent acquisition, statutory compliance, POSH and contract staffing. No exit fees. You’re never locked in — and never left alone.
Already running India contractors and weighing conversion? See contractor-to-employee conversion and the misclassification risks of leaving them as contractors.
EOR or Subsidiary? A 60-Second Decision Checklist
Tick what’s true for you:
- ☐ We need people on payroll this month → EOR (24–48 hours vs 10–16 weeks)
- ☐ We’ll have fewer than 50 employees for the next 2 years → EOR
- ☐ We’re 50–75+ heads or committed to that scale on a known timeline → subsidiary (hire via EOR while it’s set up)
- ☐ We’ll invoice Indian customers at scale → subsidiary, eventually — EOR bridges the setup period
- ☐ We want compliance risk off our books → EOR (TMS: zero statutory penalties in 10+ years)
- ☐ We have (or will hire) India finance/HR/legal capability → subsidiary is viable
- ☐ We might exit India if the market doesn’t work → EOR (no exit fees; winding up an entity typically takes 6–24 months depending on route)
- ☐ Not sure → that’s what a 30-minute discovery call is for: +91-22-4896-7640
Weighing contractors as a third route? See the full three-route comparison: how to hire in India without an entity →
Long-Term Strategic Considerations
IP and Data Control
With your own entity, intellectual property created by employees belongs directly to your Indian subsidiary, which can be structured to assign IP to the parent company through intercompany agreements. With an EOR, IP assignment requires specific clauses in the employment agreement and the service agreement, adding a layer of contractual complexity. For companies in technology, pharmaceuticals, or other IP-intensive industries, this is an important consideration.
That said, a well-drafted EOR agreement with proper IP assignment clauses provides effective protection. TMS includes comprehensive IP assignment provisions in all employment agreements, ensuring that intellectual property rights flow clearly to the client company.
Client and Vendor Contracts
If your India operations involve direct contracts with Indian clients or vendors, having your own entity is often necessary. An EOR arrangement covers employment, but it does not give you a legal entity to enter into commercial contracts, open a local office under your brand, or invoice Indian customers. If your India presence is purely a talent hub serving your global operations, an EOR works perfectly. If you need commercial operations in India, entity setup becomes necessary regardless of team size.
Exit Strategy Flexibility
Winding up an EOR arrangement is straightforward. You provide the contractual notice period, the EOR manages employee exits per Indian labour law, and the relationship ends. Winding up an Indian entity is significantly more complex, involving MCA filings, tax clearance certificates, employee settlements, and a process that can take 6-24 months. If there is any uncertainty about your long-term India commitment, EOR preserves optionality that entity setup does not.
Frequently Asked Questions
Q1: Can I use an EOR and simultaneously set up my own entity?
Yes. This is the recommended approach for companies committed to India. Start hiring through an EOR immediately while initiating entity incorporation in parallel. Once your entity is operational, transition employees from the EOR to your own payroll. TMS supports this transition process, ensuring zero disruption to employees and continuous compliance coverage during the switchover.
Q2: Do I need a physical office in India if I use an EOR?
No. EOR employees can work remotely, from co-working spaces, or from client offices. The EOR provides the registered office address for statutory purposes. However, if you want a branded physical office, you can lease space independently. Your employees simply work from that location while remaining on the EOR’s payroll.
Q3: Can an EOR handle senior executive hires in India?
Yes. EOR services cover all levels from junior associates to CXO-level hires. For senior executives, additional considerations include equity compensation structuring under Indian tax law, supplementary health insurance beyond ESI, and car or housing allowances. A good EOR provider has experience managing executive-level compensation packages that comply with Indian tax regulations while remaining competitive in the talent market.
Q4: What is the tax treatment for the foreign parent company when using an EOR?
Using an EOR generally does not create a Permanent Establishment (PE) for the foreign company in India, provided the arrangement is structured correctly. The EOR is the employer, not an agent of the foreign company. However, PE determination is fact-specific under the applicable tax treaty, and you should consult with a tax advisor to confirm the structure does not inadvertently trigger PE exposure based on the nature of your employees’ activities.
Q5: How does TMS facilitate the transition from EOR to own entity?
TMS provides a structured transition plan that includes employee communication and consent for transfer, mapping of all statutory benefits including PF balances, leave balances, and gratuity accruals, parallel payroll runs during the transition month to ensure no salary disruption, transfer of employee records and HR documentation, and post-transition support for the first 3 months to resolve any compliance gaps. The typical transition for a team of 20-30 employees takes 4-6 weeks from start to completion.
At what team size should we switch from EOR to a subsidiary?
50–75 employees is the typical crossover. Below that, an EOR is usually cheaper and far lighter to run; above it, a subsidiary’s fixed compliance overhead starts to beat a per-employee fee. TMS manages the transfer with full statutory continuity and tells clients when they’ve reached that point.
What does it cost to keep an Indian subsidiary compliant each year?
Indicatively ₹3–8 lakh per year in filings, audit and professional fees, plus in-house finance/HR capability — the fixed overhead that only makes sense past roughly 50 heads.
Can TMS hire our team via EOR while our subsidiary is being incorporated?
Yes — this is the standard phased path. We hire your team on EOR in 24–48 hours, then transfer them to your entity at go-live with PF, gratuity and leave continuity, using parallel payroll runs so no salary is ever at risk.
Start Hiring in India This Week
Do not wait 16 weeks to hire your first Indian employee. TMS EOR services get you operational in days, with full compliance and the flexibility to transition to your own entity when the time is right.
Contact us at [email protected] to start your India hiring journey today.
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