India produces approximately 5.5 million STEM graduates annually, hosts 1,600+ Global Capability Centers, and offers 30–70% cost savings on professional roles compared to the US or UK. Yet most foreign companies spend 4–6 months and significant capital setting up a legal entity before hiring their first employee. There is a faster, fully legal path: the Employer of Record (EOR) model — used by thousands of foreign companies operating in India today.
Can You Legally Hire in India Without an Indian Entity?
Yes — but not directly. A foreign company cannot employ an individual in India without a legal presence here. Doing so creates Permanent Establishment (PE) risk and denies workers statutory benefits. The lawful path is to use an Employer of Record: a licensed Indian company that employs the individual on your behalf, manages all statutory compliance, and invoices your foreign company in your currency.
Four Options for Hiring in India — Comparison
| Option | Setup Time | Setup Cost | Best For | Key Limitation |
|---|---|---|---|---|
| Private Limited Company (Pvt Ltd) | 4–6 months | ₹50,000–₹2,00,000+ registration; ongoing compliance | Long-term presence, 50+ employees, commercial revenue in India | Slow, expensive; full compliance obligations from Day 1 |
| Branch Office | 3–5 months (RBI approval) | Moderate; requires RBI/FEMA compliance | Liaison and representation only | Cannot carry out commercial activity in India |
| Employer of Record (EOR) | 3–7 working days | Management fee per employee per month | 1–50 employees, early-stage, GCC pre-entity, testing India | Ongoing fee; not ideal for very large teams long-term |
| Independent Contractor | Immediate | None | Short-term, defined project work | No statutory benefits; misclassification risk; IP ownership complexity |
What Is an Employer of Record (EOR) in India?
An EOR in India is a licensed Indian company that becomes the legal employer of your India-based workforce. The EOR hires the employee under an Indian law employment contract, manages payroll, deducts and remits all statutory contributions, and handles all HR administration. Your foreign company directs the employee’s day-to-day work — but the formal employer relationship sits with the EOR.
In practice: your company and the EOR sign a service agreement. The EOR signs an employment contract with the employee. Each month the EOR processes payroll, manages statutory deductions, and invoices your company in your preferred currency (USD/GBP/EUR/AUD). You pay one invoice. The EOR handles everything in India — PF, ESIC, TDS, Professional Tax, and payslips.
EOR vs Entity Setup — Real Cost Comparison
| Cost Dimension | EOR (TMS) | Private Limited Company |
|---|---|---|
| Setup time | 3–7 working days | 4–6 months |
| Setup cost | Nil | ₹50,000–₹2,00,000+ (legal, CA, registration) |
| Ongoing compliance cost | Included in EOR fee | ₹1,50,000–₹5,00,000+ per year (CA, ROC filings, audits) |
| Director requirement | None for foreign company | Minimum 1 Indian-resident director required |
| Payroll processing | Included | Additional cost (payroll software or CA) |
| EOR management fee | $100–$500/employee/month or 8–15% of CTC | Not applicable |
| Break-even headcount | EOR cheaper below ~30–40 employees | Entity cheaper above ~30–40 employees |
| Speed to first hire | Days | Months |
The Legal Framework: PE Risk and Employment Contracts
Permanent Establishment Risk
A Permanent Establishment (PE) is a taxable presence in India. If your India-based employees have authority to conclude contracts on behalf of the foreign company, Indian tax authorities may assert PE and require Indian corporate tax on profits attributable to the India operations. A correctly structured EOR arrangement — where the EOR is the employer, the employee’s contract is with the EOR, and the employee does not have contract-concluding authority for the foreign parent — does not, by itself, create a PE. TMS structures all EOR engagements with PE risk mitigation as a specific design objective.
Employment Contract Jurisdiction
Employment contracts under the EOR model are governed by Indian law. Notice period requirements, termination procedures, and employee rights follow Indian statutory norms — not your home country’s norms. Indian employment law is employee-protective, and termination requires following proper process. TMS advises all clients on this before the first hire goes live.
What TMS EOR Manages Every Month
CTC Structuring
India uses a Cost to Company (CTC) model. TMS structures the CTC to be competitive and tax-efficient — typically basic salary (40–50% of CTC), HRA (partially tax-exempt for employees in rented accommodation), special allowance, and employer PF contribution. Under the new Labour Codes, basic+DA must be ≥50% of CTC — TMS builds this into all new CTC structures.
TDS (Tax Deducted at Source)
TMS computes TDS monthly based on projected annual tax liability, adjusts for employee investment declarations, deducts from salary, and remits to the government by the 7th of the following month. At year-end, TMS issues Form 16 (India’s equivalent of a W-2) to every employee.
Provident Fund (PF)
Both employer and employee contribute 12% of basic salary to the Employees’ Provident Fund. TMS deducts employee’s 12%, adds employer’s 12%, and remits the combined 24% to EPFO by the 15th of each month. PF is mandatory for employees earning up to ₹15,000/month basic; TMS offers PF enrollment for higher earners as standard practice.
ESIC, Professional Tax, and Payslips
ESIC covers employees earning ≤₹21,000/month gross (employer 3.25% + employee 0.75%). Professional Tax is state-level — Maharashtra, Karnataka, West Bengal, and several other states levy PT; Delhi does not. TMS manages deduction and remittance across all applicable states. Every employee receives a detailed monthly payslip and Form 16 annually.
Who Uses TMS EOR in India?
| Company Profile | Why They Use EOR |
|---|---|
| US companies (H-1B constraints) | H-1B delays and lottery uncertainty drive building India teams directly. EOR enables fast deployment without entity setup months. |
| UK/EU companies building India delivery centres | Start with 5–20 people through EOR, validate the India model, then transition to entity once headcount justifies it. |
| Australian and Singapore companies | 40–60% cost savings vs home market. EOR provides compliant access to India talent without FEMA/entity complexity. |
| Startups testing the India market | Hire first 2–3 engineers in India within a week; figure out the entity question after validating the team model. |
| GCC pre-entity phase | Entity registration in progress; EOR lets companies hire and onboard first cohort so Day 1 of the entity is also Day 1 of productive operation. |
How TMS EOR Works: Discovery to Go-Live in 3–7 Days
- Day 1 — Discovery Call: We understand your requirement — headcount, roles, cities, salary range, invoicing currency. We walk through PE risk structure and answer legal questions. (~45–60 minutes)
- Days 1–2 — Service Agreement and Offer Letter: TMS drafts the service agreement between TMS and your company. Simultaneously we prepare the employee offer letter covering role, CTC structure, benefits, and notice period.
- Days 2–3 — Employment Agreement: Employee signs an Indian law employment contract with TMS. TMS’s HR team explains every clause. The contract specifies your company as the directing client.
- Days 3–5 — Payroll and Statutory Setup: Employee enrolled in payroll system. PF UAN generated (if new). CTC structured. TDS configured based on tax declaration. ESIC and PT set up for the applicable state.
- Days 5–7 — Go Live: Employee starts work under your direction. TMS processes first payroll on the monthly cycle, remits all statutory contributions on time, sends your company one monthly invoice.
Frequently Asked Questions
Do we need an Indian bank account?
No. TMS invoices your foreign company in your preferred currency (USD, GBP, EUR, AUD, or SGD) via international wire transfer. TMS pays employees in INR from our Indian accounts. You never need an Indian bank account for the EOR arrangement. Employees are required to receive salary in INR under FEMA regulations.
Is EOR legal in India in 2026?
Yes. The Employer of Record model is legal and widely used by foreign companies. It does not create regulatory violation provided the employment contract is properly structured, all statutory contributions are made, and the arrangement does not create a Permanent Establishment for the foreign company.
How does termination work?
TMS manages the termination process in compliance with Indian law — serving notice (or paying in lieu), processing full and final settlement, and closing out all statutory accounts. TMS’s HR team guides you through the process to ensure compliance and minimise risk.
Can we move employees onto our own entity later?
Yes. When your India entity is ready, TMS manages a clean transfer — the employment agreement moves from TMS to your entity, statutory accounts are transferred, and compliance history is documented. Many TMS EOR clients follow exactly this path: start with EOR, scale up, then transition to owned entity.
Can we hire across multiple cities through one EOR arrangement?
Yes. TMS operates across 100+ cities in India. One service agreement covers employees regardless of city — Bangalore, Hyderabad, Pune, Chennai, Mumbai, NCR, or any combination. One invoice, one account manager, one compliance framework.
