How to Hire Employees in India Without Setting Up an Entity (2026 Guide)

You’ve found the person — or the market. Now you need them legally employed in India, and you don’t have an Indian company. You have exactly three routes: engage them as an independent contractor, hire them through an Employer of Record (EOR), or incorporate your own Indian entity.

Each route is right for somebody. Most guides on this page’s topic are written to sell you one of them. This one is written to help you choose — including the point at which the route we sell stops being the right answer.

TMS has run EOR in India for 10+ years, for 450+ clients from 50+ countries, and we’ve watched companies take all three routes. Here’s what actually matters.

The three routes at a glance

	Contractors	EOR (Employer of Record)	Own entity (subsidiary)
Time to first hire	Days	24–48 hours from signed agreement	10–16 weeks before first compliant hire
Upfront cost	None	None — no setup fee	Incorporation professional fees (commonly ₹2–5 lakh, structure-dependent) + capital
Ongoing cost	Invoice amount (+18% GST if registered)	Salary + ~9–11% statutory + EOR fee from USD 300/employee/month	Salary + statutory + annual compliance overhead (indicatively ₹3–8 lakh/yr in filings/audit/professional fees) + finance/HR headcount
Legal employer	Nobody — that’s the problem	The EOR (TMS)	Your Indian company
Compliance risk	High — misclassification exposure	Carried by the EOR	Yours, in full
PE (tax) risk	Elevated if they act like employees	Managed with proper structuring	N/A — you’re taxed as an Indian company
IP protection	Weakest — assignment via freelance contract	Strong — employment-grade IP assignment	Strongest — direct ownership
Control over work	Limited by law (control = employment)	Full day-to-day direction	Full
Benefits, ESOP, retention	None statutory; ESOPs awkward	Full statutory + benefits; ESOPs possible with structuring	Full, native
Right team size	1–2, genuinely independent, short-term	1 to ~50–75	50–75+
Exit	Immediate	Straightforward, no exit fees	Typically 6–24 months winding up, depending on route (strike-off vs voluntary liquidation)

The rest of this page unpacks each row — then gives you a decision framework you can defend to your board.

Route 1: Independent contractors — fast, cheap, and legally fragile

Engaging Indian professionals as contractors is the default first move, and for genuinely independent work it’s legitimate: a designer on a three-month project, a consultant with multiple clients, an agency deliverable.

It becomes a problem the day the “contractor” starts looking like an employee: fixed monthly amount, your hours, your tools, one client (you), a manager reviewing their work. Indian authorities and courts look at the substance of the relationship, not the label on the contract. If it walks like employment, it can be reclassified as employment — with retrospective Provident Fund demands, interest and damages under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (see the mechanism in our contractor misclassification guide).

What contractors cost you that the invoice doesn’t show:

• Misclassification exposure that grows every month the arrangement runs
• Weak IP assignment — freelance contracts don’t carry the presumption employment does
• Zero retention tooling — no PF, no gratuity, no ESOP mechanics, nothing that makes staying rational
• Permanent Establishment questions for foreign companies if contractors function as your Indian operation
• Churn: your best “contractor” will leave for the first employer offering PF, insurance and an appointment letter

When contractors are the right answer: genuinely independent, project-based, short-duration work — or a 1–2 person exploratory toe-in-the-water where you accept the risk knowingly and time-box it.

About a third of TMS’s EOR clients arrive at exactly this point: they started with contractors, the team grew, and someone — a lawyer, an auditor, an acquirer’s due-diligence team — asked the uncomfortable question. Converting is straightforward; we cover it on our contractor-to-employee conversion service page.

Route 2: EOR — compliant employment without the entity

An Employer of Record legally employs your India team on your behalf. TMS becomes the employer on paper — payroll, PF, ESI, taxes, insurance, appointment letters, exits — while you direct the actual work. One invoice, in USD, EUR or AED; FEMA, AML, RBI and GST handled on the India side.

Speed: with TMS, an accepted candidate is onboarded in 48 hours standard, 24 when it’s urgent — signed Labour-Code-compliant appointment letter, PF/ESIC enrolment, HRMS login. Compare that with 10–16 weeks before an entity can compliantly run its first payroll.

Cost: the employee’s salary plus India’s statutory add-ons (roughly 9–11% of gross for employer PF, gratuity accrual, insurance and admin — full worked examples on the EOR page) plus the EOR fee, from USD 300 per employee per month, all-inclusive. No setup fees, no exit fees. There is no minimum team size — one employee is fine.

Risk: the compliance burden sits with the EOR. TMS has operated 10+ years with zero statutory penalties and zero legal disputes. PE risk doesn’t vanish under EOR, but a properly structured engagement keeps it managed — that guidance is included in the fee, not sold separately.

Control: you run the work — targets, reviews, tooling, culture. What you don’t run is Indian payroll compliance across every state and union territory. That’s the trade, and for teams under ~50 heads it’s almost always the right one.

The honest limits of EOR:

• Above roughly 50–75 employees, the per-head EOR fee starts to exceed the cost of running your own entity (see route 3)
• Some enterprise clients and government contracts prefer counterparties with an Indian entity
• ESOPs work under EOR but need case-by-case structuring — native equity is simpler in your own entity

When EOR is the right answer: 1 to ~50 employees, speed matters, you want the compliance risk off your books, and India is a team — not yet a subsidiary with its own P&L.

Route 3: Your own entity — maximum control, maximum overhead

Incorporating a Private Limited company (or LLP, or branch office) gives you direct IP ownership, native contracts with Indian clients and vendors, and full control. It also gives you: 10–16 weeks of incorporation and registrations (ROC, PAN, TAN, GST, PF, ESI, professional tax, shops & establishments — several of these state-by-state), a resident director requirement, a heavy annual compliance calendar (ROC filings, tax and labour returns), statutory audit, and the need for finance and HR capability on the ground before your first hire is even legal.

When an entity is the right answer: you’re committed to India at scale (50–75+ heads), you’re revenue-generating in India, you need native client contracts, or equity/ESOP mechanics are central to your talent strategy.

The mistake to avoid: incorporating first “because we’re serious about India.” Seriousness is not a legal structure. Companies that incorporate at 3 heads spend their first year feeding a compliance apparatus instead of building a team. The phased path — EOR now, entity when the numbers justify it — is how most successful India entries actually run.

The decision framework

Answer these five questions:

1. How many people in the next 12 months? 1–2 genuinely independent specialists → contractors may be defensible. 1–50 → EOR. 50+ committed → start entity planning now, hire via EOR meanwhile.
2. How fast do you need someone on payroll? This week → EOR (24–48h). You can wait a quarter → entity is on the table.
3. Who should carry the compliance risk? If the answer is “not us, not yet” → EOR. If you have (or will build) India finance/HR/legal capability → entity.
4. Will you invoice Indian customers? Selling into India at scale usually ends in an entity — but you can hire via EOR while it’s being set up, and many companies run both in parallel.
5. What does exit look like if India doesn’t work? Contractors: instant. EOR: clean, lawful full-and-final, no exit fees. Entity: typically 6–24 months of winding up, depending on route.

The pattern we see most: start on EOR, validate the market and the team for 12–24 months, incorporate at 50–75 heads, transfer the team across.

When to graduate from EOR to your own entity — and why we’ll tell you

Here’s the part an EOR provider isn’t supposed to say: EOR is not forever. Most TMS clients run on EOR until they reach 50–75 employees. Around that point the arithmetic flips — your own entity’s fixed compliance overhead, spread over 60+ heads, beats a per-employee fee.

When that day comes, TMS manages the graduation end-to-end: employee transfer to your new entity with statutory continuity (PF balances, gratuity, leave), CA/CS firm introductions, office and IT infrastructure partners, HR team recruitment and training, and full information handover. Many clients then stay with TMS for talent acquisition, statutory compliance and contract staffing. You’re never locked in.

If your India plan is a Global Capability Centre from day one, the same phased path applies at larger scale — several TMS clients have grown from a handful of EOR engineers into full GCCs.

What each route really costs: a 10-person team, year one (sketch)

Illustrative only — request a binding cost sheet for real numbers.

Cost line	Contractors ×10	EOR ×10	Own entity, 10 heads
Pay (₹12L/yr avg gross each)	₹1.2 cr in invoices (+GST 18% if registered, often creditable)	₹1.2 cr salaries	₹1.2 cr salaries
Statutory add-ons (~9.5%)	— (that’s the exposure, not a saving)	~₹11.4 L	~₹11.4 L
Provider fee	—	from USD 300/emp/mo ≈ ₹34 L/yr for 10 heads (at ₹95/USD, updated monthly)	—
Entity setup + annual compliance	—	—	Indicative: ₹2–5 L setup + ₹3–8 L/yr in filings/audit/professional fees
In-house finance/HR to run it	—	—	1–2 hires (indicatively ₹8–15 L/yr, market-dependent)
Contingent liability	Retro PF + interest + damages, unquantified	None — zero penalties in 10+ yrs at TMS	Yours to manage

The contractor column is the cheapest line and the most expensive footnote. The EOR-vs-entity crossover is why 50–75 heads is the graduation zone — full breakeven math on our EOR vs entity setup comparison.

Frequently Asked Questions

Can a foreign company hire employees in India without a legal entity?

Yes — through an Employer of Record. The EOR (TMS) is the legal employer in India; you direct the work. Contractors are the other entity-free route, but with misclassification risk if they function as employees. Direct employment without any Indian presence is not compliant.

How fast can I hire in India without an entity?

Through TMS EOR: 48 hours standard from signed agreement, 24 hours urgent — offer, Labour-Code-compliant appointment letter, PF/ESIC enrolment and HRMS login, fully digital. Your own entity takes 10–16 weeks before it can compliantly employ anyone.

Is hiring contractors in India instead of employees legal?

Yes, for genuinely independent work. It becomes misclassification when the contractor works under your control, hours and tools like an employee. Authorities look at substance over the contract label — see our misclassification risk guide.

What does an EOR in India cost?

TMS EOR starts from USD 300 per employee per month, all-inclusive — no setup or exit fees. On top of salary, budget roughly 9–11% of gross for India’s statutory employer costs (PF, gratuity accrual, insurance). Worked examples on the EOR in India page.

Can I start with one employee?

Yes. TMS has no minimum team size — many clients start with a single hire and scale from there.

When should I switch from EOR to my own entity?

The typical crossover is 50–75 employees, when an entity’s fixed overhead beats a per-head fee. TMS supports the transition end-to-end — employee transfer, statutory continuity, CA/CS and infrastructure introductions — and tells clients when they’ve reached that point.

Can I run EOR and my own entity at the same time?

Yes — common during entity setup (hire now via EOR, transfer later) and for hiring in states or roles your entity isn’t registered for yet.

Do the new Labour Codes change any of this?

The four Labour Codes have been in force since 21 November 2025 — appointment letters are mandatory and basic wages must be at least 50% of total pay. Under EOR, TMS carries that compliance; under contractors, the Codes sharpen the misclassification lens; under your own entity, it’s your compliance team’s problem. —