How a PEO actually works under Indian law
The term "professional employer organisation" travelled to India from the United States, but it works differently here — and buyers should understand the difference before signing. In the US, PEO co-employment is a recognised legal construct in which the PEO becomes a statutory employer for tax purposes. Indian labour law recognises no such dual-employer status: every employee has exactly one legal employer of record, and statutory bodies such as the EPFO and ESIC register contributions against a single establishment. A PEO arrangement in India is therefore an administrative co-employment: your entity remains the sole legal employer and the party named on statutory registrations, while the PEO operates the employment machinery — payroll runs, deductions, filings, letters, registers and audit responses — under your establishment codes.
This is not a weakness; it is the correct structure for a company that already owns an Indian entity. It keeps employment continuity, gratuity accrual and statutory IDs uninterrupted while removing the need to hire an internal payroll and compliance team. What matters is that the PEO contract states clearly who executes each obligation and who is liable for errors — since the entity carries legal responsibility, the provider's indemnity and review discipline are the real product being purchased.
PEO vs EOR vs payroll outsourcing: choosing correctly in 2026
These three models are frequently confused because all involve an external firm running payroll. The decisive variable is entity ownership and how much of the HR layer you want to keep:
| Factor | PEO | EOR | Payroll outsourcing |
|---|
| Indian entity needed? | Yes — yours | No — TMS is the employer | Yes — yours |
| Legal employer | Your entity | TMS | Your entity |
| Scope | Full HR ops layer: payroll, statutory, letters, helpdesk, benefits admin | Full employment lifecycle including contracts and onboarding | Payroll processing and statutory filings only |
| Relative cost | Middle — lower than EOR | Highest, reflecting transferred employer risk | Lowest |
| Typical user | Established Indian entity, no internal HR ops team | Foreign company testing or entering India | Company with in-house HR wanting execution support |
The common lifecycle is EOR first, PEO second: a foreign company hires its first Indian employees through an EOR, incorporates once headcount and revenue justify an entity, then migrates staff to its own entity with TMS continuing as PEO — same delivery team, same records, changed legal wrapper. Employees experience no disruption because salary structures, tenure and statutory IDs carry over.
What the Labour Codes mean for PEO clients
Because the entity remains the legal employer under a PEO, obligations created by the four Labour Codes (in force since 21 November 2025) land on your company — the PEO's job is to discharge them faultlessly on your behalf. Three areas deserve attention in 2026. First, wage-definition standardisation affects how basic pay and allowances must be structured; legacy CTC designs need review, and employees can see the effect on their own numbers using the CTC to take-home calculator. Second, mandatory appointment letters mean historic informal engagements must be papered. Third, states are notifying rules under the Codes on different timelines, so a multi-state entity needs state-wise tracking — all statutory positions in TMS engagements are verified by the TMS compliance team and maintained under our statutory compliance practice.
Frequently asked questions
What is a PEO in India?
A PEO in India is a firm that runs the complete HR operations layer — payroll, statutory compliance, employee documentation, benefits administration and helpdesk — for a company that owns its own Indian entity. The client entity remains the legal employer; the PEO executes the employment machinery under a service agreement.
Is co-employment legal in India?
Indian law does not recognise US-style dual legal employment — every employee has one employer on record. Indian PEO arrangements are therefore administrative: fully lawful, but structured as an outsourcing of HR operations rather than a transfer of employer status. Any provider claiming to "share" legal employer status in India should be questioned closely.
How is a PEO different from payroll outsourcing?
Payroll outsourcing covers the monthly salary cycle: processing, deductions, payslips and statutory filings. A PEO adds everything around it — onboarding and exit administration, HR letters and policies, benefits coordination, registers, audits and an employee helpdesk — effectively replacing an in-house HR operations team.
When should a company switch from EOR to PEO?
Once you register an Indian entity, PEO is usually the natural next step: it costs meaningfully less than EOR because employer risk returns to your entity, while operations stay with the same provider. Companies typically switch when a permanent India commitment is made — often alongside GCC setup or a funding-driven expansion.
What does a PEO cost in India?
PEO fees are quoted per employee per month against a defined scope, and sit well below EOR pricing for the same headcount since the provider does not carry legal-employer risk. The main pricing variables are headcount, number of states and whether benefits administration and helpdesk are in scope.
Have an entity and want the HR layer off your desk? Request a PEO scope and quote — a tailored proposal follows within one business day.
