How to hire employees in India through an Employer of Record (EOR) [2023 Guide]

Hiring in India? Foreign employers keen on tapping into the country’s skilled workforce can start by hiring Indian contractors and sending international payments. But if you want to expand and hire full-time employees, you’ll need to establish a legal entity or hire through an EOR.

Registering a legal entity can take months. Once established, it requires knowledge of complex Indian employment laws. Any misstep can incur fines and legal action from the Income Tax Department and other regulatory authorities.

Alternatively, you can use an “Employer of Record” (EOR), which handles Indian payroll, tax, and compliance considerations. Through Rippling EOR’s entities, you can start hiring and working with employees in India quickly and compliantly.

Here’s a step-by-step guide for hiring through an EOR in India.

Step by step: How to hire through an Employer of Record in India

Step #1: Decide between an Indian EOR and a legal entity

Should you hire Indian employees through an EOR, or set up your own entity? This depends on your company’s resources, size, and plans to scale.

• Legal entity in India. Setting up a legal entity from scratch usually requires registration with local authorities, opening a local bank account, and consulting with local experts to ensure compliance with tax and labor laws.
• Indian EOR. An EOR is a third-party service that operates as an employer on a company’s behalf—meaning you don’t need to set up your own entity. As well as allowing you to hire full-time Indian employees, EORs handle all the legal requirements for complying with Indian laws for payroll, contracts, and benefits. EOR services also include calculating and withholding taxes, onboarding and managing employees, and running payroll.

All-in-one global HR platforms, like Rippling, allow you to hire, pay, and manage employees and contractors worldwide. They are also “payroll processors,” which means they actually process your payroll, transmit funds, and calculate and file taxes in every country through their own software. This allows you to manage and automate the entire employee journey in one place, all around the world.

Most EOR platforms are not HRIS's (Human Resource Information Systems). They were built with the express purpose to hire and pay people internationally. They aggregate local payroll providers in every country and manually transmit your payroll files to them. This approach comes with many limitations.

Hire employees in India in 90 seconds with Rippling

Normally, setting up a corporate entity abroad is a long, expensive process. But through Rippling EOR’s entities, you can start hiring and working with people abroad quickly and compliantly. See Rippling.

Step #3: How to hire and onboard your Indian employees

Once you’ve picked an EOR that works in India, you can begin the onboarding process by collecting the following information from your new employees:

• Name (matching the account where you’ll deposit their pay).
• Date of birth and date of hire.
• Contact information, including their mailing address in India.
• Bank account information.
• Amount to be paid in INR (including any bonuses).
• Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN).
• An account number for the Employee Provident Fund (EPF).

Next, you need to send out an employment agreement that outlines key working conditions. An EOR can automatically localize and distribute employment agreements. Every Indian hire will have a legally compliant contract offering statutory requirements for probationary periods, working hours, minimum wage, benefits, and termination policies like severance pay and notice periods.

Example: Indian employees have different statutory minimums for earned leave entitlements depending on which state they live in. If you use an EOR, it will generate separate employment agreements to account for, say, a Bombay resident needing at least 21 days paid leave and a Delhi resident needing at least 15.

Rippling EOR automatically flags non-compliant sick leave policies and tells you how to fix them. If you'd like to give your employees more leave to match policies in other countries, you can do that too. See Rippling.

Step #4: Run payroll

For the A-to-Z on global payroll, read our comprehensive guide to running international payroll for employees in India.

Once you’ve collected a new hire’s information and both parties have signed employment agreements, an EOR will pay your Indian employees in Indian rupees, while withholding legally required taxes from salaries. This includes income taxes deducted at the source (TDS), as well as contributions to social security programs such as:

• Employees Pension Scheme
• EPF
• Employee State Insurance (if you have more than 10 employees)

Keep in mind many EOR companies are payroll aggregators, meaning they pay employees via third-party vendors. This makes for slower processing times and headaches when it comes to managing international employees under the same system.

Rippling EOR, by contrast, simplifies global employment by using native payroll software to send funds and handle taxes, allowing you to pay Indian employees alongside your local workforce—all within a single pay run.

Below is a preview of how Rippling’s one-click global payroll system works:

Frequently asked questions about hiring through an EOR in India

How much does an EOR cost?

EORs typically use one of two pricing structures:

• Fixed monthly fee per employee
• Percentage of payroll plus applicable taxes

Both methods can also come with various administrative fees, onboarding charges, and other costs for supplemental features.

Keep in mind that you don’t need to use an EOR for your entire workforce. If you want to segment its use, you’ll only be charged for the employees you employ through the EOR.

What is the difference between an EOR and PEO?

A Professional Employer Organization (PEO) co-employs a company’s workforce and provides administrative services like paying employees, handling compliance, and filing payroll taxes. The company and PEO are jointly responsible for the workforce. A PEO does not, however, allow you to hire in other countries where you haven’t set up a local entity.

An EOR, on the other hand, is the sole employer of the portion of your workforce you use it for, assuming all the associated liabilities. An EOR allows companies to work with employees in other countries without setting up a legal entity.

Does an EOR protect your sensitive and confidential information?

While outsourcing your payroll management to an EOR can spare you time and compliance risk, sharing your data with companies who use third-party vendors leaves you exposed to data breaches from manual uploads.

You should seek out EORs that prioritize data protection, including:

• Compliance with industry-standard privacy regulations in different countries.
• Secure infrastructure with around-the-clock maintenance.
• Carefully vetted personnel.

You can also establish a Data Processing Agreement (DPA) with a payroll service that mandates sound privacy practices and provides legal protection.

Does an EOR help with Indian tax filings?

An EOR can automatically calculate and file your taxes in India. Rippling, for instance, is an authorized payroll provider by the Income Tax Department. On your company’s behalf, it can distribute and submit forms that outline taxable income, TDS payments, and social security contributions.

What are the mandatory benefits for Indian employees?

India’s Ministry of Labour and Employment sets forth the country’s minimum working conditions. Mandatory employee benefits include:

• Retirement payments through the EPF
• Earned leave (exact policies vary among India’s 28 state governments)
• Maternity leave
• Disability leave
• Public holidays
• Sick leave
• Gratuity payments after five years of continuous service

Note that while all Indian employees are covered by public healthcare, many employers offer private group health insurance plans with more robust coverage.

For more information on mandatory benefits in India, read our complete guide.

The provident fund, pension scheme, and state insurance make up India’s social security system. This covers retirement, health insurance, disability, and other entitlements. An employee pays a portion of their salary for these contributions in addition to the employer’s costs.

Employee State Insurance (ESI) contributions are mandatory if you have more than 10 employees.

Rippling and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.