In today’s highly competitive business environment, US companies hiring in india are discovering that American firms that want to grow cannot afford to depend only on the domestic labor market. When the salaries of experienced software engineers in the US are estimated at more than $140,000–$180,000 per year, recruitment of foreign employees becomes a strategy rather than a measure to reduce costs.
There is much more room for maneuver for US businesses in India. India has become the leading innovation center in the world with millions of English-speaking software developers, data scientists, product managers, and digital marketers.
But hiring Indians directly creates significant operational problems. US businesses are not allowed to issue local work agreements and pay salaries in Indian Rupees (INR) from the US without having a locally registered business entity in India. Setting up a subsidiary company involves filing with the Ministry of Corporate Affairs (MCA), registration of tax numbers, and conducting regular audits, which takes months and several thousand dollars.
That’s when an employer of record service comes into play. With eor services, US companies can legally hire virtual employees in India in a few days without registering a local subsidiary.
In this ultimate guide, we will describe how global EOR structures work, compare employment in the US with India, give a full checklist of how to hire employees in India, and help you scale your remote team safely.
Why US Companies Are Establishing Distributed Teams in India
It would be hard to argue against the fact that there are many reasons why US companies should expand to India:
1. Unbeatable Quantity and Level of Talent
More than 1.5 million engineers graduate from Indian universities per year. But besides fresh talents, the market features a well-established ecosystem of top-tier tech leaders who have already created scalable software solutions for leading global tech companies.
2. Large Savings
Though the salaries for Indian tech specialists have been growing continuously, the cost savings ratio is still very impressive. A senior full-stack developer in India gets an average salary which can be up to 60% – 70% lower than in San Francisco and New York.
3. Round-the-Clock “Follow-the-Sun” Productivity
The 9.5 to 12.5 hours’ time difference between the US and India makes round-the-clock production possible. Once the US-based team completes its shifts, they can pass tasks onto the Indians who will then roll out the updates and testing process during the night.
How the EOR Service Will Function for Your Company in India
An Employer of Record becomes your company’s employer structure in India. The legal obligations between you and the EOR service provider are clearly demarcated:
Legal Structure for EOR Services
In the event that you find a suitable person in India, the global eor services provider provides you with a locally crafted employment contract which adheres to the labor laws of India both centrally and state-wise. The individual is legally assigned to the EOR payroll and works solely under your operational supervision. You pay a combined monthly invoice in USD for the worker’s salary, statutory contributions, and EOR services fee.
Don’t Miss : 7 Questions to Ask Before Signing with an EOR Provider in India
Labor Laws in India vs. The USA: Key Differences That US Businesses Should Know
It is common practice for US business executives to dangerously assume the applicability of US employment laws to their employees from India. The country of India does not know “at-will” employment.
1. Mandatory Provident Fund (PF)
The EPF is mandatory in nature and a savings scheme that helps provide social security. The employer and the employee make a contribution of 12% on the salary of the individual.
2. Employees’ State Insurance (ESI) and Health Benefits
ESI covers medical expenses of the employees whose monthly earnings fall below a particular ceiling level ( ₹ 21,000 per month). Private GHI must be provided to high-paid IT employees.
3. Payment of Gratuity Act
Under Indian law, an employee who successfully completes five consecutive years of service with an organization becomes eligible to receive a lump sum amount called “Gratuity” when he/she leaves his/her job, which is computed on the basis of the last drawn salary and length of service.
4. Notice Periods (30 to 90 Days)
Unlike the 2-week notice requirement in the United States, notice periods in Indian employment contracts vary between 30 and 90 days. The EOR ensures that your contracts contain clearly defined notice periods and buyouts.
Direct Subsidiary versus EOR Services: A Cost & Time Comparison
On expansion into India, the US companies need to decide whether to register their own Private Limited subsidiary or use eor services.
| Operational Factor | Direct India Subsidiary Setup | Using Global EOR Services |
| Setup Timeline | 3 to 6 months. | 2 to 5 business days. |
| Upfront Incorporation Costs | $5,000 to $15,000+ (Legal, incorporation, CA fees). | $0 upfront setup fees. |
| Ongoing Overhead | High (Requires in-house accountants, local HR, legal counsel). | Predictable, fixed monthly fee per employee. |
| Entity Maintenance | Complex mandatory quarterly/annual filings with MCA. | 100% managed by the EOR provider. |
| Flexibility | High commitment; difficult to wind down if strategy changes. | Highly flexible; scale up or down smoothly. |
Checklist for Hiring Employees in India: Step-by-Step
To ensure seamless onboarding and total legal compliance, use this proven checklist for hiring employees in India:
Step 1: Candidate Selection
- Perform your recruitment and selection activities the way you normally would. You select the technical skills and suitability while the EOR puts together the framework of the offer.
Step 2: Define INR-based Compensation Structure
- Compensation structure of Indian salary has been designed in certain elements that help minimize the tax burden of the employee. The basic elements of a typical compensation structure include the following:
- Basic Salary: 40% to 50% of the Total Cost to Company (CTC).
- House Rent Allowance (HRA): A tax-saving element of the salary.
- Special Allowance: Flexible element offsetting the other elements of CTC.
- Statutory Employer Contributions: PF (12%), Gratuity, and Insurance.
Step 3: Provide Compliant Local Employment Agreement
An agreement that is made between the EOR and the candidate covers working hours, probation period, leaves (Earned Leave, Sick Leave, Casual Leave), intellectual property assignment, and notice period.
Step 4: Perform KYC and Verification
Gather all necessary documents needed by law in India:
- PAN (Permanent Account Number): Needed for tax deduction at source (TDS).
- Aadhaar Card: National unique number for linking the PF account.
- Banking details: Details of local bank account for salary deposit.
- Background verification: Verifying education and employment records.
Step 5: Equipment Provisioning & IT Setup
Make sure your remote team has the necessary equipment for performing their job tasks. In many cases, the EOR arranges for laptops procurement and secure delivery to remote employees in Indian cities.
Intellectual Property (IP) Protection and Data Security
Among the most important issues faced by US executives while considering hiring virtual employees in India is protection of the source code and data of their customers.
How EORs Protect Your Intellectual Property:
Under the Indian law, any intellectual property developed by the employee becomes the property of the employer if there is written agreement regarding this issue. A professional EOR has a strong two-level IP assignment mechanism:
- Level 1 (Worker to EOR): All works, inventions, codes and patents made during the employment are assigned to the EOR in the employment agreement in India.
- Level 2 (EOR to US Company): 100% of these IP rights are immediately assigned to you as soon as the Master Services Agreement (MSA) between the US company and EOR is signed.
Moreover, make sure that your EOR service provider is ISO 27001 and SOC 2 Type II compliant for enterprise-level data security and international data privacy compliance.
FAQs
Q1. Can I change the status of my independent contractors in India to full-time employment using an EOR service?
A. Yes. Changing the contractor’s status to full-time employment through EOR service is quite common practice. This prevents “misclassification risks” and helps you avoid any tax risks for your US company while providing your Indian workforce with stability and statutory benefits.
Q2. How do currency exchange fluctuations impact payroll?
A. The employment agreements in India are valid and signed in Indian Rupee (INR). All EORs process currency exchange for you, converting your dollars into INR and making payroll disbursement of salaries in exact amounts in INR at competitive live rates.
Q3. What if later on we choose to incorporate our own legal entity in India?
A. An excellent EOR partner will help you transition easily. Once your team has grown large enough to justify the costs of your own subsidiary company, your EOR will help you transfer your employees to that subsidiary without any service interruption.
Q4. Do virtual/remote workers in India get paid leaves?
A. Yes. According to state laws in India, all employees are entitled to several paid leaves including Earned Leave, Privilege Leave, Sick Leave, Casual Leave, and public holidays.
Effortlessly Hire and Scale Up Your Engineering Team in India
Don’t let the complexities of Indian labor law, tax deductions, and compliance issues hinder your ability to hire best-in-class Indian talent for your business based out of the US. Are you interested in improving your engineering skills, decreasing red tape, and legally hiring the best Indian talent without having to form a business entity in India? If so, then InsourceIndia is just the solution that you require!
As the leader in EOR services in India, InsourceIndia takes care of all aspects of the local recruitment process, right from drawing up legally airtight contracts to handling local employment requirements like PF, ESI, automatic INR payroll, and complete IP transfer. Start building your Dream Team offshored legally and efficiently now!
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