Being able to offer outsourcing services in India is not enough nowadays. It’s now recognized as a perfect destination for creating Global Capability Centers or distributed IT teams owing to the emergence of English-speaking specialists.
But in any case, if you choose to venture into the Indian market arena, you will be facing the same critical dilemma: Should you hire an Employer of Record in India, or should you incorporate a separate entity yourself?
Picking the wrong route can result in disastrous effects on your future performance there. Establishing a new subsidiary brings about full strategic freedom, but at the same time requires lots of money and a lot of bureaucracy. Hiring an employer of record allows you to set up a team almost instantly, but you still have to pay the varying costs of the platform depending on its growth.
In order to ensure that you make the right decision, in this guide we analyze each option according to three key business principles: Time, Money, and Risk Management.
Strategic Forks in the Road: Employer of Record in India vs. Local Subsidiary
Before diving into the financial aspect, it is crucial to understand the specific needs of both options after entering the Indian market.
The EOR approach (Path A)
When you select an Employer of Record services in India, you won’t be required to set up any kind of legal structure or organization in that country. The EOR is going to be the actual employer of your personnel in India. It will handle everything from preparing employment agreements for them, paying salaries every month, paying taxes, giving local employee perks, etc. Meanwhile, you retain the right to tell your personnel what to do every day.
The Own Entity Option (Path B)
For your own entity, it would mean creating another company or entity in India (usually Pvt. Ltd.). To do that, you’ll have to hire local corporate attorneys, rent offices and set up corporate bank accounts.
1. Time Factor: The Speed of Going to the Market
If the process of building an international team is slow, there may be a problem that you lose good people because other competing companies act very fast.
Timeline of Building an Own Entity in India
There is one important factor to take into consideration when talking about creating an entity in India: the creation process is usually quite lengthy. In general, it goes through several necessary stages:
- Obtaining Digital Signature Certificates (DSC) and Director Identification Number (DIN).
- Your company name is approved by the Ministry of Corporate Affairs (MCA).
- Articles of Association (AoA) and Memorandum of Association (MoA).
- Opening a local corporate bank account with the help of a comprehensive KYC process for foreigners.
- Registration under PAN, TAN, GST.
The timeline usually lasts from 3 to 6 months.
EOR Timeline: Instant Onboarding
With the EOR, there is simply no need for any process at all. Because the EOR itself already has the Indian corporate entity in place and ready for use in compliance with the local regulations, onboarding an engineer takes anywhere from 2 to 14 days. Upon choosing a particular employee, the EOR will instantly create an employment contract for you, which will allow you to grow rapidly.
2. The Money: The Hidden Costs You Didn’t Know About
Understanding the cost savings that come with using the EOR’s services requires looking beyond just salaries into how much more expensive it would be to hire and employ people over many years compared to the one-off costs of building an entity.
What Is the Cost of Setting Up Your Own Entity?
It’s very costly to set up your private limited company in India. The setup costs might range between $15,000 and $25,000.
But the true cost is the cost of maintenance that your entity will be paying. In order to comply with local laws, your entity will be required to cover the following expenses:
- Bookkeeping and accounting, along with the annual audit of statutory nature.
- The rental cost of the office spaces, in order to secure the address of the registered office of the company.
- Local HRM staff members, along with payroll management systems.
- Corporate secretarial help for organizing board meetings and filing all necessary documentation.
Such an administrative maintenance layer will cost around $2,500-$4,500 monthly regardless of whether you hire 2 employees or 20.
What Is the employer of record India cost?
Employer of record service cost in India is very consistent and transparent. It is based on a variable pricing system, with service fees being PEPM-based (Per Employee Per Month). The amount is typically between $199-$599 per month, which depends on the package and the number of your employees.
No corporate set-up costs or accounting retainers are charged by us. The only set-up cost you will face when establishing your EOR company in India is paying the refundable security deposit of 1-2 months’ salaries.
Financial Breakeven Point Calculation
In order to find the optimal path for your business, you have to calculate the financial breakeven point at which the costs of running your organization will be cheaper than the variable EOR fees.
| Team Size | Employer of Record in India Cost (Avg. $250/mo fee) | Own Entity Maintenance Cost | The Economically Superior Path |
| 3 Employees | $750 / month | ~$3,500 / month | EOR saves $2,750/month (plus avoids initial setup capital). |
| 10 Employees | $2,500 / month | ~$3,500 / month | EOR saves $1,000/month (highly efficient operational agility). |
| 15 Employees | $3,750 / month | ~$3,500 / month | Cost Equivalence. The financial crossover point begins. |
| 30+ Employees | $7,500 / month | ~$3,500 / month | Own Entity saves $4,000/month (justifies entity incorporation). |
3. Risk Management – Compliance, IP, and Liabilities
It would be appropriate to point out that navigating the laws related to labor legislation, government taxation, and compliance requires local expertise.
Protect Your Intellectual Property (IP)
In order to protect the rights associated with their IP, companies working with products, technologies, and AI have no other choice but to do so.
As it is mentioned above, when you choose the Employer of Record, you need to ensure that your IP rights are protected. Therefore, the employer needs to provide a well-established structure including two layers of agreements. The best EOR services include strict assignment clauses within their local contracts. According to the laws on labor relations in India, IP generated by the employee is always owned by the EOR. By signing a master service agreement, 100% ownership will be transferred to your company immediately.
Manage PE Risks
If you are working with offshore employees without having a company registered properly, the local tax authority will classify this practice as establishing a Permanent Establishment (PE) and charge taxes for all income generated worldwide due to your business activity in India.
EOR can be considered as an important shield for the organization from the financial perspective since the service provider takes care of processing the payroll and the deducting of the taxes on your behalf via its local entity, ensuring that the parent company is completely insulated from PE risks.
Compliance with Statutory Employee Benefits
According to the statutes in India, some compulsory employer contributions are required including Employee Provident Fund and gratuity provided per month.
Manually incorporating all the deductions by your entity requires the hiring of professionals with local Human Resources laws knowledge; any missed regulation will lead to fines being imposed on the organization.
The entire process is handled by EOR for you automatically with its legal department taking care of the same.
Conclusion: Who Wins the Race?
Ultimately, whether you choose the route of Employer of Record in India or establishing your own entity depends on the size of operations you need at the moment.
- Ideal Route for Small Scale Operations (1-20 Employees): In the case where your plans include conducting a trial project or even scaling a team to up to 20 people, EOR will definitely prove the best option. Your time-to-market period will become considerably shorter, you won’t incur upfront costs and, what’s more, there won’t be any risks related to legal employment of people in India.
- Ideal Route for Big Scale Operations (25+ Employees): If you are planning to establish yourself on a global level with at least 25 employees, your only choice will be opening your own Wholly Owned Subsidiary. By that point, your fixed costs in terms of establishing your own entity will be much lower than paying for services.
FAQs
Q1. Does it mean that using EOR I will be away from labour courts in India?
Yes, as the employer of record is going to be formally considered an employer, they are going to have all liabilities as an employer and handle all labour issues and terminate any employment relationship with your staff members on your behalf.
Q2. Is there any maximum time period for when I can run an EOR in India?
No, there are no restrictions from a legal point of view for the use of the EOR structure. Therefore, you are free to continue using this structure forever, and create your own entity when your workforce grows up to a certain level.
Q3. How would currency changes affect my EOR in India costs?
Most of the professional EORs charge you in their currency, usually USD, applying a small differential of foreign exchange and only after that converting funds to INR (Indian Rupees).
Q4. Is it possible for me to hire employees through EOR to then incorporate them in my own entity in India?
Yes, it is possible, however, there should be an option provided in the master service agreement on transferring workers to your subsidiary.
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