Every week we talk to founders and HR managers at US, UK, and European companies who want to hire engineers or ops people in India. And almost all of them make the same mistake at the start — they think they need to incorporate a company in India before they can hire anyone.
That's not true. And it's costing people months of time and a lot of money they don't need to spend.
Here's the reality: you can have a full-time Indian employee on payroll, with a proper employment contract, PF contributions, tax deductions, everything — in about a week. No Indian company required.
Why Companies Think They Need to Set Up an Entity First
It's a reasonable assumption. In most countries, if you want to employ someone, you need to be a registered employer in that country. India is no different — someone has to be the legal employer.
The key word is "someone." That someone doesn't have to be you.
Indian law allows a third-party company to employ workers on your behalf. You find the person, you manage their work, you set their targets — but the legal employer relationship is with the third-party provider. This arrangement is called an Employer of Record (EOR).
What Actually Happens When You Use an EOR
Think of it this way. You find a developer in Bangalore you want to hire. You agree on a salary — say ₹20 lakhs per year. You tell your EOR provider about the hire.
The EOR then:
- Issues an employment contract in their name as the legal employer
- Registers the employee for PF and ESI
- Runs payroll every month — deducts TDS, makes PF contributions, pays the employee on time
- Files all statutory returns on your behalf
- Handles leaves, payslips, and Form 16 at year end
- Manages the exit process if things don't work out
You pay the EOR a single monthly invoice — employee salary plus statutory costs plus a service fee. That's it. The employee reports to you, follows your processes, does your work. You're just not on the contract.
To be clear: The employee knows the arrangement. They're not deceived. The employment contract simply names the EOR as employer. This is completely normal and legal in India. Most international hires in India happen exactly this way.
The 5 Steps to Hire in India Without a Company
Find your candidate
Either hire directly through job boards, LinkedIn, or referrals — or ask your EOR provider to source candidates for you. Most EOR providers like XMS offer recruitment services alongside EOR, so you can handle both through one partner.
Agree on salary and terms
You negotiate directly with the candidate — salary, role, start date, notice period. In India, notice periods are typically 30-90 days for experienced hires, so factor that into your timeline. Once you've agreed the terms, share the details with your EOR provider.
EOR issues the employment contract
Your EOR provider drafts a compliant employment agreement and sends it to the candidate. This covers salary structure, leave policy, notice period, IP assignment, and any other terms you need. Candidate signs, done.
Onboarding and compliance setup
The EOR registers the employee for PF, sets up the salary structure, and collects tax declaration forms. This takes 3-5 days. Your employee gets a welcome kit and starts work — using your systems, your email, your tools.
Monthly payroll runs automatically
Every month the EOR calculates salary, deducts TDS, makes PF and ESI contributions, and pays the employee. You receive a single invoice. No payroll software to manage, no statutory filings to track.
EOR vs Setting Up Your Own Company — The Honest Comparison
Setting up a company in India is not impossible. But it takes time and upfront money that most companies don't want to spend before they've tested their India hiring.
For most companies hiring under 25-30 people in India, EOR is simply the better option. The economics only swing toward your own entity once you're at scale and have someone in India managing HR and compliance full-time.
Want a deeper look at this decision? Read our full guide on EOR vs setting up a company in India.
What Does It Actually Cost?
This is where people get confused because EOR providers quote things differently. Here's a clean breakdown.
Say you're hiring a software engineer in Bangalore at ₹18 lakhs per year (₹1,50,000/month).
Your total monthly cost would be approximately:
- Employee salary: ₹1,50,000
- Employer PF contribution (12%): ₹18,000
- Employee health insurance: ₹3,000–5,000
- EOR service fee: ₹8,000–15,000
- Total: approximately ₹1,79,000–1,88,000/month
You're adding roughly 20-25% on top of salary. For a mid-level hire that's an additional ₹30,000-40,000/month — far less than the cost of setting up and running your own Indian entity.
For a full breakdown by role and city, see our guide on Employer of Record costs in India.
The Notice Period Problem Nobody Warns You About
This is the thing that catches most international companies off guard. In India, especially in tech, notice periods are long. 60-90 days is completely standard. Some senior hires are on 3 months notice.
So if you find a great candidate today, they might not start for 2-3 months. A few things to keep in mind:
- Start the hiring process at least 3 months before you actually need the person
- You can negotiate a buyout — the candidate pays their current employer a lump sum to leave early. This happens frequently
- Get the EOR contract signed as soon as the candidate accepts — it locks them in even while they're serving notice elsewhere
Mistakes That Will Cost You
After placing 10,000+ people and helping hundreds of companies hire in India, these are the most common mistakes we see:
Hiring contractors instead of employees. Looks cheaper upfront. But if that contractor works full-time, exclusively for you, following your processes — Indian tax authorities can reclassify them as employees. Then you owe 2 years of backdated PF and ESI contributions. Use an EOR from day one and do it properly.
Paying Indian employees directly from overseas. Without a registered entity or EOR, you have no legal basis to be an employer in India. Direct overseas payments create permanent establishment risk — meaning Indian tax authorities could tax your entire global company on India-sourced income. It's a serious exposure most small companies don't realise they're taking on.
Not structuring salary correctly. Indian salaries have components — basic pay, HRA, special allowance, medical allowance. How you split the salary affects both the employee's take-home pay and your statutory costs significantly. A good EOR will structure this properly so the employee gets more in hand without increasing your costs.
One thing worth being clear about: An EOR is not a workaround. It's a legitimate, widely-used employment model. But it needs to be done through a properly registered Indian company. Be careful with EOR providers who operate through sub-contractors rather than their own Indian entity — your compliance exposure is much higher with those setups.
When You Should Actually Set Up Your Own Company
At some point, if you're committed to India long-term, you'll want your own entity. The usual trigger is around 30-50 employees — at that size, the fixed cost of entity maintenance starts to make more sense than per-head EOR fees.
You should also consider your own entity if:
- You're signing contracts with Indian clients in India — you need legal presence for that
- You want your own company name on employment contracts
- You're opening a physical office with support staff
- You're building a Global Capability Centre (GCC)
Starting with EOR doesn't lock you in. When you're ready to move to your own entity, a good EOR provider can help transfer employees across with minimal disruption to them or to you.
How XMS Handles This
We've been doing exactly this in Bangalore since 2017. We take on legal employment of your India-based team, run payroll, manage all compliance, and handle everything administrative — so your team can just focus on the work.
We also source candidates if you need help finding the right people. So you can come to us with a job description, we find the person, onboard them compliantly, and manage them ongoing — all in one place.
EOR starts from ₹8,000/month per employee. No setup fee. Employees onboarded in 5-7 days.
Want to hire in India without setting up a company?
Tell us what you need — role, location, timeline. We'll come back with a cost breakdown within 24 hours.