We get this question almost every week from US and European founders: "We found a great developer in Bangalore. How do we hire them without going through the whole company registration process?"
The short answer is: use an Employer of Record. The longer answer is what this article is about — what it actually means, how it works in practice, what it costs, and where people usually get it wrong.
Why You Can't Just "Hire" Someone in India Directly
This surprises a lot of people. If you're a company registered in the US or UK, you cannot simply put an Indian employee on your payroll. Indian law requires that the person employing someone in India be a registered Indian entity. Without one, you're not their legal employer — which means no proper employment contract, no PF contributions, no ESI, no TDS filing. Technically the person isn't even your employee in the eyes of Indian law.
Some companies try to work around this by paying people as "contractors" or "freelancers." That works for a while, but it creates real problems — the person can't get a home loan because they have no formal employment proof, you have no IP protection on their work, and if the tax authorities look closely, they can reclassify the arrangement as employment and hit you with backdated contributions and penalties.
The clean solution is either to register a Private Limited Company in India (which takes 4-6 months and costs ₹3-5 lakh to set up properly), or to use an Employer of Record.
What an Employer of Record Actually Does
An EOR is a registered Indian company that employs your team member on paper. They become the legal employer. You stay in full control of the actual work — what the person does, how they do it, their targets, their day-to-day — but the EOR handles everything that Indian law requires on the employer side.
That includes:
- Drawing up a proper employment contract compliant with Indian labour law
- Running monthly payroll in INR
- Deducting and depositing TDS (income tax) every month
- Contributing to PF (Provident Fund) — 12% of basic salary from the employer side
- ESI (Employee State Insurance) for eligible employees
- Professional Tax, which varies by state
- Gratuity tracking from day one
- Issuing payslips and Form 16 at year end
From your side, you pay the EOR one invoice each month — employee salary, statutory contributions, and their service fee, all bundled together. No separate payments to government departments, no juggling multiple deadlines.
The key thing to understand: the employee works for you in every real sense. The EOR is just the legal wrapper that makes it compliant. Most employees barely notice the difference once they're settled in.
How Long Does It Actually Take?
This is where EOR really earns its keep. If you've found the right person and want them to start quickly, here's a realistic timeline:
Day 1-2 — Documents collected
The employee submits their Aadhaar, PAN card, bank details, and previous employment documents. The EOR prepares the employment contract.
Day 3-4 — Contract signed
Both parties sign the contract. If the employee needs to serve a notice period at their current job, this is when the clock starts. In India, notice periods are typically 30-90 days — factor this in when you're planning.
Day 5-7 — Registered and ready
PF and ESI registrations done, payroll set up, first month ready to run. The person is now legally employed and you can start working together.
Compare that to setting up your own entity — a minimum of 4 months before you can legally pay anyone, assuming nothing gets delayed at the MCA or with your bank.
What Does It Cost?
Let's say you want to hire a software engineer in Bangalore at ₹15 lakh per year (₹1,25,000 per month). Here's what your actual monthly cost looks like through an EOR:
No setup fee. No one-time registration cost. You start paying from the employee's first month and stop when you want to. If hiring doesn't work out or you want to pause, you're not stuck with a company structure to maintain.
One Thing People Always Underestimate: Notice Periods
This catches international companies off guard every time. In India — especially in tech — notice periods are long. 30 days is the minimum. Many mid to senior roles have 60 or even 90 day notice periods written into employment contracts.
So when you find your perfect hire and want them to start in two weeks, you're probably looking at 2-3 months before they actually join. There are two ways to handle this:
- Plan ahead. Start your hiring process 3 months before you actually need someone. This is the safest approach.
- Negotiate a buyout. Some companies pay the outgoing employer a sum to release the employee early. This is accepted practice in India and often works if the amount is reasonable.
Whatever you do, get the employment contract signed as soon as possible once you've agreed terms. It locks the person in and shows they're committed to joining.
What Happens to IP and Confidentiality?
A common worry: if the EOR is the legal employer, who owns the work the employee produces?
This is handled through the employment contract. A properly drafted EOR agreement will include IP assignment clauses that transfer all work product, inventions and code to you — the actual company the person is working for. The EOR doesn't own anything; they're just the employer of record for compliance purposes.
Same for NDAs and confidentiality. These are structured between the employee and both entities — the EOR as legal employer, and your company as the actual work relationship. Any decent EOR will handle this as standard.
When Does It Make Sense to Set Up Your Own Entity Instead?
EOR isn't the right answer for everyone forever. Here's when it makes sense to set up your own company in India:
- You're hiring more than 25-30 people and the EOR fees are starting to add up to more than the cost of running your own entity
- You want to sign contracts and do business in India in your own company name
- You're planning a permanent, long-term India office and want full control over HR policies and benefits
- You need to raise investment or have investors who require a local entity
Many companies use EOR to get started quickly, build a team, prove their India strategy works — then transition to their own entity when they hit 25-30 employees. That's a perfectly sensible approach and something we help clients with at both stages.
Want to hire in India without setting up a company?
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How to Choose the Right EOR in India
Not all EOR providers are the same. A few things to check before you sign up:
- Do they own their own Indian entity? Some providers use third-party aggregators. This adds delays and removes accountability. You want an EOR that directly employs your person through their own registered company.
- How experienced are they with your kind of hire? Tech hires in Bangalore are different from operations hires in Chennai. Local knowledge matters.
- What's included in the fee? Ask specifically whether PF, ESI, professional tax and gratuity tracking are included or billed separately.
- What's the SLA for payroll? Payroll delays are a serious problem for employees. Make sure you know exactly when salaries are processed.
- Can they handle terminations? If things don't work out, you need a clean, legally compliant exit. Ask how they handle notice periods, final settlements and Form 16 issuance.
At XMS, we've been doing this in India since 2017 across IT, BFSI, FMCG and manufacturing. We're based in Bangalore, which means we know the local market, local salary benchmarks and local compliance requirements first-hand — not from a global HR platform dashboard.
If you want to talk through your specific situation, reach out directly. No sales pitch — just a straight conversation about whether EOR makes sense for what you're trying to do.
See also: EOR vs Setting Up a Company in India — Full Cost Comparison | XMS Employer of Record Services