How to Transfer Employees from EOR to Your Own Entity in India — A Practical Guide

When to Make the Transition

There is no single right answer on timing, but there are clear signals that the transition is approaching. The most practical trigger is headcount — when your India team exceeds fifteen to twenty people, the cumulative EOR fees typically start to exceed the cost of running your own compliance function. At that scale, hiring a local HR or finance manager to handle payroll and compliance, combined with a payroll software subscription, is usually cheaper than continuing on EOR.

Other triggers that accelerate the decision include needing to bid for government contracts (which require an Indian legal entity), wanting to open a physical office in India that requires local registration, or planning to raise capital from Indian investors. Any of these typically require your own Private Limited Company or Limited Liability Partnership.

The transition requires careful planning — do not start the process until your India entity is fully registered and has a PF establishment registration in place. Attempting the transfer before your entity is legally ready creates gaps in statutory coverage for your employees.

The Transfer Process — Step by Step

Step 1. Set up your India entity completely. Incorporate your Private Limited Company, obtain your PAN and TAN, register for GST if applicable, open a business bank account, and crucially, register your company for Provident Fund with the EPFO and obtain your PF establishment code. This registration can take four to eight weeks after incorporation. Do not start the employee transfer until this is done.

Step 2. Register for ESI if applicable. If any of your employees earn below ₹21,000 gross per month, your entity needs to be registered with ESIC. ESI registration can be obtained online and typically takes one to two weeks.

Step 3. Register under the Shops and Establishments Act. Every business operating in India must register under the local Shops and Establishments Act. Registration requirements and timelines vary by state — Karnataka, Maharashtra, and Tamil Nadu each have slightly different processes.

Step 4. Issue new employment contracts. Each employee must receive a new employment contract from your India entity. The contract should reflect the same role, compensation, and terms as their current EOR contract. It is important to clearly document that the service continuity is maintained — the employee's tenure, accumulated leave, and gratuity eligibility continue uninterrupted.

Step 5. Transfer PF accounts. Employees' PF accounts move with them. When an employee moves from one employer to another, their PF account can be transferred using Form 13. The employee submits this to the EPFO, and the PF balance from the EOR's PF account transfers to your company's PF account. This process takes four to eight weeks and runs in the background after the employment transfer.

Step 6. Handle the notice period and F&F from EOR. Technically, the employment with the EOR ends when the new employment with your entity begins. The EOR should process any due leave encashment and issue the employee's relieving letter and Form 16 for the relevant period. Coordinate the effective date carefully to avoid a gap — the last day with the EOR and the first day with your entity should be consecutive working days.

Step 7. Update TDS deduction. Your India entity's finance team or payroll partner must set up TDS deduction for the new employees. The employees need to submit their income tax investment declarations to your entity's payroll function so TDS is calculated correctly from day one.

What Employees Care About During the Transfer

Most employees who have been working happily under EOR are not particularly concerned about the transfer if it is communicated well. What they care about is continuity — will their salary remain the same? Will their leave balance carry over? Will their gratuity eligibility be maintained? Will their PF account be transferred correctly?

The answer to all of these should be yes, and saying so clearly and early prevents anxiety. We recommend communicating the transfer to employees at least four to six weeks in advance, holding individual conversations with anyone who has questions, and providing written confirmation of the continuity of all terms and benefits.

What Can Go Wrong and How to Avoid It

PF registration delay. If your entity's PF registration is not in place before the transfer, employees cannot be enrolled in PF with your company from day one. This creates a compliance gap and potential liability. Prioritise the PF registration — it is the most common bottleneck in India entity setups.

Incorrect gratuity treatment. Gratuity is payable after five years of continuous service. If the transfer is not structured as a continuity of service, employees who are within five years of their original joining date with the EOR may lose their gratuity eligibility. The employment contract for the new entity must explicitly state that prior service under EOR is counted as service under your entity for gratuity purposes.

TDS miscalculation in the transition year. In the year of the transfer, the employee's TDS history from two employers needs to be consolidated. Form 16 will be issued by both the EOR (for the pre-transfer period) and your entity (for the post-transfer period). Make sure your payroll function is aware of the pre-transfer TDS deducted so the annual calculation accounts for it correctly.

Running Payroll After the Transfer

Once your employees are on your entity's payroll, you need to manage the ongoing compliance cycle — monthly PF ECR filing, ESI contributions, TDS deduction and quarterly Form 24Q filing, professional tax, and Form 16 issuance. You can run this internally or outsource it. Many companies that have moved to their own India entity continue to outsource payroll to XMS rather than building the internal capability — we handle the full compliance cycle as a standalone service. See our payroll outsourcing page.