- A foreign company cannot run Indian payroll directly, so you need either your own Indian entity or an Employer of Record acting as the registered employer.
- Core compliance includes a lawful employment contract, PF and ESI registration, professional tax, salary TDS, a monthly INR payroll, and gratuity provisioning.
- PF is mandatory at 20+ employees and ESI at 10+, but most startups register from the first hire through an EOR to stay clean.
- The four new Labour Codes effective 21 November 2025 introduce a uniform wage definition that protects the PF and gratuity base, so structure contracts to it from the start.
- Classifying full-time staff as employees from day one avoids misclassification liability and limits permanent establishment risk for the parent.
Hiring your first full-time employees in India is one of the best moves a growing startup can make, but it comes with a stack of statutory obligations that look nothing like a US, UK, or Canadian payroll. Get them right from the start and you build a clean, fundable operation. Get them wrong and you accumulate backdated liabilities that surface later. This checklist walks through everything a startup needs to set up before and after the first hire, and shows where an Employer of Record (EOR) can carry the compliance for you.
Do you need an entity or an EOR first?
A foreign company cannot run Indian payroll directly. You need a registered Indian employer, which means either incorporating your own entity or using an Employer of Record that already is one. For the first handful of hires, an EOR lets you start in days without incorporation, registrations, or local directors. Most startups consider switching to their own entity once the India team reaches roughly 30 to 50 people. You can hire employees in India through an EOR while you decide. Weigh the running cost of an EOR in India against the time and overhead of an entity.
What is the full compliance checklist?
The table below is the working checklist. With an EOR, every item in the right column is handled by the provider as the registered employer.
| Step | What it involves | Who handles it under an EOR |
|---|---|---|
| Legal employer | Own Indian entity or an EOR acting as registered employer | EOR is the employer of record |
| Employment contract | Written offer and contract compliant with Indian law and the new wage definition | EOR issues a compliant contract |
| PF registration | Provident fund: employer and employee each 12% of basic and DA, mandatory at 20+ employees | EOR registers and remits |
| ESI registration | Employer 3.25% and employee 0.75% up to the wage ceiling, at 10+ employees | EOR registers and remits |
| Professional tax | State-level tax registration and deduction where applicable | EOR registers and deducts |
| TDS on salary | Monthly income tax deduction at source and deposit, plus annual filings | EOR deducts and files |
| Payroll cycle | Monthly INR salary run, payslips, and net pay to local bank accounts | EOR runs payroll |
| Gratuity provisioning | Employer-funded gratuity, 15 days pay per year, payable after five years | EOR provisions and pays |
| Leave and notice | Statutory leave, holidays, and lawful notice and termination terms | EOR administers |
| Labour Code alignment | Compliance with the four new Labour Codes effective 21 November 2025 | EOR keeps you aligned |
How should the employment contract be structured?
An Indian employment contract should set out role, compensation broken into basic, allowances, and benefits, working hours, leave, notice period, confidentiality, and a clear intellectual property assignment. Under the new Labour Codes, the uniform definition of wages limits how much pay you can push into allowances, because basic pay must generally be at least half of total compensation. That definition feeds the PF and gratuity base, so structuring the contract correctly from the start avoids underfunding statutory benefits.
Which statutory benefits are mandatory?
The core mandatory items are:
- Provident fund. Employer and employee each contribute 12% of basic and DA, with the employer share split between pension and provident fund, plus small EDLI and admin charges.
- ESI. For employees within the wage ceiling, the employer contributes 3.25% and the employee 0.75% toward state medical insurance.
- Gratuity. Employer-funded, calculated as 15 days of last drawn pay per completed year, payable after five years of continuous service, with fixed-term staff now eligible pro-rata after one year.
- Professional tax and TDS. State professional tax where applicable, and monthly salary TDS deposited with the tax department.
How do the new Labour Codes change things?
The four Labour Codes took effect on 21 November 2025, consolidating 29 earlier laws into the Code on Wages, the Industrial Relations Code, the Code on Social Security, and the Occupational Safety, Health and Working Conditions Code. The most practical change for a startup is the uniform wage definition that protects the PF and gratuity base. Central and state rules are still being notified through the transition period, so existing payroll mechanics continue while you align. Building your setup to the new definition now saves a rework later.
How do you avoid misclassification and PE risk?
If you are hiring full-time staff, classify them as employees from day one rather than putting them on contractor agreements to save effort. Treating full-time workers as contractors invites misclassification claims with backdated PF, ESI, and gratuity liability. A team of employees working under your direction in India can also raise permanent establishment risk for the foreign parent. An EOR holds the employment relationship in India, which keeps the classification clean and limits the parent's exposure.
How Wisemonk helps
Wisemonk runs this entire checklist for you as your Employer of Record in India. We act as the registered employer, issue compliant contracts, handle PF, ESI, professional tax, TDS, gratuity provisioning, leave, and payroll, and keep everything aligned to the new Labour Codes, so your first India hires are fully compliant from day one without an entity. When the team grows to the point where your own entity makes sense, we help you compare the options and transition cleanly. If you are weighing contractors against employees, we can help you hire and pay contractors in India correctly too.
Ready to hire your first employees in India?
Talk to Wisemonk about setting up compliant full-time employment in India, from contracts and registrations to payroll and statutory benefits, without forming an entity.
Frequently asked questions
What do startups need to hire full-time employees in India?
You need a registered Indian employer, an employment contract that complies with Indian law, PF and ESI registrations, professional tax and TDS setup, a monthly INR payroll, statutory benefits including gratuity, and alignment with the new Labour Codes. An Employer of Record provides all of this without you forming an entity.
Do I need an Indian entity to hire employees?
Not for your first hires. A foreign company cannot run Indian payroll directly, but an Employer of Record acts as the registered employer so you can hire compliantly in days. Many startups set up their own entity later, often around 30 to 50 employees.
What statutory benefits are mandatory for Indian employees?
Provident fund at 12% each from employer and employee, ESI at 3.25% employer and 0.75% employee for those within the wage ceiling, employer-funded gratuity after five years, professional tax where applicable, and salary TDS. These are statutory, not optional.
When do PF and ESI become mandatory?
PF is mandatory once you have 20 or more employees, and ESI applies from 10 or more employees for those within the wage ceiling. Many employers register and contribute from the first hire through an EOR to stay clean and consistent.
How do the new Labour Codes affect hiring?
They consolidate 29 laws into four codes effective 21 November 2025 and introduce a uniform definition of wages that requires basic pay to be a meaningful share of total compensation. That protects the PF and gratuity base, so contracts should be structured to the new definition from the start.
How do I avoid misclassification when hiring in India?
Classify full-time staff as employees from day one rather than as contractors. Treating employees as contractors triggers backdated PF, ESI, and gratuity liability, and an undisclosed working team can create permanent establishment exposure for the foreign parent. An EOR keeps the classification clean.
How quickly can a startup start hiring in India?
With an Employer of Record you can usually start within a few days once the candidate accepts, because the EOR is already a registered employer with the necessary registrations. Setting up your own entity and registrations typically takes several weeks to a few months.
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