What is the Cost of Hiring an Employee in India?

You're ready to hire in India. The salary numbers look great - $1,500 for a developer versus $8,000 back home. Easy decision, right?

Then reality hits. What are these mandatory statutory contributions? Do you need an EOR? Why are people talking about hidden costs? And most importantly, what's your actual monthly bill going to be when you factor in everything?

You need real numbers to present to your CFO, not vague estimates that fall apart three months in.

This guide breaks down the complete cost of hiring employees in India - base salaries, mandatory contributions (that 16.75% everyone mentions), what EORs actually charge versus setting up your own entity, and the hidden expenses that catch foreign businesses off guard. You'll see exact budget breakdowns for different team sizes and when each hiring model makes financial sense.

By the end, you'll know what to budget realistically and which approach saves you money without the compliance headaches.

How much does it cost to hire an employee in India?[toc=Cost to Hire in India]

Let me cut through the noise here. When most overseas businesses ask about the cost of hiring an employee in India, they're thinking about salary. But here's what we've learned working with hundreds of global companies: the salary is just your starting point:

The real cost of hiring includes your direct compensation plus a bunch of mandatory statutory contributions that many foreign businesses don't budget for. And trust me, these aren't optional.

Base salary expectations in 2026

Indian professionals' salaries vary wildly based on experience and role, but here's what you're realistically looking at:

1. Entry-level positions (fresh graduates, 0-2 years): $300 to $600 per month. Think junior developers, customer support, data entry specialists.
2. Mid-level talent (3-7 years experience): $1,000 to $2,000 monthly. This covers most of your core team like experienced developers, marketing managers, or analysts.
3. Senior professionals (8+ years, specialized skills): $2,500 to $4,000 per month. These are your team leads, architects, senior managers.

Now, the low labor cost is attractive, sure. But don't make the mistake of thinking that's your total cost. The cost structure differs significantly from what you might be used to back home.

Mandatory costs you can't skip

India's labor laws require employers to make specific statutory contributions. These aren't suggestions. They're legal requirements, and skipping them creates serious legal and financial liabilities.

• Employees' Provident Fund (EPF): You pay 12% of the employee's basic salary into their retirement fund. Your employee contributes another 12% from their salary. This applies to anyone earning up to ₹15,000 basic salary per month.
• Employee State Insurance (ESI): If your employee earns less than ₹21,000 gross per month, you're required to contribute 3.25% to 4.75% toward their health insurance and medical benefits. The employee chips in another 0.75%.
• Gratuity provision: You need to set aside roughly 4.81% monthly. Employees become eligible for this lump-sum payment after completing five years with your company.
• Professional Tax: This is a state-level thing, and the amount varies depending on where your employee works. Budget around ₹200-2,500 annually per employee.

Add it all up, and you're looking at a minimum 16.75% on top of base salary just for mandatory costs. Most overseas businesses miss this in their initial budgeting, and it causes problems down the line.

What this looks like in real numbers

Let's say you're hiring a mid-level developer at ₹80,000 per month (that's about $960 USD).

Your monthly costs break down like this:

• Base salary: $960
• EPF contribution (12% of basic): $115
• ESI or other health provisions: $45
• Gratuity accrual: $46
• Professional tax and misc: $15

Your actual monthly cost: $1,181

That's before you factor in any recruitment agency fees, onboarding and training costs, or additional benefits you might offer to attract top talent.

The hidden costs nobody mentions

Beyond statutory contributions, you've got operational expenses that add up:

• Income tax deductions: You don't pay this directly, but you're responsible for deducting tax from your employee's salary and remitting it to the government. Get this wrong, and you're liable for the shortfall.
• Currency conversion fees: If you're paying from overseas, expect 3-5% in FX fees unless you've got a smart payment setup.
• Compliance and reporting: Someone needs to file monthly returns, manage the provident fund paperwork, and handle employee state insurance registrations. If you're doing this yourself without local expertise, budget for mistakes.

The average monthly cost for a single employee typically runs 20-25% higher than their base salary when you account for everything. That's still incredibly cost effective compared to hiring in the US or Europe, but you need to budget realistically.

Here's our advice after helping many global companies with their team expansion plan: treat 25% as your planning number. If an employee's base salary is $1,000, budget $1,250 monthly. That covers your statutory contributions and gives you a buffer for those miscellaneous costs that always pop up.

The cost of hiring in India remains one of the best business investments you can make for accessing skilled talent, but going in blind on the actual numbers is how businesses get burned.

What are the costs for different hiring models?[toc=Cost for Different Models]

Here's where things get interesting. You've got three main ways to hire employees in India, and each hiring method comes with a completely different cost structure.

The business model you choose isn't just about upfront costs. It's about how much control you want, how fast you need to move, and frankly, how much complexity you're willing to deal with.

Let me break down what each option actually costs, because we've seen too many overseas businesses pick the wrong model and regret it six months in.

Option 1: Setting up your own entity in India

This is the traditional route. You establish a legal presence in India, register with all the authorities, and hire employees directly.

What you'll pay upfront:

• Company registration and setup: $10,000 to $15,000
• Legal fees and documentation: $3,000 to $5,000
• Office registration address (mandatory): $1,000 to $3,000
• Bank account setup and initial deposits: $2,000+

So you're looking at roughly $16,000 to $25,000 just to get the doors open. And that timeline? Plan on 3 to 6 months if everything goes smoothly.

Ongoing annual costs:

• Statutory audits and compliance: $8,000 to $12,000
• Accounting and bookkeeping: $6,000 to $10,000
• Legal retainer for labor law compliance: $4,000 to $8,000
• Payroll processing and HR software: $500 to $1,000 monthly

Your annual operational expenses for just maintaining the entity run $25,000 to $40,000, before you pay a single employee.

When this makes sense: You're planning to hire 15+ people and you're committed to India long-term. At that scale, the per-employee cost drops significantly. But for testing the market or building a small team? It's overkill.

Option 2: Using an Employer of Record (EOR)

This is how most smart foreign businesses start now. The Employer of Record (EOR) becomes the legal employer, handling all the compliance challenges while you manage the day-to-day work.

What local EOR services cost:

• Indian-based EOR providers like Wisemonk: $99 to $200 per employee monthly
• These companies have their own entity and deep local market knowledge
• Service fees are straightforward, usually all-inclusive

What global EOR platforms charge:

• International EOR services: $499 to $699 per employee per month
• You're paying for brand name and multi-country coverage
• Often the same backend services as local providers, just repackaged

The hidden costs with EOR services:

• Setup or onboarding fees: $0 to $500 per employee (one-time)
• Security deposit: Usually one month's salary plus one month of service fees (refundable when you exit)
• Currency conversion fees: 3% to 5% if not managed properly
• Early termination costs: $300 to $1,000 if you leave before contract term

Real cost example: You hire someone at $1,500 monthly salary through a local EOR partner charging $150 per month. Your total monthly cost is around $2,000 ($1,500 salary + statutory contributions ~$255 + EOR fee $150 + benefits ~$95).

When this makes sense: You need to move fast, you're hiring 1 to 10 people, or you want to test hiring remote employees without the operational risks of setting up an entity. Most of my clients start here.

For more details: What is the Cost of EOR in India?

Option 3: Hiring contractors

Contractors seem cheaper on paper because you're not paying statutory contributions. But the cost remains deceptively high when you factor in everything.

What you'll actually pay:

• Hourly rates: $15 to $35 per hour for skilled work
• That translates to roughly $2,400 to $5,600 monthly for full-time engagement
• Compare that to $1,500 to $2,500 for an actual employee doing the same work

Why contractors cost more per hour: They're covering their own provident fund, health insurance, income tax, and business expenses. Plus they build in a margin because they don't have job security.

The real risk: Misclassification. If Indian authorities determine your "contractor" is actually functioning as an employee (working set hours, using your equipment, taking direction like an employee), you're liable for all the statutory contributions you should have been making, plus penalties.

We've seen companies get hit with bills for 2-3 years of back contributions plus fines. It wipes out any savings immediately.

When contractors make sense: Short-term projects under 6 months, highly specialized work, or when you genuinely need someone who works independently and delivers a specific outcome.

Side-by-side: What 5 employees actually cost you

Let me show you real numbers for hiring a 5-person team over one year:

Setting up your own entity:

• Setup costs: $20,000
• Annual compliance: $30,000
• Employee salaries (avg $1,500/month each): $90,000
• Statutory contributions (17%): $15,300
• Benefits and misc: $10,000
• Year 1 total: $165,300
• Years 2+: $145,300 (no setup costs)

Using local EOR services:

• No setup costs: $0
• EOR fees ($150/employee/month): $9,000
• Employee salaries: $90,000
• Statutory contributions (handled by EOR): included
• Benefits and misc: $8,000
• Year 1 total: $107,000
• Subsequent years: $107,000

Hiring contractors:

• No setup costs: $0
• Contractor fees ($25/hour avg, 160 hours/month): $240,000
• No statutory benefits: $0
• Platform fees or payment processing: $12,000
• Year 1 total: $252,000
• Plus misclassification risk

The numbers don't lie. For businesses focusing on team expansion without the overhead, EOR models provide similar services to having your own entity but at a fraction of the total cost in the first few years.

Our recommendation: Start with a local EOR partner. Test your team for 6 to 12 months. Once you're confident about long-term commitment and your team grows past 12-15 people, then consider setting up your own entity. That's how many global companies do it, and it's the lowest-risk path.

The industry and hiring method you choose should match your actual needs, not just what sounds good in theory.

What are the hidden costs you should know about?[toc=Hidden Costs]

Alright, let's talk about the costs that blindside most foreign businesses. You've budgeted for salaries and statutory contributions, you've picked your hiring method, and then boom - three months in, you're wondering why your actual spending is 30% higher than planned.

These hidden costs are where the real damage happens if you're not prepared.

1. Recruitment and hiring costs

Finding top talent in India isn't free, and the costs vary wildly depending on how you source candidates.

Job postings on major platforms:

• Naukri.com (India's largest): $20 to $600 per posting, depending on visibility
• LinkedIn job posts: $100 to $600 for 30 days
• Indeed India: Free basic posts, premium options run $25 to $200
• Specialized tech boards: $50 to $300 per listing

Most companies need 3 to 5 job postings to fill one position, so multiply accordingly.

Recruitment agency fees: This is where it gets expensive. The standard in India is 8.33% of the candidate's annual salary, which equals one month of their yearly package. Some agencies go higher for specialized skills - We've seen 15% to 25% for niche technical roles or senior leadership positions.

So if you're hiring someone at $24,000 annually, budget $2,000 to $6,000 just for the agency fee. And here's the kicker - most agencies in India want payment within 30 days of the candidate joining, not after probation.

Background verification: Every legitimate company does this. Costs run $10 to $50 per candidate depending on how deep you go. Education verification, employment history, criminal checks, address verification - each component adds to the bill.

Lost productivity during hiring: Your existing team is interviewing candidates, coordinating with human resources, doing technical assessments. That's time they're not spending on actual work. For technical roles, I typically see 20 to 40 hours of team time invested per successful hire.

2. Onboarding and training costs

You've made the hire. Great. Now you need to actually get them productive.

Onboarding expenses:

• Equipment (if you're providing): Laptops run $500 to $1,500, monitors, accessories add another $200 to $400
• Software licenses and tools: $50 to $300 monthly per person
• Access setup, email accounts, security protocols: $100 to $200 in IT time

Training investment: The real cost here is your senior team's time. Someone needs to train the new employee, explain systems, review work, answer questions. Based on typical billing rates, this runs $200 to $800 in opportunity cost for the first month.

For specialized expertise or technical roles, some companies invest in formal training programs. Budget $500 to $2,000 if you're going that route.

The ongoing costs that never stop

These are the costs that keep ticking every single month.

Annual salary increments: In India, employees expect 8% to 12% annual raises as standard. High performers want 15% or more. If you're not planning for this, you'll face serious retention problems.

On a $1,500 monthly salary, that's an additional $150 to $225 per month after year one. Multiply that across your team, and it adds up fast.

Performance bonuses: Many Indian professionals expect performance-based incentives. The typical range is 5% to 15% of annual salary, paid quarterly or annually. For a $24,000 annual salary employee, that's $1,200 to $3,600 yearly.

Health insurance beyond statutory: ESI covers employees earning under ₹21,000 monthly, but for everyone else, you'll likely need to provide health insurance to stay competitive. Group health plans for Indian professionals run $300 to $1,000 per employee annually, depending on coverage.

Additional benefits to attract talent:

• Work-from-home allowances: $50 to $150 monthly
• Internet reimbursement: $20 to $50 monthly
• Learning and development: $200 to $800 annually
• Wellness programs: $100 to $400 annually

3. EOR-specific costs you need to watch

If you've chosen the EOR route (and honestly, most of you should), there are some additional costs applicable that providers don't always highlight upfront.

• Security deposits: Most EOR services require a refundable deposit equal to one month's salary plus one month of service fees. This covers them if you suddenly exit or if there are notice period complications.

For a $1,500 salary with $150 EOR fee, you're putting down $1,650 upfront per employee. Refundable, yes, but it ties up capital.

• Currency conversion fees: This is sneaky. If your EOR provider doesn't have smart FX management, you're paying 3% to 5% on every transfer. On $10,000 monthly payroll, that's $300 to $500 lost to conversion fees.

Former service providers we've worked with charged 5% to 7% markups. Find an EOR with transparent FX rates or negotiate this down.

• Amendment and documentation fees: Need to change someone's salary? Update their contract? Add a new benefit? Some EORs charge $50 to $200 per contract amendment. Over time with a growing team, these administrative fees add up.
• Exit and termination costs: When you part ways with an employee, there are final settlement costs. Severance pay (if applicable), unused leave encashment, final provident fund settlements. Budget $500 to $2,000 per employee depending on their tenure and salary level.

If you're using an EOR, they typically charge $300 to $1,000 for handling the full termination process properly.

Compliance and administrative overhead

Even with an EOR handling the heavy lifting, you still need someone managing the relationship.

• Time investment from your team: Someone on your side needs to coordinate payroll inputs, approve timesheets, handle employee queries, manage performance reviews. Budget 5 to 10 hours monthly for every 10 employees you have in India.
• Accounting system integration: Your India payroll needs to flow into your global accounting. Setting this up and maintaining it costs money - either in software subscriptions ($50 to $300 monthly) or in accountant time.
• Periodic audits and reviews: Smart companies audit their India operations annually to ensure compliance. Third-party compliance audits run $2,000 to $5,000 depending on team size.

The average monthly cost when you factor in all these hidden expenses typically runs 25% to 35% above base salary for the first year, then settles to around 20% to 25% in subsequent years as one-time costs drop off.

Here's our honest take: most businesses focusing on hiring in India underestimate these costs by 20% to 40% in their first year. Don't be that company. Budget conservatively, and you'll actually come in under budget, which makes you look smart to your CFO.

The cost efficiency of hiring Indian professionals is still incredible even with all these hidden costs factored in. You're just being realistic about what it actually takes.

How does India compare to other countries?[toc=India vs Other Countries]

Let's get real about why everyone's talking about India for remote hiring. The numbers speak for themselves, but context matters too.

The straight cost comparison

We are going to use a mid-level software developer as the benchmark here because that's what most companies hire. Same skill level, similar experience, different locations.

That's not a typo. You're looking at $70,000 to $100,000 in annual savings per employee when you compare India to the US. Even against other popular outsourcing destinations, India typically saves you 20% to 40%.

What you're actually getting for the cost

Here's where people get skeptical. "Sure, it's cheaper, but is the quality there?"

Fair question. India has over 5 million IT professionals. The country produces more English-speaking STEM graduates annually than most countries have total graduates. You're not scraping the bottom of the barrel - you're accessing a massive talent pool with genuine specialized skills.

The average monthly salary in India for skilled professionals is lower because the local cost of living is lower. A developer earning $2,000 monthly in India has a comparable lifestyle to someone making $7,000 to $8,000 in the US. They're not underpaid by local standards - you're just benefiting from economic differences.

The hidden advantages beyond cost

Time zone coverage: India is 10.5 to 13.5 hours ahead of US time zones. For some companies, that's a problem. For others running 24/7 operations or needing round-the-clock development cycles, it's perfect.

Scalability: Need to go from 3 people to 30 in six months? India's labor market can absorb that growth. Try scaling that fast in Poland or Mexico - the talent scarcity will slow you down and drive up costs.

English proficiency: Unlike many low-cost markets, English is widely spoken in India's professional class. You're not dealing with major language barriers for most roles.

Where India isn't the cheapest (and why that's okay)

Vietnam and some Southeast Asian markets can undercut India by 10% to 20% on entry-level positions. But here's what we've seen: the depth of specialized expertise drops off quickly. Need a machine learning engineer or a senior DevOps specialist? India's market is 10x deeper.

Eastern European countries like Ukraine offer competitive rates for certain tech roles, but geopolitical factors and EU regulatory complexity add operational risks that India doesn't have.

The real ROI calculation

Let's say you're building a 10-person development team.

In the US: Annual cost of $1,000,000 to $1,400,000

In India: Annual cost of $180,000 to $264,000 (with EOR)

That's $750,000 to $1,100,000 in annual savings. Even after you account for management overhead, timezone coordination, or occasional travel, the cost efficiency is undeniable.

And here's the thing - many global companies aren't choosing India just to cut costs anymore. They're choosing it because that's where the talent density is for certain skills. The cost advantage is just a bonus at this point.

Our take? If your sole deciding factor is finding the absolute rock-bottom cheapest labor, maybe India isn't your answer. But if you want the best combination of cost, quality, scalability, and reliability, India's hard to beat in 2026.

The question isn't really "Is India cheaper?" anymore. It's "Can you afford not to tap into this market when your competitors already are?"

What's your total cost breakdown by team size?[toc=Total Cost Breakdown]

The cost structure differs dramatically based on how many people you're hiring. Here's what actually matters for your budget.

1-5 employees: Start with EOR

Per employee monthly cost: $1,200 to $2,500

For a 3-person team:

• Total salaries: $3,600 to $4,800
• Statutory contributions: $600 to $800
• EOR service fees: $300 to $600
• Monthly total: $4,500 to $6,200
• Annual: $54,000 to $74,000

Why EOR makes sense here: Zero setup costs, you're operational in days, and the per-person overhead is manageable.

6-15 employees: EOR vs entity decision point

With EOR:

• 10 employees monthly: $12,000 to $25,000
• Annual: $144,000 to $300,000
• No setup costs, predictable monthly billing

With your own entity:

• Setup investment: $20,000 to $25,000
• Monthly payroll + compliance: $13,000 to $23,000
• Annual (Year 1): $176,000 to $301,000
• Annual (Year 2+): $156,000 to $276,000

The break-even point hits around month 10-12. If you're confident about long-term commitment, setting up your entity starts making financial sense at this scale.

15+ employees: Entity is cost effective

Monthly operational costs: $18,000 to $50,000+ (varies by salary levels)

At this team size, your entity's fixed compliance costs ($2,000 to $3,000 monthly) get spread across more people. You're saving 15% to 25% compared to EOR fees.

Quick math on a 20-person team:

• EOR route: $300,000 to $500,000 annually
• Own entity: $250,000 to $400,000 annually
• Savings: $50,000 to $100,000 per year

The smart progression most companies follow

Start with local EOR services for your first 3-6 hires. Test the market, build your processes, see if remote business models work for your company culture.

Around employee 8-10, start planning your entity setup if you're committed. Run both in parallel during transition (yes, it's messy for 2-3 months, but worth it).

By employee 15-20, you should be fully transitioned to your own entity to maximize cost efficiency.

That's how many global companies actually do it. Not because they read it in a guide, but because the math forces you there.

What should your realistic budget include?[toc=Realistic Budget]

Let me give you the formula that actually works, not the one that looks good in spreadsheets.

The real cost formula

Base salary + 17% (statutory) + hiring method fees + benefits = Your actual monthly cost

That 17% is your non-negotiable floor for statutory contributions. Everything else depends on your choices.

Complete budget example: 5-person tech team

Let's build this out with real numbers you can use.

Team composition:

• 2 Senior developers at ₹150,000 each ($1,800/month)
• 2 Mid-level developers at ₹80,000 each ($960/month)
• 1 Junior developer at ₹50,000 ($600/month)

Compare that to the US

Same 5-person team in the United States would run you $600,000 to $800,000 annually. You're saving roughly $500,000 per year, even after accounting for all the additional costs applicable to international hiring.

What to add for first-year planning

Your first year has extra one-time costs:

• Recruitment (5 positions): $5,000 to $15,000
• Onboarding setup: $3,000 to $7,000
• EOR security deposits: $8,000 to $10,000 (refundable)

Realistic Year 1 budget: $120,000 to $135,000

Year 2 onwards: $105,000 to $115,000 (factor in 10% raises)

The padding you actually need

Don't budget to the penny. Add 10% buffer for:

• Unexpected currency conversion fees
• Salary adjustments mid-year for retention
• Additional tool licenses
• Replacement costs if someone leaves

Smart finance teams budget at the high end of ranges. If you come in under budget, you're a hero. If you budget tight and overspend, you're explaining yourself in meetings.

Our Cost Planning Checklist:

‍Before you commit to your team expansion plan, make sure your budget includes:

✓ Base salaries (researched for actual market rates)
✓ 17% minimum for statutory contributions
✓ EOR or entity operational expenses
✓ Recruitment and onboarding (one-time)
✓ Annual increment budget (10% of payroll)
✓ 10% contingency buffer

If your budget doesn't have all six items, you're going to have problems. We've seen it happen too many times.

The cost of hiring in India is still incredibly attractive even when you budget properly. You just need to be realistic about what "properly" means.

Final Thoughts

Here's what you need to remember from all of this.

The total cost of hiring an employee in India runs 20% to 25% above base salary when you account for statutory contributions, EOR fees, and realistic operational expenses. That's still 60% to 75% cheaper than hiring equivalent talent in the US or Europe.

But here's the reality check: getting those savings requires doing it right. Mess up your statutory contributions, misclassify workers, or pick the wrong hiring method, and you'll spend your savings on penalties and fixes.

The three things that matter most

1. Budget realistically. Use the 25% rule. If someone's salary is $1,000, plan for $1,250 monthly. You'll account for everything and still come out way ahead.
2. Pick the right hiring model for your scale. Under 10 employees? EOR is your answer. Over 15 and committed long-term? Plan your entity setup. Don't overthink it.
3. Work with someone who knows India's compliance landscape. The legal taxation system, labor laws, and statutory requirements aren't something you figure out as you go. The cost of getting it wrong is too high.

If you're serious about building a team in India without the compliance headaches or hidden costs eating into your savings, you need a partner who's done this hundreds of times.

Hire & Pay Employees in India with Wisemonk[toc=Why Choose Wisemonk]

Wisemonk is a specialized Employer of Record (EOR) platform, built for global companies looking to hire, pay, and manage employees in India without the complexities of setting up a local entity. We provide end-to-end workforce solutions tailored to India's regulatory landscape, ensuring seamless compliance, payroll, and dedicated HR support for your offshore teams.

Why global companies trust Wisemonk for hiring in India:

• Fast talent acquisition and onboarding: Helping 300+ international companies hire top Indian talent with quick role kickoffs, structured preboarding, and day-one readiness powered by our India-first workflows.
• Accurate payroll and statutory operations: Managing $20M+ in monthly payroll with error-free TDS, PF, ESI, PT, compliant contracts, and fully automated filings across all Indian states.
• End-to-end employee lifecycle support: Supporting 2K+ employees with dedicated HR specialists who handle onboarding, offboarding, background checks, equipment procurement, and daily employee needs.
• Transparent and predictable pricing: Starting at $99 per employee per month with no hidden fees, no FX markups, and clean cost visibility that global teams can trust.
• Compliance and risk protection: Keeping global teams protected from misclassification, labor disputes, and accidental Permanent Establishment risk through airtight documentation and local labor law expertise.

Beyond these core services, Wisemonk also provide advanced support in contractor management, company registration, and work permit & visa assistance and building offshore teams or Global Capability Centers (GCCs) in India for businesses planning long-term India operations.

Ready to hire & pay employees in India? Book a Call Now!