Hiring in India: How Global Companies Hire Legally

Hiring in India refers to the process of bringing Indian talent onto your team, whether they're full-time employees or contractors.

Here's the thing: you can't just post a job and hire someone in India the way you would back home. Without a legal entity in India, you're not allowed to directly employ full-time workers under Indian law.

So what are your options? You can either set up a local business entity (like a subsidiary or branch office), partner with an Employer of Record (EOR) that hires people on your behalf, or work with independent contractors. Each route has different implications for costs, control, and compliance.

From what we've seen while helping global companies expand to India, most businesses start by testing the waters with contractors or using an EOR before committing to a full entity setup. The goal is simple: access India's skilled workforce of 643+ million people while staying compliant with local employment laws.

Why are global companies hiring in India today?[toc=Why Hire in India]

The numbers tell the story. You can save 60-80% on employment costs compared to hiring in the US, UK, or Australia. An IT services manager who costs $5,400/month in Canada runs around $1,365/month in India for the same skill level. That's not corner-cutting; it's accessing a massive talent pool at a different cost of living.

Beyond the savings, India ranked first globally for employment outlook in early 2025 at 40%, which was 15 points higher than the global average. Companies aren't just finding bodies; they're finding specialized skills in AI, machine learning, cloud computing, and cybersecurity. The country produces more English-speaking STEM graduates annually than most countries have total graduates.

Based on our observations, businesses also value the time-zone benefits for 24/7 operations and India's robust digital infrastructure, which enables effective remote collaboration. If you need to scale quickly, the sheer size and diversity of India's talent market gives you options that simply don't exist elsewhere.

Can foreign companies hire employees in India without a local entity?[toc=Hire Without Entity]

Yes, but not directly. Foreign companies cannot legally run payroll in India on their own without a registered entity. Indian employment law requires a legal employer presence for full-time employees.

That doesn't mean you're stuck. You have two practical options:

1. Partner with an Employer of Record (EOR): The EOR becomes the legal employer while you manage the employee's day-to-day work. They handle payroll, statutory contributions, tax compliance, and employment contracts. This is how most companies start hiring in India without the entity setup hassle.
2. Set up a legal entity: This means registering a subsidiary or branch office in India, which gives you full control but requires navigating incorporation, tax registrations, and ongoing compliance obligations.

The EOR route lets you hire employees in India without setting up a local entity, which is why it's become the default model for companies testing the Indian market or building small teams.

What are the legal ways to hire in India as a foreign company?[toc=Hire in India Legally]

There are three legal hiring models that foreign companies use to hire in India: partnering with an Employer of Record, setting up your own legal entity, or engaging independent contractors. Here's how each one works.

1. Employer of Record (EOR)

An Employer of Record (EOR) like Wisemonk becomes the legal employer while you control the employee's day-to-day work. They handle employment contracts, payroll processing, tax deductions, statutory benefits like Employee Provident Fund (EPF), and all compliance obligations. You typically pay 8-15% of the employee's salary as a service fee plus the actual compensation and benefits.

This works best when you're hiring 1-50 people and want to move fast without the entity setup costs. Most companies use this route to test the Indian market.

2. Set up a legal entity

You can establish a subsidiary (usually a private limited company) or branch office in India. This gives you complete control over hiring, operations, and your India business. The setup takes 4-8 weeks and requires local registration, tax filings, banking relationships, and ongoing compliance management.

This makes sense when you're hiring 50+ employees for long-term operations and want full operational control.

3. Hire independent contractors

You can engage freelancers or contractors for project-based work. They manage their own taxes and benefits, giving you flexibility. However, Indian authorities scrutinize contractor relationships that look like employment. Misclassification triggers 3-5 years of back payment liability for benefits and taxes you should have paid.

Only use this route for genuine project work with clear start and end dates.

For more insights, check out our complete guide on the Best Way to Hire Employees in India.

What is the difference between hiring through an EOR and setting up an Indian entity?[toc=EOR vs. Entity]

The main difference is who becomes the legal employer and who handles the compliance work. With an EOR, they're the employer on paper while you direct the work. With your own entity, you're the employer and responsible for everything.

Most businesses use an EOR to validate their India strategy before committing to entity infrastructure.

If you are confused, then you should check out our calculator: EOR vs Entity: Find the Best Model for You

When should a company use an Employer of Record to hire in India?[toc=Why Use an EOR]

Use an EOR when you need speed without commitment, when you're unsure about long-term India plans, or when compliance complexity outweighs your internal capability to manage it.

From working with global companies hiring in India, we keep seeing the same pattern: EOR only makes sense in very specific situations.

1. Testing the market: You want to validate India as a hiring destination before committing to permanent infrastructure. Over 72% of global firms expanding into India chose EOR rather than entity setup for this reason.
2. Hiring small teams: You need 1-50 employees, and the entity setup costs don't justify the headcount. The math changes once you're consistently hiring 50+ people, but below that threshold, EOR is almost always more cost-effective.
3. Speed matters: You need someone onboarded in 7-12 days, not 4-8 weeks. If a critical project needs India-based talent immediately, waiting for entity registration kills momentum.
4. Avoiding compliance risk: You don't have internal HR or legal expertise to handle India's multi-state labor laws, Provident Fund regulations, tax filings, and statutory benefits. Mistakes here trigger penalties and back-payment liabilities.
5. Transitioning from contractors: You've been working with contractors, but misclassification risk is becoming a problem. Converting them to proper employees through an EOR fixes the compliance issue without entity setup.
6. Building distributed teams: Your employees are spread across multiple Indian states, each with different regulatory requirements. Managing multi-state compliance internally is a nightmare.
7. Not ready for permanent presence: You're exploring India for specific projects or client work but haven't decided if it's a long-term strategic market for your business.

For more insights, check our complete guide on the Benefits of Using an Employer of Record (EOR) in India.

Is hiring independent contractors in India safe for foreign companies?[toc=Hiring Contractors]

It's safe only for genuinely independent, project-based work with clear start and end dates. For anything resembling full-time employment, contractors become a compliance risk that can cost you years of back payments and penalties.

Here's the reality: Indian authorities scrutinize contractor relationships that look like employment. Courts examine the actual working condition, not just what your contract says. If your "contractor" works fixed hours, uses your equipment, reports to your managers, and depends on you for income, Indian law treats them as an employee regardless of the paperwork.

The misclassification penalties are brutal:

You'll face backdated payments for Provident Fund (PF), Employee State Insurance (ESI), gratuity, paid leave, and bonuses spanning 3-5 years. Add interest charges, government penalties, and potential labor court disputes where contractors can demand reinstatement with back wages. One multinational tech company learned this the hard way when contractors with technical expertise filed suit after a year and won full employee benefits plus fines.

Contractors work when:

• The engagement has a defined project scope and timeline
• They serve multiple clients, not just you
• They control their own work methods and schedule
• The work requires specialized qualification for a specific deliverable
• You're not providing daily performance management

Contractors don't work when:

• You need someone for ongoing operations or core business functions
• They work the same hours as your team
• You provide training, equipment, and detailed work direction
• The role could be filled by a fresher or requires you to build someone's capabilities over time
• You're evaluating their performance like an employee

Many startups hire contractors thinking they're avoiding complexity, but misclassification creates bigger problems than proper employment. If your hiring process and role requirements look like employment, structure it correctly from day one.

What employment laws apply when hiring employees in India?[toc=Employment Laws]

India operates a dual compliance system where both central government and state governments regulate employment. Your employees fall under national laws plus state-specific regulations based on where they work.

The four main Labor Codes:

India recently consolidated 29 legacy labor statutes into four streamlined codes that every employer must follow:

1. Code on Wages: Governs minimum wages, salary payments, and equal pay. Defines what counts as "wages" for statutory calculations, including the 50% rule where allowances exceeding half your total compensation get added back.
2. Industrial Relations Code: Covers termination procedures, layoff rules, notice periods, and dispute resolution. You need government approval for layoffs in establishments with 300+ workers.
3. Social Security Code: Mandates Employee Provident Fund (EPF), Employee State Insurance (ESI), gratuity, and maternity benefits. EPF contributions are 12% of basic salary, split between employer and employee.
4. Occupational Safety and Working Conditions Code: Sets standards for working hours (typically 8 hours/day, 48 hours/week), overtime pay, leave entitlements, and workplace safety requirements.

Beyond these, state-specific Shops and Establishments Acts add local requirements for leave policies, working conditions, and registration. Non-compliance triggers penalties ranging from ₹50,000 to ₹100,000 plus potential imprisonment depending on violation severity.

For more insights, check our complete guide on the Labor Laws in India: What Global Employers Should Know.

What payroll taxes and statutory costs should employers expect in India?[toc=Payroll & Statutory]

Plan for an additional 15-20% on top of gross salaries to cover mandatory employer contributions. The biggest line items are Employee Provident Fund (EPF), Employee State Insurance (ESI), and various administrative charges.

Here's the breakdown of what you're legally required to pay:

• Employee Provident Fund (EPF): You contribute 12% of the employee's basic salary plus dearness allowance. This splits into 3.67% toward employee savings and 8.33% toward pension (capped at ₹15,000/month for pension calculations). EPF applies to companies with 20+ employees and is mandatory for anyone earning up to ₹15,000 basic salary monthly, though many employers voluntarily contribute for higher earners.
• Employee State Insurance (ESI): Employer contributes 3.25% of gross wages for employees earning up to ₹21,000/month. This provides medical care, disability benefits, and maternity coverage. ESI kicks in when you have 10+ employees. The employee contribution is 0.75%, making total ESI 4% of eligible wages.
• Administrative charges: EPF includes small administrative and inspection charges (typically 0.5% and 0.01% of wages) that employers pay on top of the 12% contribution.
• Professional Tax (PT): This state-level tax varies by location but typically runs ₹200-₹250 per employee monthly, with a cap of ₹2,500 annually. Not all states charge it, so your costs depend on where employees work.
• Tax Deducted at Source (TDS): While employees bear this cost, you're responsible for calculating, withholding, and remitting their income tax monthly based on applicable tax slabs.

The calculation matters: If you're paying someone ₹50,000 gross monthly with ₹25,000 as basic salary, you're adding ₹3,000 for EPF (12% of ₹25,000) on top of what they receive. Budget accordingly when planning your India team's total employment costs.

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

Budget 20-25% above base salary to cover your total employment costs. So if you're paying someone $2,000 monthly in gross salary, your actual spend is around $2,400-$2,500 when you factor in statutory contributions and benefits.

Here's what salary ranges look like by experience level in 2026:

• Entry-level talent (0-2 years, freshers) costs $300-$600/month. These are junior developers, customer support staff, or data entry specialists just starting their careers.
• Mid-level professionals (3-7 years) run $1,000-$2,000 monthly. This covers experienced developers, marketing managers, analysts, and most core team positions requiring solid qualification and technical expertise.
• Senior talent (8+ years) ranges from $2,500-$4,000/month. These are team leads, architects, and senior managers with specialized skills.

Simple cost breakdown example: Let's say you hire someone at $1,500 gross monthly salary. Add $255 for EPF and ESI (17% statutory), plus $150 if using an EOR, plus roughly $95 for benefits like health insurance. Your total monthly cost hits $2,000.

The salary structure in India typically splits compensation into basic salary (40-50% of total), house rent allowance, and other allowances. Basic salary determines your EPF and gratuity calculations, so accounting for this properly affects your long-term costs when calculating bonus payments and retirement benefits.

India's cost savings come from the combination of lower wages and competitive talent quality, not just cheap labor.

What should an employment contract in India include?[toc=Employement Contract]

Your employment contracts need specific clauses to be legally sound and protect both parties. India doesn't require written contracts by law, but having one prevents costly disputes that average ₹15-20 lakhs in legal fees per case.

Core clauses to include:

• Job details covering designation, responsibilities, reporting structure, and work location. This sets clear performance expectations and prevents disputes over role scope.
• Compensation breakdown showing basic salary, allowances, and how you'll calculate statutory benefits. Remember, basic salary determines EPF and gratuity, so structure this carefully.
• Notice period and termination conditions: India doesn't recognize at-will employment. Specify notice requirements (typically 30-90 days) and immediate termination grounds like misconduct or policy violations.
• Confidentiality and IP rights protect your business information and clarifying ownership of work created during employment.
• Working hours, leave policy, and probation period (usually 3-6 months). State-specific laws allow contractual benefits to override statutory minimums if they're better for employees.
• Governing law and jurisdiction to avoid ambiguity during disputes.

How long does it take to hire employees in India?[toc=Hiring Timeline]

Through an EOR, you're looking at 1-2 weeks from accepting an offer to having someone onboarded and payroll-ready. Contract signing happens in 24-48 hours, but full setup with tax registrations and retirement account activations typically takes 3-10 days.

Setting up your own entity and then hiring takes considerably longer. Entity registration alone runs 4-8 weeks, but getting fully operational with payroll systems, tax registrations, and compliance infrastructure in place stretches to 3-6 months.

The bigger time factor most foreign companies overlook? Notice periods. Professional employees in India typically have 30-60 day notice periods built into their contracts. So even after someone accepts your offer, you're waiting 1-2 months before they can actually start work.

This is why speed-focused companies use EOR to hire immediately while candidates work their notice period, rather than waiting months to set up an entity first.

What are the most common mistakes foreign companies make when hiring in India?[toc=Common Mitakes]

The biggest mistake foreign companies make when hiring in India is using home-country logic. What works in the US or UK doesn’t translate cleanly into India’s employment framework.

• Contractor misclassification tops the list: Companies assume "remote equals contractor" or think a freelancer label protects them. Indian authorities examine the actual working relationship. If someone works fixed hours, reports to your managers, or depends on you for income, they're an employee regardless of what the contract says. Misclassification triggers backdated EPF, ESI, gratuity, and bonuses spanning 3-5 years.
• Underbudgeting total employment costs: Many companies budget only base salary and forget the mandatory 20-25% on top for statutory contributions, benefits, and administrative costs.
• Using standardized US/UK contracts that conflict with Indian labor requirements. Missing mandatory clauses about provident fund, notice periods, or gratuity creates legal exposure.
• Ignoring state-specific variations: Professional tax, minimum wages, and leave policies differ across India's 28 states. What's compliant in Maharashtra might violate Karnataka law.
• Entity setup when speed matters: Waiting 4-8 weeks to establish an entity when you could hire through an EOR in 1-2 weeks costs you top talent to faster-moving competitors.

Get Started With Wisemonk EOR[toc=Choose Wisemonk EOR]

Ready to hire in India without the compliance headaches? Wisemonk's India-focused EOR platform helps 300+ global companies hire compliantly in 1-2 weeks.

We handle everything: employment contracts that meet Indian labor law requirements, monthly payroll with accurate EPF/ESI/TDS calculations, multi-state compliance across all 28 states, and statutory benefits administration. You focus on managing your team's work while we handle the legal employment.

We bring deep India compliance expertise with simple, transparent pricing - starting at $99/month per employee, we're the cost-effective alternative to global EOR platforms. Our team knows India's employment landscape inside out because it's all we do. No entity setup costs, no legal risk, no compliance surprises.

We've helped companies go from offer acceptance to first payroll in under 10 days.

Ready to hire your India team? Book a demo with Wisemonk and get your first employee onboarded this month.