Payroll, Benefits, and Employee Management in India
We hired someone in India, how do we actually run payroll for them from the US?
Running Indian payroll directly from the US isn't legally possible without a local entity, so foreign employers use one of two routes: spin up an Indian subsidiary (4 to 6 months plus ongoing compliance), or work with an Employer of Record (EOR) that already has the local entity in place. The EOR signs your hire to a compliant Indian contract, pays them in local currency on a fixed monthly date, withholds income tax, and files all the statutory returns. From your side, the workflow is straightforward: you send the EOR one consolidated invoice in USD each month covering salary, employer contributions, and their service fee, and they handle every filing and bank deposit on the ground in India.
Read more: India Payroll: Complete Guide for US Companies
Our finance team has no experience with India payroll, what's the easiest way to handle this?
If your finance team has zero India context, the easiest route is to outsource the whole thing to an Employer of Record (EOR) or a managed payroll provider, so your team never has to learn Indian tax rules, contribution thresholds, or filing deadlines. India payroll is unusually fragmented, monthly tax deposits go to one authority, retirement contributions to another, state-level employment taxes to a third, and the rules vary by state. An EOR runs all of that on its own license and sends your team a single monthly invoice with one line item per employee. You stay in charge of approving compensation and bonuses; the provider handles every calculation, deposit, and filing in the background.
Read more: India Payroll Process: Complete Guide (8 Steps)
How do we pay salaries in India correctly without setting up a local payroll system?
Route salary payments through an Employer of Record (EOR) or a third-party payroll provider that already runs Indian payroll under its own license, so you don't build any of the infrastructure yourself. The provider has the local bank accounts, tax registrations, and payroll software already in place; you send them gross compensation per employee each month, and they handle the calculation, statutory deductions, and bank transfer in local currency. Salaries in India are typically paid between the 7th and 10th of the following month, and the provider's system is built around those deadlines. Skip the contractor workaround if it's a full-time role, Indian labour authorities will reclassify it and the back-pay exposure is real.
Read more: How to Pay Employees in India
We want to offer proper benefits like PF and insurance, how do we manage that remotely?
From outside India, the cleanest way to offer proper benefits is through a local employment partner like an Employer of Record (EOR) or a licensed payroll provider, who can register the employee for the statutory schemes and run a group health insurance policy on your behalf. The provident fund (PF) is a government-run retirement scheme similar to a 401(k), where you contribute 12% of basic salary and the employee matches it; the money sits in the employee's national account regardless of where your company sits. For health coverage, you'd typically add a private group policy on top of the basic state insurance, since the state scheme only covers lower-paid employees. The partner handles enrolment, monthly contributions, claims support, and renewals end to end.
Read more: Employee Benefits in India: Employer Guide
We need to start payroll for India employees next month, what's the fastest compliant setup?
Next month is comfortably doable through an Employer of Record (EOR), which can have your employees on compliant Indian payroll within 5 to 7 business days once contracts are signed. The EOR's Indian entity already holds every registration you'd otherwise need to set up yourself (tax withholding, retirement fund, state employment tax), so you skip the 4 to 6 month process of incorporating a local subsidiary. To hit a clean first payroll, start onboarding now: collect each hire's tax ID, bank details, and identity documents, sign the EOR service agreement, and lock down the salary structure. Most India-focused EORs target a 7th to 10th of the month payout, so working back from that, you have time.
Read more: How to Set Up Payroll for a Startup in India
How do we ensure taxes and deductions in India are handled correctly from day one?
The reliable answer is to put a local payroll partner or Employer of Record (EOR) in place before the first salary goes out, because India runs five separate statutory deductions every month, each with its own deadline and authority. Income tax has to be withheld and deposited by the 7th of the following month, retirement contributions and state insurance by the 15th, and state employment tax by month-end in states that levy it. Late deposits trigger 12 to 18 percent annual interest plus penalties, and the Indian tax department went live with an entirely new Income Tax Act in April 2026, so form numbers and section references have changed. A provider already running thousands of payslips through the new framework will catch what an in-house first-timer wouldn't.
Read more: Payroll Tax in India: A Complete Guide
We want to avoid payroll errors in India, what do companies typically do?
Most foreign companies hiring in India hand payroll to a specialist, either an Employer of Record (EOR) or a managed payroll provider, because the error categories are very local and very expensive. The recurring mistakes are easy to list: misclassifying full-time engineers as contractors, getting the basic salary ratio wrong (it has to be at least 50% of total compensation under the November 2025 labour code), missing a state-level employment tax that varies by office location, and using outdated section codes on tax returns now that the new Income Tax Act took effect in April 2026. Specialist providers run the same calculations across hundreds of clients, so the rules are baked into their system. Your finance team approves the numbers; the provider absorbs the operational risk.
Read more: Payroll Compliance in India
How do we manage bonuses, reimbursements, and benefits for India employees from the US?
All three flow through your local payroll partner, but they work a bit differently. Bonuses (annual, performance, festival) are added to that month's payroll, taxed at the employee's slab rate, and disbursed with the regular salary; you signal the amount, the partner handles the math. Reimbursements for business travel, internet, or work-from-home setup can be paid tax-free if the employee submits actual bills, which is a useful bump to take-home pay; the partner sets up a claim and approval workflow. Benefits like group health insurance, retirement top-ups, or meal cards are configured once and run on autopilot. From your end, you decide what to offer and approve it monthly; the partner runs the disbursement and filings in India.
Read more: Understanding Employee Bonuses in India | Types, Limits & Tax
How does gratuity work in India when using an EOR and who's actually responsible for paying it?
Gratuity is a statutory lump-sum under the Payment of Gratuity Act, 1972, payable to employees who complete 5 years of continuous service, calculated as 15 days of last-drawn salary for every completed year. With an EOR, the legal obligation sits with them since they're the employer on paper, but the cost flows back to you, the EOR builds it into your monthly invoice as an accrual of roughly 4.81 percent of basic salary, so the money is set aside over the years rather than hitting as a surprise. The 5-year clock starts from the employee's join date with the EOR, and if someone later transitions to your own Indian entity, continuity has to be explicitly preserved in the transfer paperwork or the clock restarts. Worth asking your EOR upfront: do they fund gratuity monthly through an LIC-managed trust, or accrue it on their books? It matters if you ever change EOR providers.
What does a normal appraisal and salary increment cycle look like in India when employees are hired through an EOR?
India runs on an annual appraisal cycle, with most companies aligning to either April (Indian financial year) or January (calendar year). The structure is self-assessment, manager review, calibration, and a final rating that drives the increment, wrapped up over 4 to 6 weeks. Increments in 2026 are sitting around 8 to 10 percent average for tech roles, with top performers getting 12 to 18 percent, and promotions usually adding another 10 to 15 percent on top. When you're on an EOR, the appraisal itself stays with you, ratings, feedback, increment decisions are entirely your call. The EOR executes the change: revision letter, payroll update from the effective date, recalculated PF and tax withholding, and clean Form 16 components at year-end. The increment letter goes out from the EOR (since they're the legal employer) but signed off by you, which keeps documentation tidy for anything the employee might later need, home loan applications, visa paperwork, salary history checks.
Still have questions?
Talk to a Wisemonk expert about hiring, payroll, and compliance for your India team.