Quick answer: An employer of record (EOR) is an Indian company that legally employs your staff in India for you: it issues the contracts, runs payroll, deposits PF, ESI, professional tax and TDS, and handles compliance, while you direct the work. It is used mainly by foreign companies without an Indian entity. EOR is legal in India, though there is no specific EOR law. You pay the full employment cost plus an EOR fee and GST. Watch the tax (permanent establishment) and long-term risks.
Foreign companies often want to hire one engineer in Bengaluru or a small sales team in Mumbai before they are ready to set up an Indian company. An employer of record makes that possible: the EOR becomes the legal employer, and the foreign company gets the person's work without an entity of its own. Indian startups and candidates also come across EORs, as clients or as employees. This guide explains how an EOR works in India, what it costs, its legal position and risks, and how it compares with a PEO, payroll outsourcing and third-party payroll.
What is an employer of record?
An employer of record is the organisation that is legally the employer of a worker, even though the worker does the client's work. In India, the EOR is an Indian company registered with EPFO, ESIC, the professional tax authorities and the tax department. It signs the employment contract with the employee, pays the salary through its own payroll, deducts and deposits statutory contributions and taxes, issues payslips and tax certificates, and carries the employer's legal duties. The client company decides what the employee works on and supervises them, and pays the EOR for the employment cost and a service fee.
How an EOR works in India
- Agreement: the client signs a services agreement with the EOR, covering roles, costs, responsibilities and intellectual property.
- Offer and contract: the client chooses the candidate and agrees the pay; the EOR issues the offer and the Indian employment contract.
- Onboarding: the EOR collects documents, sets up PF (UAN), ESI where applicable, payroll and benefits.
- Work: the employee works for the client, using the client's tools and under its direction.
- Monthly payroll: the EOR pays salary, deposits PF, ESI, professional tax and TDS, and issues payslips.
- Invoicing: the EOR invoices the client for salary, employer costs, its fee and GST.
- Exit or transfer: the EOR handles resignation, termination and full and final settlement, or the employee moves to the client's own Indian entity when it is set up.
What an EOR handles
- ☐ Employment contract compliant with Indian law and state rules
- ☐ Payroll, payslips and salary payments in rupees
- ☐ PF, ESI, professional tax and labour welfare fund registrations and deposits
- ☐ TDS on salary, quarterly returns and annual Form 130 certificates
- ☐ Gratuity, leave, statutory bonus where applicable, and maternity benefit
- ☐ Health insurance and other benefits the client chooses to offer
- ☐ Onboarding, exits and full and final settlement
- ☐ Registers and records required under the Labour Codes
Is EOR legal in India?
Yes. India has no specific law on employers of record, but nothing prevents an Indian company from employing staff and assigning them to work for a client, provided it meets the employer's duties under the Labour Codes, tax law and other laws. A few points need care:
- Real employer: the EOR must actually act as employer: contracts, pay, statutory deposits and records in its own name.
- Contract labour rules: where EOR staff work at an Indian client's establishment, the arrangement may look like contract labour, and the client may become a principal employer with its own duties (the OSH Code's licensing and wage-liability provisions apply where 50 or more contract workers are engaged). See our guides to third-party payroll and contract labour payroll.
- Permanent establishment (PE): if India-based staff conclude contracts for, or act as the main business of, a foreign client, the client may be treated as having a taxable presence in India under the tax treaty and the Income-tax Act. Take tax advice before scaling up an EOR team.
- Intellectual property and confidentiality: the services agreement and employment contract should make sure work product passes to the client.
The Ministry of Labour and Employment publishes the Labour Codes and rules, and the Income Tax Department the tax provisions that apply to salary and to foreign companies.
EOR cost in India
The cost to the client has two parts:
| Cost element | What it covers |
|---|---|
| Salary | Gross pay agreed with the employee |
| Employer PF | 12% of PF wages (often on the ₹25,000 ceiling), plus small EPF admin and EDLI charges |
| Employer ESI | 3.25% of wages, if wages are up to ₹21,000 a month |
| Gratuity provision | About 4.81% of wages as defined in the Labour Codes, often charged monthly |
| Statutory bonus | Where the employee is eligible |
| Insurance and benefits | Health cover, meal cards and others the client chooses |
| EOR fee | Fixed per employee per month, or a percentage of salary |
| GST | Usually 18% on the EOR's invoice (often the full billed amount for Indian clients); exports may be zero-rated |
Why can EOR seem expensive? The fee covers the provider's legal entity, compliance team, payroll, benefits administration, and the risk it carries as employer. For one or two hires it is usually far cheaper than setting up an entity; for a larger, permanent team, an Indian subsidiary is often cheaper over time. Our salary breakup calculator helps work out the employment cost side, and the gratuity calculator the gratuity provision.
EOR vs PEO vs payroll outsourcing vs third-party payroll
| Model | Legal employer | Client needs Indian entity? | Typical use |
|---|---|---|---|
| Employer of record | The EOR | No | Foreign firms hiring in India |
| PEO (co-employment) | Shared, in countries that recognise it | Yes | Mainly in the US; loosely used in India |
| Payroll outsourcing | The client | Yes | Outsourcing payroll processing only |
| Third-party payroll (staffing) | The agency | Usually yes | Indian firms using agency staff |
Our payroll outsourcing guide covers the model where you remain the employer. An "umbrella company", a term used mainly in the UK for contractors, is different again: it employs freelancers and pays them through its own payroll.
When to use an EOR
The purpose of an EOR is to let a business employ people in a country lawfully and quickly without its own entity there, with the provider carrying the local employment and compliance work.
- Hiring a few people in India before setting up an entity.
- Testing the Indian market before committing to a subsidiary.
- Hiring quickly while an entity is being registered, then transferring staff.
- Converting long-term contractors into employees to reduce misclassification risk.
An EOR is less suitable for a large, permanent team, for roles that negotiate or sign contracts for the client (because of permanent establishment risk), or where the client needs full control of HR policies and employer branding.
How to choose an EOR in India
- Own entity: check whether the provider employs staff through its own Indian entity or through a local partner.
- Registrations: ask for its PF, ESI, professional tax, GST and TAN registrations.
- Contracts: review its standard employment contract for Indian law compliance, notice, IP and confidentiality.
- Cost transparency: get a full breakup of salary, statutory costs, benefits, fee and GST.
- Payroll quality: ask how it handles TDS under both tax regimes, the PF wage ceiling and Labour Code wage rules.
- Benefits: check the health insurance and other benefits it can offer.
- Exit and transfer: agree how employees can move to your own entity later, and any transfer fee.
Global providers such as Deel and Rippling, as well as Indian HR and staffing firms, offer EOR services in India. Use the steps above rather than rankings to compare them.
Moving from an EOR to your own Indian entity
Many companies use an EOR for the first year or two and then set up a private limited company or other entity. To move employees across, the new entity registers for PF, ESI, professional tax and TAN, issues fresh appointment letters, and links each employee's existing UAN so PF continues. The EOR settles dues up to the transfer date. Agree in advance whether past service with the EOR will be recognised for notice periods, leave and gratuity, because by default gratuity service with the EOR does not carry over to the new employer. Time the move for the start of a month, ideally a quarter, to keep TDS and returns simple.
Common EOR mistakes
- Treating EOR staff as contractors in practice, or the reverse, without clear contracts.
- Ignoring permanent establishment risk when India-based staff sell to or sign deals with customers.
- Comparing headline fees only, without the full statutory cost and GST.
- Weak IP clauses, leaving ownership of code or work product unclear.
- No exit plan, so moving staff to your own entity later becomes costly or disruptive.
For employees: working through an EOR
If your offer letter comes from an EOR, the EOR is your employer in law. You should receive an Indian employment contract, monthly payslips, PF contributions under your UAN, ESI if eligible, and a Form 130 at year end. Your manager and day-to-day work are with the client. Check your PF passbook regularly, read the notice and termination terms, and ask what happens if the client ends its contract with the EOR. Gratuity is due from the EOR after five years of continuous service, or after one year if you are on a fixed-term contract.
Work out the full employment cost. Use the free salary breakup calculator to see salary, employer PF, ESI and gratuity before comparing EOR quotes.
Frequently asked questions
What is an employer of record (EOR) in India?
An employer of record is a company that legally employs people in India on behalf of another business, usually a foreign company without an Indian entity. The EOR issues the employment contract, runs payroll, deducts and deposits PF, ESI, professional tax and TDS, and handles statutory compliance, while the client directs the employee's daily work and pays the EOR a fee.
Is EOR legal in India?
Yes. Indian law has no separate EOR statute, but an Indian company can lawfully employ staff and assign them to work for a client, as long as it complies with the labour codes, tax and other laws. The client should still take advice on its own position, especially tax risks such as creating a permanent establishment in India.
How much does an EOR in India cost?
EOR providers usually charge a fixed fee per employee per month, or a percentage of salary, on top of the employee's full employment cost: salary, employer PF, ESI where applicable, gratuity provision, insurance and other benefits. GST at 18% usually applies to the EOR's invoice, which for an Indian client often means the full billed amount, not just the fee; services billed to a foreign client may qualify as zero-rated exports. Confirm the GST treatment with the provider. Prices vary widely by provider, headcount and scope, so compare written quotes.
Who is the best EOR?
There is no single best EOR. The right provider is the one with its own Indian entity, full PF, ESI, PT, GST and TAN registrations, a transparent cost breakup, sound Indian contracts, and a clear process for moving staff to your own entity. Compare written quotes against these points rather than relying on published rankings.
What is the difference between EOR and PEO?
An EOR is the full legal employer of the worker. A PEO (professional employer organisation) is a co-employment model, common in the United States, where the PEO shares employer responsibilities with a client that already has its own entity. India has no formal PEO co-employment framework; each worker has one legal employer, so in India the terms are often used loosely; check who the legal employer is in the contract.
What is the difference between EOR and payroll outsourcing?
With payroll outsourcing, the company is the employer and a provider only processes its payroll. With an EOR, the provider is the legal employer, issues the contracts and carries the employer's statutory duties for those employees, so the client does not need its own Indian entity.
Is EOR a BPO?
Not really. A BPO provides a business service, such as customer support, using its own staff under its own direction. An EOR employs people who work under the client's direction on the client's work; the EOR handles the employment, payroll and compliance.
What does EOR stand for?
In HR, EOR stands for employer of record. In trade, EOR can also mean exporter of record, the party legally responsible for an export shipment; and in immigration, employer of record can mean the employer that sponsors a work visa. This guide covers the HR meaning.
Position as of 15 November 2026. There is no specific EOR statute in India; employer duties arise under the Labour Codes, the Income-tax Act, 2025 and state laws. Permanent establishment depends on facts and tax treaties; take tax advice. General information, not legal or tax advice.