Quick answer: Third-party payroll means you work at a client company but are employed and paid by an agency (staffing company or contractor). You are off-roll for the client and on-roll for the agency. The agency pays salary and deposits PF, ESI and TDS; the client, as principal employer, is liable for unpaid PF/ESI and, in establishments covered by the contract labour provisions (generally 50 or more contract workers), for unpaid wages. Off-roll workers get the same statutory rights (minimum wages, PF, ESI, leave, bonus, gratuity where eligible), but often fewer company benefits and less security.
Job offers in India often say "on third-party payroll", "off-roll" or "C2H". Candidates want to know whether such a job is safe, how the salary works and whether they can become permanent. Employers want to know their own obligations when they use agency staff. This guide explains on-roll and off-roll employment, how third-party payroll works, the pros and cons for both sides, and the rights of off-roll workers under the Labour Codes. For the contract labour compliance rules in detail, see our contract labour payroll guide.
On-roll vs off-roll: meaning
On-roll (on payroll) employees are employed directly by the company. Their appointment letter, salary, PF and ESI registrations and payslips all come from the company itself. Off-roll (off payroll) workers do work for the company but are not its employees: they are employed by an agency or contractor, or they work as independent consultants. "Non-payroll" and "off payroll working" mean the same thing.
| Aspect | On-roll employee | Off-roll (third-party) worker |
|---|---|---|
| Legal employer | The company | The agency or contractor |
| Appointment letter from | The company | The agency |
| Salary paid by | The company | The agency (from the client's fees) |
| PF, ESI, TDS deposited by | The company | The agency |
| Day-to-day work directed by | The company | Usually the client |
| Company benefits (insurance, ESOPs, bonus plans) | Yes, as per policy | Usually the agency's, often fewer |
| Statutory rights | Statutory minimums apply | Statutory minimums apply, from the agency |
| Liability if wages are unpaid | Company | Agency first; client as principal employer |
What is third-party payroll?
A third-party employee is someone employed and paid by an agency but deployed to work for a client company. Third-party payroll is a staffing arrangement. A client company needs people but does not want them on its own rolls, for reasons such as project duration, headcount limits, speed of hiring or administrative ease. A staffing agency hires the workers, puts them on its own payroll and deploys them to the client. The client pays the agency a fee, usually the workers' cost plus a service charge, and GST.
This is different from payroll outsourcing, where employees stay on the company's own rolls and a provider only processes the payroll. It is also different from an employer of record arrangement, which is mainly used where the client has no Indian entity.
How third-party payroll works
- Requirement: the client tells the agency the roles, numbers, pay and duration.
- Hiring: the agency (sometimes with the client) selects candidates and issues appointment letters on its own name.
- Deployment: the worker works at the client's premises or on its projects, under its supervision.
- Attendance: the client confirms attendance and overtime to the agency each month.
- Payroll: the agency pays salaries, deducts and deposits PF, ESI, professional tax and TDS, and issues payslips.
- Billing: the agency invoices the client for wages, statutory costs, service charge and GST.
- Checks: the client verifies wage payments and PF and ESI deposits before paying the bill.
Third-party payroll salary
Off-roll workers are often paid less than on-roll employees doing similar work, and their CTC may include fewer components. The agency's salary must still meet the law:
- At least the minimum wage for the state, skill level and zone, under the Code on Wages.
- PF on wages (12% each from employee and employer), if the agency is covered.
- ESI (0.75% and 3.25%) if wages are up to ₹21,000 a month.
- Professional tax and labour welfare fund as the state requires.
- Statutory bonus where the worker is eligible, and gratuity on completion of the qualifying service.
- Payslips every wage period, and payment by the due date.
Where the rules require it, contract workers doing the same or similar work as the principal employer's own workers must get the same wages and conditions. Use our PF calculator and ESI calculator to check deductions on a third-party payslip.
Rights of off-roll employees
An off-roll worker is an employee of the agency, with the same statutory protection as any other employee:
- ☐ Written appointment letter with job, wages and terms
- ☐ Minimum wages and payment on time, with a wage slip
- ☐ PF membership and a UAN, with contributions visible in the passbook
- ☐ ESI coverage and medical benefits if wages are within the limit
- ☐ Leave, holidays, overtime at twice the ordinary rate, and safe working conditions
- ☐ Statutory bonus where eligible, and gratuity on completing the qualifying service
- ☐ Maternity benefit for eligible women
- ☐ Full and final settlement on exit
Where the contract labour provisions apply (generally 50 or more contract workers), the principal employer must pay wages if the contractor does not, within the time set by the rules, and can recover the amount from the contractor. It is also liable for PF and ESI contributions the contractor fails to pay. Our guide to full and final settlement covers exit dues.
Pros and cons for employees
| Advantages | Disadvantages |
|---|---|
| Faster entry into large companies | Often lower pay than on-roll staff |
| Work experience on the client's brand | Fewer company benefits and perks |
| Statutory benefits from the agency | Less job security; contracts can end with the project |
| Possible conversion to on-roll (C2H) | No guaranteed conversion or growth path |
| Agency may redeploy to another client | Two organisations to deal with for issues |
Pros and cons for employers
Advantages: faster hiring, flexibility for projects and peaks, less administration, and headcount kept off the company's own rolls. Drawbacks and risks: the principal employer stays liable for unpaid wages and PF/ESI; contract labour in core activities is restricted under the Occupational Safety, Health and Working Conditions Code, 2020; licensing applies where a contractor deploys 50 or more workers; and long-term "off-roll" staff doing permanent work can lead to disputes. Off-roll staff may also feel less engaged than on-roll colleagues.
C2H, C2C and other terms
- C2H (contract to hire): you start on third-party payroll or a contract, with a possible move to the client's payroll after a set period, subject to performance and the client's decision.
- C2C (corp to corp): the client contracts with your company or consultancy, which pays you. Common for IT consultants and freelancers; your own company handles your tax and benefits.
- SAP on payroll: usually refers to SAP Payroll, the payroll module of SAP HCM/SuccessFactors that large employers use to run salaries. In a job ad it can also mean an SAP role offered directly on the company's payroll rather than through a vendor; check with the recruiter.
- Fixed-term employment: a direct employee of the company for a fixed period. Under the Labour Codes, fixed-term employees get the same wages and benefits as permanent employees doing the same work, and gratuity after one year.
Is it good to work on third-party payroll?
It depends on your goals. For a fresher or someone switching careers, it can be a way into a large organisation. For an experienced professional, compare the total package and growth prospects with on-roll offers. Before joining, check:
- ☐ The agency's name, address and registrations (PF, ESI, GST)
- ☐ Your appointment letter: wages, CTC breakup, notice period and duration
- ☐ Whether PF and ESI will be deducted, and that your UAN is activated
- ☐ Who approves leave and handles grievances
- ☐ What happens at the end of the client project
- ☐ Any written terms on conversion to on-roll
After joining, check your PF passbook every few months on the EPFO portal. If contributions are missing, raise it with the agency and the client's HR.
How to check your PF and ESI as an off-roll worker
Ask the agency for your UAN and ESIC insurance number in the first month. Activate your UAN on the EPFO member portal, link Aadhaar and your bank account, and download your passbook: each month should show both the employee and employer shares. For ESI, sign up on the ESIC IP portal with your insurance number and download your e-Pehchan card. If a month is missing, ask the agency for the challan; if it does not respond, write to the client's HR, which as principal employer has to make sure contributions are paid. See our guides to ESIC registration and the PF guide.
Converting off-roll staff to on-roll
When a client moves a third-party worker to its own payroll, it should issue a fresh appointment letter, agree the date of joining and whether past service will count for any company benefit, and link the worker's existing UAN so that PF continues. The agency settles the worker's dues up to the transfer date, including gratuity, if the worker has completed five years with the agency (one year if on a fixed-term contract). Check the staffing contract first: many contracts charge a conversion fee or restrict direct hiring for a period. For the worker, conversion usually brings the company's own benefits, but service with the agency does not automatically count as service with the client.
What principal employers should do
Use only compliant agencies, write wage, PF and ESI obligations into the contract, and check each month that wages were paid and contributions deposited before releasing the agency's bill. The full compliance steps, including licensing and core-activity limits, are in our contract labour payroll guide. The Ministry of Labour and Employment publishes the Labour Codes and rules.
Manage contract labour compliance properly. Our CLRA compliance and audit course covers principal employer duties, contractor checks and audits for third-party workers.
Frequently asked questions
What is third-party payroll?
Third-party payroll means a worker is employed and paid by an agency (a staffing company or contractor) but works at, and for, a client company. The agency issues the appointment letter, pays salary, deducts PF, ESI and TDS and issues payslips; the client directs the day-to-day work and pays the agency a fee.
What does on payroll and off payroll mean?
On payroll (on-roll) means the company itself employs you and pays your salary. Off payroll (off-roll) means you work for the company but are employed and paid by someone else, usually a staffing agency or contractor, or you work as an independent consultant.
Is it good to join on third-party payroll?
It can be a reasonable way to get experience or enter a large company, and you are still entitled to minimum wages, PF, ESI, leave and other statutory benefits from the agency. The drawbacks are usually lower pay than on-roll staff, fewer company benefits, less job security and no guarantee of conversion. Check the agency's PF and ESI deposits and the terms before joining.
Is third-party payroll safe?
It is safe when the agency is genuine and compliant. Check that you receive an appointment letter, regular payslips, a UAN with PF contributions visible in your passbook, and an ESIC number if your wages are within the limit. If the agency defaults, the client as principal employer is liable for unpaid PF and ESI and, where the contract labour provisions apply, unpaid wages.
What is C2C and C2H in salary?
C2H (contract to hire) means you start on a contract or third-party payroll with the possibility of being moved to the client's own payroll later. C2C (corp to corp) means the client pays your company or consultancy, which then pays you; it is common for consultants and freelancers. Neither gives an automatic right to permanent employment.
Can contractual employees become permanent?
Only if the employer chooses to absorb them or a specific legal order directs it. There is no automatic right to become permanent after a certain period on third-party payroll. Under the Labour Codes, prohibited contract labour in core activities and sham arrangements can, however, lead to disputes in which workers seek to be treated as the principal employer's employees.
What are some third-party payroll companies in India?
Third-party payroll is offered by large staffing companies, HR services firms and local manpower contractors. Rather than relying on names, check that the company is registered for PF, ESI, professional tax and GST, holds a contract labour licence where required, and has a record of paying wages and contributions on time.
Position as of 15 November 2026, under the Code on Wages, 2019, the Code on Social Security, 2020 and the Occupational Safety, Health and Working Conditions Code, 2020. State rules may add conditions. General information, not legal advice.