How to Use An Employer of Record in
India

India requires Employee Provident Fund (EPF) contributions at 12% of basic wages plus dearness allowance, Employee State Insurance (ESI) at 3.25% for qualifying employees, and compliance with more than 40 central labour laws plus state-specific regulations. An Employer of Record in India becomes your employees' legal employer, handling all statutory filings, payroll tax, and registrations so you can hire without incorporating a subsidiary. This removes the risk of penalties under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, which can reach ₹10,000 per violation plus interest at 12% on delayed contributions.

What Is an Employer of Record in India?

An Employer of Record in India is a third-party organisation that becomes the legal employer of your staff under India law, handling all statutory obligations, payroll, and compliance while you retain full operational control. The EOR issues the employment contract, registers your employees with government authorities, withholds income tax under the Income Tax Act, 1961, and remits contributions to the Employees' Provident Fund Organisation (EPFO) and Employee State Insurance Corporation (ESIC). You manage the employee's work, performance, and deliverables exactly as you would a direct hire.

Under the Industrial Disputes Act, 1947, the Code on Wages, 2019, and the Code on Social Security, 2020, the legal employer bears liability for provident fund compliance, gratuity payments, statutory leave, and termination procedures. Employment contracts must specify remuneration components, working hours under the Factories Act, 1948 or Shops and Establishments Acts, and notice periods. If your employee falls under a shop and establishment registration or factory licence, the EOR ensures compliance with whichever state-level or central legislation applies. Collective agreements are rare in the white-collar services sector, but minimum wage notifications apply to all employees and vary by state, skill level, and employment zone.

You retain day-to-day management, set objectives, assign tasks, and evaluate performance. The EOR owns the employment contract, processes monthly payroll in Indian Rupees, files TDS returns with the Income Tax Department, remits EPF and ESI, maintains statutory registers, and manages notice periods and final settlement calculations under the Payment of Gratuity Act, 1972. If you decide to terminate employment, the EOR executes the process in line with the Industrial Disputes Act, 1947 and applicable state standing orders.

How Does an Employer of Record Work in India?

When you engage an EOR in India, they take on the legal employer role while you control the work. Here is how the process unfolds, from defining the role to offboarding if employment ends.

Step 1: Define Role and Employment Terms

You specify the job title, salary, benefits, and any allowances such as house rent allowance (HRA) or conveyance allowance. The Code on Wages, 2019 mandates that basic wages must not fall below the applicable minimum wage for the state and skill category. Minimum wages in India are notified by state governments and the central government for scheduled employments, and they vary widely: Delhi's minimum wage for unskilled workers in 2026 is approximately ₹18,499 per month, while Karnataka's ranges from ₹13,000 to ₹16,000 depending on the zone. The EOR confirms that your proposed salary structure complies with the relevant notification and splits remuneration into taxable and exempt components to optimise deductions under Sections 10 and 80C of the Income Tax Act, 1961.

Step 2: EOR Compliance Check

The EOR verifies classification: white-collar office employees versus workers covered by the Factories Act, 1948 or state Shops and Establishments Acts. Working hours are capped at 48 hours per week under the Factories Act, 1948 and most state acts, with overtime payable at double the ordinary rate. The Employees' Provident Fund Organisation (EPFO) requires registration within one month of the establishment employing 20 or more persons, and the Employee State Insurance Corporation (ESIC) requires registration within 15 days of employing 10 or more persons earning up to ₹21,000 per month. The EOR ensures timely registration and classifies each employee correctly to avoid penalties: late EPF registration attracts damages under Section 14B of the EPF Act, typically 5 to 25% of the arrears, plus interest at 12% per annum.

Step 3: Employment Contract

The employment contract must be in English or a language the employee understands, though English is standard in the professional services sector. The contract must include: designation and duties, basic wage and allowances, provident fund and ESI applicability, working hours and weekly rest, probation period (commonly six months, extendable by mutual consent), notice period for termination (typically 30 to 90 days depending on seniority), and leave entitlements under the Code on Wages, 2019. The Code on Wages, 2019 and the Code on Social Security, 2020 govern wage payment and social security contributions. Fixed-term contracts are permissible under the Industrial Employment (Standing Orders) Central Amendment Rules, 2018, with the same statutory benefits as permanent employees, and the maximum probation period is typically six months unless otherwise agreed. The EOR drafts, issues, and holds the signed contract as the legal employer.

Step 4: Government Registrations

The EOR registers the employee with the Employees' Provident Fund Organisation within the first month of employment if the employee's basic wage plus dearness allowance exceeds ₹15,000 (employees below this threshold can opt in voluntarily). ESIC registration is required within 15 days if the employee's gross monthly wages do not exceed ₹21,000. The EOR also obtains or updates the Universal Account Number (UAN) for EPF and the Insurance Number for ESI. Late registration results in interest on delayed contributions and potential prosecution under Section 14 of the EPF Act and Section 85 of the ESI Act. The employee must also file their Permanent Account Number (PAN) with the EOR for TDS compliance, and the EOR reports the employee's salary to the Income Tax Department via Form 24Q on a quarterly basis.

Step 5: Payroll in Local Currency

Payroll runs monthly in Indian Rupees, with wages paid by the seventh day of the following month as mandated by the Payment of Wages Act, 1936. The EOR calculates gross salary, deducts employee EPF contribution (12% of basic plus dearness allowance), employee ESI contribution (0.75% of gross wages if applicable), professional tax (a state levy ranging from ₹200 to ₹2,500 per year depending on the state), and Tax Deducted at Source (TDS) under Sections 192 and 192A of the Income Tax Act, 1961. The employer contributes 12% EPF (or 13.61% for establishments with fewer than 20 employees during the first three years), 3.25% ESIC, and 0.5 to 1% for administrative charges and insurance under EPF. The EOR remits TDS to the Income Tax Department, EPF to EPFO, ESI to ESIC, and professional tax to the relevant state Commercial Taxes Department, all by the 15th of the following month.

Step 6: Ongoing Compliance

The EOR files monthly EPF returns via the Unified Portal and ESI returns via the ESIC portal, both due by the 15th of the following month. TDS returns under Form 24Q are filed quarterly with the Income Tax Department by the 31st of the month following the quarter-end. The EOR maintains statutory registers under the respective state Shops and Establishments Act or the Factories Act, 1948, including the register of wages, the register of leave, and the register of fines and deductions. Annual compliance includes filing the EPF Annual Return via Form 12A and the ESI Annual Return, issuing Form 16 (TDS certificate) to employees by 15 June, and renewing shop and establishment licences or factory licences as required. The EOR also monitors updates to minimum wage notifications, which are revised at least every five years and more frequently in some states, and adjusts payroll accordingly.

Step 7: Termination

Termination in India requires just cause for employees in establishments covered by the Industrial Disputes Act, 1947 (generally those employing 100 or more workers, or 300 or more under the Industrial Relations Code once notified). For white-collar employees not covered, termination follows the contractual notice period, typically 30 to 90 days. The Industrial Disputes Act, 1947 requires one month's notice or pay in lieu for workers with more than one year of service, and prior government approval for retrenchment in establishments with 100 or more workers. Gratuity is payable under the Payment of Gratuity Act, 1972 to any employee who completes five years of continuous service, calculated as 15 days' last drawn wages for each completed year of service, based on a 26-day month. The EOR calculates notice pay, gratuity, encashment of unused earned leave (minimum 15 days per year under the Factories Act, 1948 and most state acts), and any other terminal benefits, remits final provident fund contributions, and provides Form 16 and a full and final settlement statement within the legally prescribed timeframe.

Employment Laws and Compliance an Employer of Record Handles in India

When you hire through an Employer of Record in India, they take on full compliance responsibility so you do not need to build an in-country HR function. This includes real-time monitoring of central and state employment legislation, which changes frequently and carries significant penalties for non-compliance.

• Employment Contracts: The EOR drafts and issues contracts under the Industrial Employment (Standing Orders) Act, 1946 and the Code on Wages, 2019, specifying remuneration, working hours, leave, probation, and notice periods. Failure to provide a written contract or include mandatory clauses can result in disputes before labour courts and awards of compensation.
• Income Tax Withholding: The EOR withholds Tax Deducted at Source (TDS) under Section 192 of the Income Tax Act, 1961, applying the applicable slab rates and deductions under Chapter VI-A. The EOR remits TDS to the Income Tax Department by the 15th of the following month and files quarterly returns via Form 24Q. Late or short payment attracts interest at 1% per month under Section 201 and penalties under Section 271C.
• Provident Fund and Social Security: The EOR registers employees with the Employees' Provident Fund Organisation and remits 12% employer contribution plus 12% employee contribution on basic wages and dearness allowance by the 15th of each month. The EOR also contributes to the Employees' Pension Scheme (8.33% of the employer's 12%) and the EDLI (0.5%) administered by EPFO. Non-compliance results in damages under Section 14B of the EPF Act, typically 5 to 25% of arrears, plus interest at 12% per annum, and potential prosecution under Section 14.
• Employee State Insurance: For employees earning up to ₹21,000 per month, the EOR registers them with the Employee State Insurance Corporation and remits 3.25% employer contribution and 0.75% employee contribution on gross wages by the 15th of each month. Late payment attracts interest at 12% per annum and prosecution under Section 85 of the ESI Act, with imprisonment up to three years and fines.
• Statutory Leave: The Code on Wages, 2019 mandates earned leave at one day per 20 days worked (approximately 15 days per year), while casual leave and sick leave follow common practice or the applicable Shops and Establishments Act. The Maternity Benefit Act, 1961 provides 26 weeks of paid maternity leave for women employees, funded by the employer. The EOR tracks leave balances, ensures encashment of unused earned leave on exit, and maintains the statutory leave register.
• Termination and Severance: The EOR manages notice periods, calculates gratuity under the Payment of Gratuity Act, 1972 (15 days' wages per year of service for employees with five or more years), and complies with retrenchment procedures under the Industrial Disputes Act, 1947 where applicable. Failure to pay gratuity within 30 days of it becoming due results in penalties and interest, while unlawful termination can lead to reinstatement orders or compensation awards from labour courts.
• Working Time and Overtime: The EOR enforces the 48-hour weekly limit under the Factories Act, 1948 and most Shops and Establishments Acts, records daily attendance, and pays overtime at double the ordinary rate for hours beyond the statutory limit. Failure to maintain attendance registers or pay overtime correctly attracts prosecution and fines under Section 92 of the Factories Act, 1948 or the relevant state act.
• Health and Safety: For factory employees, the EOR ensures compliance with the Factories Act, 1948, including cleanliness, ventilation, fire safety, and annual medical examinations. For office employees, the EOR complies with state Shops and Establishments Acts regarding workplace conditions. Non-compliance can result in closure orders, fines, and prosecution of the factory occupier or shop owner, which falls to the EOR as the legal employer.
• Data Protection and Privacy: The EOR complies with the Information Technology Act, 2000 and the Digital Personal Data Protection Act, 2023, which governs the collection, storage, and processing of employee personal data. The EOR implements reasonable security practices under the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 and ensures data breach notification and consent requirements are met. Violations can result in penalties up to ₹250 crore under the 2023 Act.
• Professional Tax: The EOR deducts and remits professional tax, a state-level levy on salaried individuals, which ranges from ₹200 per year in some states to ₹2,500 per year in Maharashtra, Karnataka, and West Bengal. The EOR registers as a deductor with the relevant state Commercial Taxes Department and files monthly or annual returns. Late payment or non-registration attracts interest and penalties under the respective State Tax on Professions, Trades, Callings and Employments Act.

How Much Does It Cost to Use an Employer of Record in India?

The total cost of hiring through an Employer of Record in India has two components: statutory on-costs fixed by Indian law, and the EOR service fee. Statutory costs include Employees' Provident Fund contributions, Employee State Insurance, gratuity provisioning, and other mandatory employer contributions. Playroll charges a service fee starting from $399 per employee per month, billed separately from payroll and statutory costs.

Let's look at an example that includes a base salary and the EOR service fee.

The EOR service fee covers contract drafting, government registrations, monthly payroll processing, TDS and statutory filings, employee onboarding and offboarding, maintenance of all statutory registers, ongoing legal updates, and dedicated support for you and your employee. Gratuity provisioning is an accounting estimate: the actual liability accrues at 15 days' wages per year of service and becomes payable after five years of continuous service.

Employer of Record vs Setting Up an Entity in India

The decision between using an Employer of Record and incorporating a local entity in India depends on your hiring volume, timeline, and appetite for ongoing administrative overhead. Foreign companies typically establish a Private Limited Company under the Companies Act, 2013, which requires a local director (Indian resident or foreign national with a valid visa), a registered office address, minimum two shareholders, and paid-up capital deposited in an Indian bank. Registration with the Registrar of Companies takes 4 to 6 weeks if all documentation is complete, with incorporation costs ranging from $2,000 to $5,000 in professional fees plus government fees, and ongoing accounting, audit, and compliance costs of $8,000 to $15,000 per year.

For companies hiring fewer than 10 employees in India, an Employer of Record is almost always the faster and more cost-effective route.

Playroll also supports your long-term growth through its Global Entity Setup product, which handles entity incorporation and local payroll in 120+ countries, so you can transition from EOR to your own compliant entity in India when the time is right, without switching providers or rebuilding your HR processes.

How Long Does It Take to Hire Someone in India Through an Employer of Record?

You can typically hire an employee in India through an Employer of Record in 10 to 15 business days from the moment you confirm the candidate's details and employment terms.

• Stage 1: Contract preparation and signing (2 to 3 business days): The EOR drafts a compliant employment contract under the Industrial Employment (Standing Orders) Act, 1946 and the Code on Wages, 2019, incorporating salary structure, EPF and ESI applicability, probation, notice period, and leave entitlements. The timeline depends on how quickly you approve the draft and the employee returns the signed copy along with supporting documents such as PAN, Aadhaar, bank details, and educational certificates.
• Stage 2: Government registrations (3 to 5 business days): The EOR registers the employee with the Employees' Provident Fund Organisation (EPFO) and Employee State Insurance Corporation (ESIC) if applicable, and allocates or updates the Universal Account Number (UAN). EPF registration must be completed within one month of the employee joining, and ESIC within 15 days. Missing these deadlines triggers interest on delayed contributions and penalties under Section 14B of the EPF Act and Section 85 of the ESI Act.
• Stage 3: Payroll configuration and first cycle (2 to 4 business days): The EOR configures the employee's payroll profile, inputs salary components, calculates TDS under Section 192 of the Income Tax Act, 1961, and sets up bank transfer details. Payroll in India runs monthly, with wages paid by the 7th of the following month. If the employee starts mid-month, their first payslip will reflect pro-rated salary and statutory deductions, and the first full payslip arrives in the following cycle.
• Stage 4: India-specific requirements (1 to 3 business days, often parallel): If your employee is based in a state with specific shop and establishment registration requirements, the EOR handles registration or updates the existing licence to include the new employee. This process runs in parallel with payroll setup and does not typically delay the start date. Some states require biometric registration or physical inspection for new establishments, which can add 2 to 5 business days in rare cases.

The timeline can extend if the employee provides incomplete documentation, if EPF or ESI portals experience downtime (common during month-end), or if the employee has prior provident fund accounts that need linking. If you are hiring in a state where the EOR does not yet have an establishment registration, initial registration can add 5 to 10 business days.

By comparison, incorporating a Private Limited Company in India takes 4 to 6 weeks, followed by 2 to 3 weeks to set up payroll, open a bank account, and complete PF and ESI registrations, for a total timeline of 8 to 12 weeks before your first employee can legally start work and receive their first salary.

How Playroll's Employer of Record Process Works in India

Playroll becomes the legal employer of your staff in India, so you can hire quickly and compliantly without setting up a local entity.

1. You Define the Role and Terms

You tell us who you want to hire, their job title, salary, allowances, and any benefits. We confirm the offer meets the applicable minimum wage under the Code on Wages, 2019 and structure remuneration to optimise tax efficiency under the Income Tax Act, 1961.

2. Playroll Prepares a Compliant Contract

We draft an employment contract that includes all mandatory clauses under the Industrial Employment (Standing Orders) Act, 1946 and the Code on Wages, 2019, including provident fund and ESI applicability, working hours, probation, notice period, and leave entitlements. We issue the contract as the legal employer, and once signed, we register your employee with the Employees' Provident Fund Organisation and Employee State Insurance Corporation within the statutory deadlines.

3. Employee Onboarding and Payroll Launch

Onboarding typically completes in 10 to 15 business days. We register your employee with the Income Tax Department for TDS reporting, allocate or update their Universal Account Number (UAN) for EPF, and configure payroll in Indian Rupees with the first pay cycle running by the 7th of the following month. We notify EPFO, ESIC, and the relevant state Shops and Establishments authority as required.

4. Ongoing Compliance and Growth

We manage monthly EPF and ESI filings, quarterly TDS returns under Form 24Q, annual Form 16 issuance, and all statutory register maintenance. We monitor changes to minimum wage notifications, tax slabs, and employment law amendments, and update payroll and contracts accordingly. If your hiring in India grows to where a local entity makes sense, Playroll can handle that too through our global entity setup service, so you can transition from EOR to your own Private Limited Company without switching providers or rebuilding your payroll and compliance infrastructure.