Overview
Hiring in India stacks central PF rules, state Shops & Establishments registrations, and CTC structuring that typically adds ~8–25% above stated cost depending on salary level. Foreign companies almost always start with an EOR because a private limited company needs a resident director and 4–8 weeks before compliant payroll runs.
India is one of the largest EOR markets globally: massive talent pool, competitive salaries, and labor rules layered across central statutes and state amendments. The complexity is not any single rate. It is EPFO audits that can reach back seven years, municipality-level Shops & Establishments registration, and contractor misclassification that triggers retroactive PF, ESI, and gratuity.
Setting up a private limited company takes 4–8 weeks on a clean run, needs at least one resident director, authorized capital of ₹1,00,000, and ongoing MCA filings, board meetings, and statutory audits. Below ~50 headcount, EOR is almost always cheaper and faster. India produces over 1.5 million engineering graduates a year, English is the default professional language, and IST overlaps European hours by 3–4 hours.
For deeper APAC compliance notes and India-specific provider context, see eor.asia’s India hiring coverage.
Key Employment Facts
| Item | Detail |
|---|---|
| Minimum wage | Varies by state and skill category; Delhi ~₹18,456/month (unskilled, from 1 April 2025); no single national floor |
| Working hours | 48 hrs/week max (Factories Act); 9 hrs/day max; new Labour Codes propose 48 hrs/week across sectors |
| Probation period | 3–6 months standard; can extend to 12 months contractually |
| Notice period | Typically 1–3 months; 3 months is market standard for IT/professional roles |
| Severance | 15 days’ average pay per year of service (IDA retrenchment for workmen with 1+ year) |
| Paid leave | ~12–21 days/year by state/statute; usually earned + sick + casual leave |
| Employer costs % | ~12% PF on basic (statutory floor ₹15,000) + 3.25% ESI if salary ≤₹21,000 + gratuity provision ~4.8% of basic |
Employer Cost
India’s load-bearing employer lines are Provident Fund, ESI (when it applies), and gratuity accrual. Effective % swings hard with salary level because of caps.
Provident Fund (EPF): Employer pays 12% of basic salary. The statutory wage ceiling for the mandatory calculation is ₹15,000/month basic (employer floor ≈ ₹1,800/month), but most IT employers contribute on full basic. On ₹40,000/month basic, employer PF = ₹4,800/month. Of the 12%, ~8.33% typically goes to the employee’s EPF account and ~3.67% to the Employer’s Pension Scheme (EPS), subject to EPS wage rules. EPFO inspections can reopen filings for up to seven years; under-contribution compounds with interest and damages.
ESI: Employer pays 3.25% of gross for employees earning ≤₹21,000/month. Above that threshold, ESI drops off. Junior ops and support roles often sit inside ESI; mid/senior tech usually do not. Employee share is 0.75% when covered.
Gratuity provision: Payment Insurance Act liability crystallizes after 5 years of continuous service at 15 days’ wages per completed year (formula: basic × 15 × years ÷ 26), currently capped at ₹20,00,000. Amortized monthly, that is roughly ~4.8% of basic even before year 5. Budget it from day one; do not treat it as a year-5 surprise.
Worked example: Mid-level developer quoted at ₹100,000/month CTC with basic structured at ₹50,000: employer PF ≈ ₹6,000 and gratuity provision ≈ ₹2,400 are usually already inside that CTC envelope, not additive. If the same numbers are quoted as cash salary (not CTC), budget ~₹8,400/month (~8–10%) on top. Junior roles with ESI can land closer to 15–25% above cash pay. Pending Labour Code wage-definition consolidation may raise costs another ~2–5% for structures that currently keep basic artificially low.
Add EOR platform fees (~$499–$699/month) on top. For Bangalore or Hyderabad tech seats, model total employer outlay, not just “CTC,” before comparing to Singapore or Philippines alternatives in our Philippines guide. Candidates often sanity-check a ₹100K CTC offer against a home loan payment with EMI Calculator APP; that is take-home math, not the employer all-in you need for EOR vs entity.
Statutory Benefits
PF is the single largest recurring employer cost for professional hires: 12% employer / 12% employee on basic (or on the statutory ceiling for mandatory coverage). Enrollment with EPFO is required for covered establishments.
ESI covers medical care, sickness, maternity, and disability for employees at or under ₹21,000/month gross. Employer 3.25%, employee 0.75%.
Gratuity is payable on resignation, termination, retirement, or death after 5 years continuous service (death/disability can trigger earlier). Formula and ₹20 lakh cap above. EORs provision monthly; confirm the provision sits in your invoice, not as an off-platform contingency.
Professional Tax: State-level employee deduction, usually capped at ~₹2,500/year. Maharashtra uses monthly slabs; some northeastern states levy none. Your EOR must be registered in the employee’s state, not only the city where the EOR entity sits.
Labour Welfare Fund: Tiny amounts (often ₹6–₹25/employee, sometimes semi-annual). Trivial cash, disproportionate inspection risk if missed.
Maternity leave: 26 weeks under the Maternity Benefit Act, 2017 for the first two children; 12 weeks for subsequent. Market-competitive tech offers also include group term life (~1–2× annual CTC). It is not statutory, but excluding it loses candidates to domestic employers.
India’s four Labour Codes (wages, social security, industrial relations, occupational safety) remain pending full state-rule implementation. When live, they consolidate ~29 central laws and standardize “wages” across PF, ESI, and gratuity. Reputable EORs already stress-test offer letters against that shift.
Work Visas and Immigration
Most EOR hiring uses local nationals. Foreign relocation is the exception: senior leadership or niche skills.
| Visa/Permit Type | Who It’s For | Duration | Processing Time |
|---|---|---|---|
| Employment Visa | Foreign nationals employed by an Indian entity, salary above ~USD 25,000/year | Up to 5 years | ~4–8 weeks |
| Business Visa | Meetings and short visits (no employment) | Up to 5 years, ~180-day stays | ~1–3 weeks |
| Project Visa | Foreign workers on defined project contracts | Project duration, up to ~1 year | ~6–10 weeks |
The EOR’s Indian entity can sponsor Employment Visas. Expect FRRO registration within 14 days of arrival. Many EORs outsource immigration to a partner firm; ask who owns the timeline when FRRO or consulate queues slip. Certain nationalities add ~2–4 weeks of security clearance. The visa is employer-tied: switching EORs means reapplying. India has no formal foreign-worker quota, but officers reject roles that look fillable domestically.
Hiring in India Without a Local Entity
Provider fees, entity models, and multi-state Shops & Establishments coverage change frequently. See the ranked shortlist: Best EOR for India. For APAC-side reviews and India operational notes, also use eor.asia.
Termination Rules
India splits “workmen” (broadly non-managerial) from non-workmen (managers, supervisors, many technical experts). For workmen in establishments with 100+ employees, the Industrial Disputes Act (IDA) requires prior government permission before retrenchment. Most professional IT hires are treated as non-workmen and exit under contract plus the applicable Shops & Establishments Act, not IDA permission.
IDA retrenchment (workmen): 15 days’ average pay per completed year for 1+ year continuous service, plus notice or pay in lieu, plus last-drawn wages through the exit date.
Non-workmen / professional exits: Driven by contractual notice, typically 30–90 days in IT. Pay through notice or buyout by mutual agreement. Document performance or role redundancy in writing even when IDA does not apply; state labor offices still see disputes.
Gratuity on exit: After 5 years, gratuity is owed on resignation, termination, or retirement. Example: ₹50,000/month basic × 15 × 6 years ÷ 26 ≈ ₹1,73,077. Add 3 months’ notice at ₹100,000 CTC/month and accrued leave, and a 6-year mid-level exit often lands near ₹4.7–5.0 lakh all-in before EOR legal fees.
Probation (3–6 months): Shorter notice (often 1 week to 1 month) and before meaningful gratuity accrual. That is the lowest-risk exit window. After confirmation, budget notice pay + leave + any negotiated settlement; do not assume US-style at-will.
Frequently Asked Questions
How should I structure basic vs CTC so PF and gratuity do not surprise me?
Treat basic as the tax base for PF and gratuity, not a free dial. Low-basic / high-allowance structures cut near-term PF cash but inflate inspection risk and will get hit when Labour Code wage definitions standardize. For a ₹100k CTC tech hire, many employers put basic near 40–50% of CTC. Ask the EOR to show PF, ESI (if any), and gratuity provision as separate invoice lines.
Can I terminate a Bangalore engineer on 30 days’ notice after two years?
Usually yes if they are non-workmen and the contract allows it, but you still owe notice pay or garden leave, accrued leave, and gratuity once past 5 years. Skipping documented process invites Shops & Establishments complaints. For workmen in large establishments, IDA permission and 15-days-per-year retrenchment can apply. Confirm classification with counsel before the first PIP.
What does an EPFO audit actually look for?
Contribution base (full basic vs ₹15,000 ceiling), timely remittance, and whether contractors should have been employees. Lookbacks of up to ~7 years are common. Damages and interest can exceed the original under-payment. An EOR that owns EPFO filings removes most of that operational risk from your entity, but you still need accurate salary breakup data from day one.
What happens to IP when we hire engineers through an EOR?
Under the Copyright Act, 1957, copyright in employment work product initially vests in the legal employer: the EOR entity. Your protection is the EOR→client IP assignment in the MSA. Confirm explicit coverage of code, docs, and inventions. Patentable work often needs separate assignment deeds beyond the employment contract. Review this before the first hire, not after a diligence ask.
When does an Indian private limited beat EOR?
Past roughly 50 employees with a multi-year commitment, entity economics and direct EPFO control usually win. Below that, resident-director overhead, state registrations, and audit exposure rarely beat ~$499–$699/seat EOR fees. If you only need India plus one other APAC market, compare total cost against Singapore before locking an India-only entity plan.
Sources
Related Decision Pages
- Deel Review : Multi-state compliance and India onboarding
- Remote Review : Owned-entity model and IP assignment chain
- Multiplier Review : APAC-focused pricing for India seats
- Hiring in Singapore : Lower employer burden APAC alternative
- Hiring in the Philippines : English-speaking APAC talent at different cost shape
- Compare EOR providers
- Hiring your first international employee
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