Hire in India Without a Company – EOR vs PEO Models Explained

How global companies can legally hire Indian talent without forming a local entity.
By CS Prashant Kumar

Introduction

India continues to be a preferred destination for global talent acquisition. However, foreign businesses often face a practical challenge — how to legally hire employees in India without setting up a subsidiary. Incorporating a company under the Ministry of Corporate Affairs (MCA) takes time, regulatory effort, and ongoing compliance costs.

In recent years, two models have emerged as efficient alternatives — the Employer of Record (EOR) and the Professional Employer Organization (PEO) models. These structures allow international companies to hire Indian employees compliantly, handle payroll and taxation under Indian law, and operate without a local legal entity.

This 2025 guide explains how EORs and PEOs work in India, their differences, legal frameworks, and which model best suits your market-entry or remote-hiring strategy.

What is an Employer of Record (EOR) in India?

An Employer of Record (EOR) is a third-party organization that legally employs workers in India on behalf of a foreign company, while the foreign company directs day-to-day work.

The EOR serves as the legal employer under Indian law. It signs compliant employment contracts, runs payroll in Indian Rupees, deducts TDS (tax), contributes to Provident Fund (PF) and ESI, and files all mandatory labour returns. The foreign company retains managerial control but avoids the regulatory burden of incorporation.

This model enables rapid and compliant hiring — especially for foreign startups testing the Indian market or hiring a small team before registering an entity.

How Does the EOR Model Work in India?

Under the EOR framework, two separate contracts are executed:

Service Agreement: between the foreign company and the EOR, outlining cost, control, and compliance delegation.
Employment Contract: between the EOR and the Indian employee, in compliance with Indian labour laws.

The EOR manages the employee lifecycle — from onboarding to salary disbursement, tax deductions, PF/ESI contributions, and issuance of payslips and Form 16. The foreign company pays the EOR’s consolidated invoice, which includes salary, statutory dues, and service fee.

This setup allows foreign employers to stay compliant with:

The Income Tax Act, 1961 (for salary TDS),
The Employees’ Provident Funds Act, 1952,
The Employees’ State Insurance Act, 1948,
The Shops and Establishments Acts (state-specific), and
The Code on Wages, 2019 (for minimum wages and timely payment).

What is a PEO (Professional Employer Organization) and How is it Different?

A PEO co-employs the worker with the client company, while an EOR is the sole legal employer.

In a PEO setup, both entities share employer responsibilities. The PEO handles payroll, HR, and compliance, while the client manages daily supervision. However, a PEO can only operate if the foreign company already has a registered Indian entity.

So, while an EOR helps you hire without a company, a PEO helps you manage HR functions within an existing Indian company.

Aspect	EOR	PEO
Legal Employer	EOR provider	Shared (Client + PEO)
Indian Entity Required	No	Yes
Best For	Companies without Indian registration	Companies with an Indian subsidiary
Payroll & Compliance	Fully handled by EOR	Shared responsibility
Speed of Setup	1–2 weeks	2–4 weeks

Why Do Global Startups Prefer EORs in India?

EORs have become popular among global startups and SMEs because they:

Enable fast market entry: EORs can onboard employees in days instead of months.
Eliminate the need for incorporation: No MCA registration, PAN, or GST setup required.
Ensure full compliance: The EOR manages EPF, ESI, TDS, and labour filings.
Reduce risk: The EOR bears employer liability under Indian law.
Provide flexibility: Companies can hire and scale quickly, testing market fit before making long-term commitments.

For instance, a Singapore-based SaaS company hiring engineers in Bengaluru can use an Indian EOR to manage payroll, tax, and compliance — without forming a subsidiary.

Legal and Compliance Framework for EOR Operations

A reliable Indian EOR ensures compliance under the following laws and regulations:

Companies Act, 2013: Registration and employer definition compliance.
Income Tax Act, 1961: TDS deduction and employee taxation.
Employees’ Provident Funds & ESI Acts: Social security contributions.
Payment of Bonus Act, 1965 and Gratuity Act, 1972.
Code on Wages, 2019: Minimum wages, overtime, and payment timelines.
Digital Personal Data Protection Act, 2023: Safeguarding employee data privacy.

The EOR must also manage professional tax and maintain statutory registers prescribed under Indian labour law.

For a deeper understanding of post-incorporation compliance, refer to:

Key Risks and Limitations of the EOR Model

While EORs simplify hiring, they are not risk-free. Foreign companies must stay alert to:

Permanent Establishment (PE) Risk: If the EOR-hired team generates revenue or makes key business decisions, Indian tax authorities may classify the foreign company as having a PE in India, triggering local taxation.
Intellectual Property Ownership: Ensure employment contracts assign IP rights to your parent entity.
Data Privacy: EORs must comply with the Digital Personal Data Protection Act, 2023.
Misclassification: Incorrectly treating employees as contractors can lead to labour disputes or penalties.
Cost Over Time: As headcount grows, direct incorporation may become more economical than EOR fees.

When to Choose EOR vs PEO

Use an EOR when:

You don’t have a registered entity in India.
You want to test the Indian market.
You plan to hire a small or remote team.

Use a PEO when:

You already have an Indian subsidiary or branch.
You want to outsource HR, payroll, and compliance.
You aim for a long-term, larger workforce.

Both models can coexist in a growth roadmap — companies often start with an EOR, and once operations stabilize, they transition to a PEO after incorporation.

Example Scenario

Imagine a London-based design firm wants to hire two UI/UX designers in Mumbai. Instead of forming an Indian subsidiary, it engages an EOR that employs these designers locally. The EOR pays them in INR, deducts PF and TDS, and files returns. The London firm directs their work remotely and pays the EOR monthly.

Six months later, as the company grows, it incorporates a private limited company under the Companies Act, 2013 and transitions employees from EOR contracts to direct employment.

FAQs

1. Can a foreign company directly employ Indians without registration?
No. Under Indian law, a foreign company must either set up a subsidiary or partner with a licensed EOR. Direct employment is not permitted without local presence or registration.

2. Is EOR hiring legal and recognized by Indian authorities?
Yes. As long as the EOR is a registered Indian entity and complies with Indian employment, labour, and tax laws, this arrangement is fully legal.

3. What taxes and benefits apply to EOR-hired employees?
Employees are subject to TDS under the Income Tax Act, and employers must contribute to Provident Fund, ESI, gratuity, and other statutory schemes as applicable.

4. How is an EOR different from a staffing agency?
A staffing agency merely supplies manpower. An EOR becomes the legal employer responsible for compliance, taxation, and employee welfare — a far more comprehensive role.

5. Can employees hired through an EOR later move to the company payroll?
Yes. Once the foreign company incorporates an Indian subsidiary, employees can be transitioned from the EOR to the new entity seamlessly.

6. How soon can hiring start under an EOR?
Typically within 1–2 weeks after contracts are signed. Incorporation, by contrast, may take 6–8 weeks depending on approvals.

7. What are the signs that it’s time to shift from EOR to incorporation?
When your team exceeds 10–15 employees, or when you start generating revenue in India, incorporation becomes cost-effective and strategically necessary.

8. How should IP rights be handled under EOR contracts?
Ensure your EOR includes clauses assigning all work product and IP rights to your foreign parent company. This protects ownership in case of dispute.

9. Does using an EOR create tax liability in India?
Not necessarily. As long as decision-making and revenue generation occur outside India, EOR employment alone doesn’t create a taxable presence.

10. Can EORs handle contractor engagement too?
Some EORs offer contractor management, but those engagements are separate from employment and must comply with India’s Contract Labour (Regulation & Abolition) Act, 1970.

Conclusion

EOR and PEO models are redefining how the world hires in India. For companies seeking flexibility, compliance, and speed, an EOR is the gateway to India’s talent market — without the complexity of incorporation. Once operations stabilize, transitioning to a PEO or establishing an Indian subsidiary becomes the natural next step.

Understanding the legal and compliance nuances ensures that your India hiring strategy remains both efficient and lawful — a critical foundation for long-term success in one of the world’s most dynamic markets.

About the Author

Prashant Kumar is a Company Secretary, Published Author, and Partner at Pratham Legal, a full-service Indian law firm advising on corporate, regulatory, and transactional matters. He specialises in corporate governance, legal compliance, and brand protection, helping businesses build credible and sustainable legal foundations. He can be reached for discussions on brand strategy, compliance, and governance excellence via LinkedIn.