How to Hire Employees in India Without Setting Up a Company

You have found someone good in India. You do not have an Indian company, and you would rather not start one just to pay a single person.

Yes, it is possible to hire in India without setting up a company and many foreign businesses choose this route. These companies tend to have one of four options.

The first is to hire people as independent contractors. Although it seems simple, there is a risk that the contractor working on a regular and continuous basis on your behalf could be deemed an employment relationship.

The second is an employer of record who will employ the person in question via its Indian entity and take care of the payroll, tax and statutory liabilities and benefits, while you manage day-to-day working practices. The third is to have a PEO and the final is to have your own entity. Neither come without their costs.

Here’s an insight into four routes and what to consider before making your first hire.

The four routes, at a glance

Route one: pay them as a contractor

The quickest thing to do, and the reason it is tempting is obvious. You sign a services agreement, they invoice you monthly, you pay into their account. No Indian entity, no payroll, no filings.

It is a legitimate arrangement when the relationship is genuinely a contracting one. The problem is that most of these arrangements are not, and the gap between the paperwork and the reality is where the risk lives.

Where it goes wrong

• Misclassification. If you set their hours, direct their daily work, give them a laptop, put them in your team structure and expect them at your standups, you have an employee with a contractor's contract. What the document says does not settle it; what the relationship looks like does
• No statutory benefits. A real employee in India is entitled to provident fund and the rest. A contractor arrangement that was really employment can leave those owed retrospectively
• Permanent establishment exposure. Directing people in India with no local structure is one of the fact patterns that can create a taxable presence for your company in India
• It gets harder to unwind the longer it runs. A two-month contractor is a different proposition from one you have directed daily for three years

Route two: an employer of record, or EOR

A company that already exists in India employs them on your behalf. Its name goes on the employment contract. It runs payroll, deducts and deposits provident fund, ESI, professional tax and TDS, files the returns and issues Form 16. You direct the work.

This is what a remote employer of record arrangement looks like in practice. Your person gets a proper Indian employment contract, statutory benefits, a payslip every month and a Form 16 at year end. You get one invoice and none of the filings.

What it does not do

• It cannot sign contracts with Indian customers for you, raise Indian invoices or collect Indian revenue
• It reduces permanent establishment exposure rather than removing it, because that depends on what your people actually do
• It is a per-employee cost, so at a large enough headcount your own entity becomes cheaper

Our employer of record in India service does this at a flat $75 per employee per month, with salary and statutory contributions billed at cost.

Route three: a PEO, which needs what you do not have

A PEO shares employment responsibilities with you as a co-employer. It is a genuinely useful model, and it is also the one most often confused with an employer of record in search results.

A PEO requires that you already have an Indian entity. It supports an employer; it does not replace one. If you have no Indian company, branch or liaison office, a PEO is not available to you, and any provider offering you one should be asked to explain exactly what they mean.

Route four: incorporate

You set up an Indian company, it employs them, and you own it. Full control, and the right answer for a large team or for selling into India.

It also brings an annual calendar that does not scale down: incorporation, PAN, TAN, GST where applicable, EPFO and ESIC registration, an Indian bank account, FC-GPR within 30 days of allotting shares, the yearly FLA return, a transfer pricing study, Form 3CEB certified by a practising Chartered Accountant, statutory audit, and ROC filings. Two employees carry most of the same calendar as fifty.

How to choose

If you are already paying contractors in India

You are not in trouble by default, and this is a very common place to be. It is worth a deliberate look rather than a drift.

• How long has it been running, and has the relationship changed since it started?
• Do you direct their hours, tools and daily priorities?
• Do they work for anyone else, in practice rather than in theory?
• Would you describe them to a customer as part of your team?

If those answers point towards employment, converting the arrangement is usually straightforward and far less disruptive than dealing with it once someone else raises it. Moving them onto an employer of record is the normal way to do that without incorporating.

The short version

You can hire in India without a company. The contractor route is the fastest and the one that quietly accumulates the most risk. An employer of record costs more than an invoice and removes most of that risk. A PEO needs an entity you do not have. Incorporating is right when India is a market or a large team, and heavy when it is one or two people.

Frequently Asked Questions

Written by

Abhinav Gupta, CPA, CA, MBA

Abhinav works with business owners across the US on industry-specific bookkeeping, from dental practices and restaurants to construction and e-commerce. He writes about what each trade's books actually need. Connect on LinkedIn