Employer of record in India: the real cost in 2026

EOR, own company or contractor?

There are three ways to work with someone in India. Each one fits a different case.

Employer of record

The EOR employs the person for you and runs the payroll. You need no Indian company. This suits one or a few employees, or a first test of the market.

Your own Indian company

A private company needs at least 2 directors. At least one of them must stay in India for 182 days or more in the financial year. The law sets no minimum capital. The online form SPICe+ also registers a new company with EPFO and ESIC.Companies Act, 2013, sections 2 and 149 (PDF), PIB, SPICe+ company registration, 24 Feb 2020Checked 1 Oct 2026

Contractor

No single law sets the test. The Labour Codes define an employee widely: a person employed for hire or reward, on terms that are written or only implied. So a long-term contractor who works like an employee is a risk under all four Codes.Code on Social Security, 2020 (PDF), Code on Wages, 2019 (PDF)Checked 1 Oct 2026

The Labour Codes

India's four Labour Codes apply since 21 November 2025: the Code on Wages, the Industrial Relations Code, the Code on Social Security, and the Occupational Safety, Health and Working Conditions Code. They replace 29 central laws, such as the EPF Act and the Payment of Gratuity Act.

New rules and schemes in 2026

The central rules under the Codes came on 8 May 2026. New EPF, pension (EPS) and insurance (EDLI) schemes replaced the old ones on 29 June 2026.Code on Wages (Central) Rules, 2026 (PDF), Code on Social Security (Central) Rules, 2026 (PDF), EPF Scheme, 2026, G.S.R. 525(E) (PDF)Checked 1 Oct 2026

The 50% rule for wages

Wages are the basic pay, the dearness allowance and the retaining allowance. If the other pay, such as allowances, is more than half of the total pay, the part above half counts as wages. So contributions and gratuity use at least 50% of the total pay.Code on Social Security, 2020 (PDF), Ministry of Labour and Employment, FAQs on the Labour Codes (PDF)Checked 1 Oct 2026

What is not wages

Performance incentives, stock options (ESOPs), variable pay and reimbursements are not part of wages.Ministry of Labour and Employment, FAQs on the Labour Codes (PDF), Ministry of Labour and Employment, additional FAQs, 16 Mar 2026 (PDF)Checked 1 Oct 2026

A higher EPF ceiling

Since 17 September 2026, EPF contributions stop at wages of ₹25,000 a month, not ₹15,000. For wages of ₹25,000 a month or more, the employer's EPF rises from ₹1,800 to ₹3,000 a month.S.O. 5109(E), EPF wage ceiling of ₹25,000 (PDF), Ministry of Labour and Employment, EPF wage ceiling, 16 Sep 2026 (PDF)Checked 1 Oct 2026

Gratuity for fixed-term staff

A fixed-term employee gets gratuity after 1 year of service, not 5.Ministry of Labour and Employment, FAQs on the Labour Codes (PDF)Checked 1 Oct 2026

The Codes did not replace the state Shops and Establishments Acts. These still set rules for shops and offices in each state.

Sources: PIB, the Labour Codes in force, 21 Nov 2025, Code on Social Security, 2020 (PDF), Occupational Safety, Health and Working Conditions Code, 2020 (PDF)Checked 1 Oct 2026

Contract labour licence

An EOR is the legal employer, but the person works for you. The Occupational Safety, Health and Working Conditions Code regulates businesses that supply workers to others.

Contractor

The Code includes a person who supplies contract labour for any work of an establishment as mere human resource.Occupational Safety, Health and Working Conditions Code, 2020 (PDF)Checked 1 Oct 2026

Contract labour

A worker hired by or through a contractor to work in or for an establishment. A worker who is regularly employed by the contractor, with social security cover and regular pay rises, does not count.Occupational Safety, Health and Working Conditions Code, 2020 (PDF)Checked 1 Oct 2026

The licence

A manpower supply contractor that employs 50 or more contract labour needs a licence.Occupational Safety, Health and Working Conditions Code, 2020 (PDF)Checked 1 Oct 2026

The Code does not say if an EOR is a manpower supply contractor. Ask each provider these questions before you sign:

• Do you, or your partner, hold a contractor licence under the OSH Code?
• If not, why do you think that the licence does not apply to your service?

These rules are new and complex. Ask an Indian lawyer how they apply to your case.

Employment rules

Minimum wage

Each state sets minimum wages, by type of work, skill and zone. On 1 October 2026, we found no national floor wage under the Code on Wages. For example, in Maharashtra, a skilled worker in a shop or office in zone 1 earns at least ₹15,766 a month, from 1 July to 31 December 2026.Code on Wages, 2019 (PDF), Maharashtra Labour Commissioner, minimum wages from July 2026 (PDF, Marathi)Checked 1 Oct 2026

Working hours

A worker works up to 8 hours a day and 48 hours a week. Overtime pays twice the normal rate.Occupational Safety, Health and Working Conditions Code, 2020 (PDF), OSH (Central) Rules, 2026 (PDF), Code on Wages (Central) Rules, 2026 (PDF)Checked 1 Oct 2026

Annual leave

A worker earns 1 day of paid leave for every 20 days of work, after 180 days of work in the calendar year. Up to 30 days can carry forward.Occupational Safety, Health and Working Conditions Code, 2020 (PDF)Checked 1 Oct 2026

Maternity and paternity leave

26 weeks of maternity leave, after 80 days of work in the 12 months before. 12 weeks for a mother with 2 or more children, and for adoption. The Labour Codes give no paternity leave.Code on Social Security, 2020 (PDF)Checked 1 Oct 2026

Who is a worker

Many rules protect workers only. Staff who work mainly as managers, and supervisors with wages above ₹18,000 a month, are not workers. For them, the employment contract sets more of the terms.Industrial Relations Code, 2020 (PDF), Ministry of Labour and Employment, FAQs on the Labour Codes (PDF)Checked 1 Oct 2026

Retrenchment

A worker with 1 year or more of continuous service gets 1 month of written notice, or pay instead. The worker also gets 15 days of average pay for each completed year of service. The employer pays 15 days of wages into a re-skilling fund for the worker.Industrial Relations Code, 2020 (PDF), S.O. 2316(E), the worker re-skilling fund (PDF)Checked 1 Oct 2026

Probation

The Codes set no probation rule. The model standing orders allow 6 months, plus up to 3 more, but they apply only to establishments with 300 or more workers.Industrial Relations Code, 2020 (PDF), S.O. 2312(E), model standing orders, 2026 (PDF)Checked 1 Oct 2026

Final pay

When the employment ends for any reason, the employer pays the wages due within 2 working days.Code on Wages, 2019 (PDF)Checked 1 Oct 2026

Payroll and taxes

Since 1 April 2026, the Income-tax Act, 2025 applies. The employer, or the EOR, takes income tax out of the salary at the employee's average rate. It needs a tax deduction account number (TAN).

It files a quarterly statement on Form 138, by 31 July, 31 October, 31 January and 31 May. Each employee gets a salary certificate on Form 130, by 15 June. These forms replace Forms 24Q and 16.

The employee pays 12% EPF on the same wages as the employer. Of the employer's 12%, 8⅓% goes to the pension scheme (EPS), on wages up to the ceiling. The rest goes to the provident fund.

ESI covers employees with wages up to ₹21,000 a month. For them, the employer pays 3.25% and the employee 0.75%.

Sources: Income-tax Act, 2025 (PDF), Income-tax Rules, 2026 (PDF), S.O. 3582(E), EPF contribution rate (PDF), S.O. 3580(E), EPS contribution rate (PDF), Code on Social Security (Central) Rules, 2026 (PDF), Ministry of Labour and Employment, additional FAQs, 16 Mar 2026 (PDF)Checked 1 Oct 2026

Payroll in India: an EOR or a local payroll company?

A local payroll company calculates the pay, the tax and the contributions, and it files the returns. It does not employ the person. Your company stays the legal employer, with all the duties of an employer under Indian law.

EPF and ESI

EPF and ESI apply to an establishment: a place in India where a trade or business is carried on. We found no official route for a foreign company without an Indian establishment to register with EPFO or ESIC.Code on Social Security, 2020 (PDF)Checked 1 Oct 2026

Tax

Every person who takes tax out of a payment must get a TAN.Income-tax Act, 2025 (PDF)Checked 1 Oct 2026

A payroll company is enough when your company already has an Indian company or branch. Without one, an EOR is the usual choice. Ask a tax adviser if an employee in India creates a taxable presence (a permanent establishment) for your company.

Sources: Code on Social Security, 2020 (PDF), Income-tax Act, 2025 (PDF)Checked 1 Oct 2026

Benefits

The law requires EPF, EDLI, gratuity, maternity benefit and paid leave. ESI and the statutory bonus apply to employees with wages up to ₹21,000 a month.

Gratuity is 15 days of wages for each completed year of service, with a 26-day month, up to ₹2,000,000. It is due when the employment ends after 5 years, or after 1 year for a fixed-term employee. Many providers charge it each month as a provision.

The statutory bonus is 8.33% to 20% of wages a year. It applies to employees with wages up to ₹21,000 a month.

Other benefits, such as private health insurance, depend on the contract. Some providers say that health insurance is mandatory in India. Ask them which rule they mean.

Sources: Code on Social Security, 2020 (PDF), Ministry of Labour and Employment, FAQs on the Labour Codes (PDF), Code on Wages, 2019 (PDF), S.O. 4711(E), bonus eligibility (PDF)Checked 1 Oct 2026

How hiring through an EOR works

1. Compare providers and ask for quotesAsk for the monthly fee in India, the deposit, the exchange rate and the notice period of the EOR contract. Ask about the contractor licence under the OSH Code.
2. Agree the employment termsAgree the salary and its parts with the candidate. The wages (basic pay and dearness allowance) must be at least 50% of the total pay, or the excess allowances count as wages.
3. The EOR signs the contractThe EOR becomes the legal employer. It follows the Labour Codes and the rules of the state of work.
4. The EOR runs the payrollEach month, the EOR pays the salary and takes out the income tax and the employee's EPF. It pays them, with the employer's contributions, to the tax department and to EPFO.
5. You manage the daily workYou set the tasks and the goals. The EOR handles the employment administration.

Sources: Income-tax Act, 2025 (PDF), S.O. 3582(E), EPF contribution rate (PDF)Checked 1 Oct 2026