Which route fits your plans in India?
For an India team, choose an employment route after checking the work, worker and local operating needs. An employer of record (EOR) may suit a limited team if legal tests are met and local operations are not needed. An Indian entity may fit for local contracting or continued operations. Cost and headcount alone cannot decide legal fit.
Which employment routes are available?
India's Occupational Safety, Health and Working Conditions Code, 2020 (OSH Code) took effect on 21 November 2025. It does not make EOR hiring always permitted or prohibited; the result depends on the worker, arrangement, work and establishment. The commencement date appears in S.O. 5321(E); the enacted Code is in the original Gazette.
The RBI's office framework restricts branch, liaison and project-office activities. Its listed direction was consolidated in 2021; confirm current eligibility and approval with an authorized dealer bank. Companies Act section 380 requires a foreign company to register within 30 days after establishing a place of business in India. Whether planned activity does so is fact-specific; this does not make every foreign hire a local place of business.
First determine whether the person is a “worker” under the Code. It covers technical, operational and other listed work, but excludes mainly managerial or administrative roles and supervisory workers drawing over INR 18,000 per month or a later notified amount. That pay threshold does not automatically exclude a high-paid technical employee. Actual duties and authority matter more than title.
Section 2(m) then defines contract labour and excludes a non-part-time worker only if the contractor regularly employs them for an activity of its establishment, mutually accepted employment standards apply (including permanent engagement), and they receive periodic increments, social-security coverage and other statutory welfare benefits. These conditions are cumulative. Paperwork or an “EOR” label does not prove them; whether an assigned worker qualifies is fact-specific.
Section 45 applies the contract-labour Part at 50 or more contract labour on any day in the preceding 12 months, for a covered establishment and separately for a manpower-supply contractor. Count only people meeting the worker and contract-labour definitions, not all client employees or everyone paid through a provider. The Part also excludes establishments where work is only intermittent or casual, subject to the statutory dispute process. Other employment duties remain.
If the worker is contract labour and the Part applies, section 57 restricts it in core activity, with three exceptions: normal functioning ordinarily uses contractors for that activity; the work does not require full-time workers for the major portion of working hours or longer periods; or a sudden increase in core work must be completed within a specified time. Some support functions and intermittent activities are excluded from core activity. Assess the establishment and assigned work; short duration alone is no exception.
What each route requires your company to manage
Hiring readiness is more than incorporation or an EOR order form. For an entity, confirm permitted activity and ownership, resident-director and registered-office requirements, capital, bank/remittance process, state registrations, payroll, audit and beneficial-owner filings as applicable. Check current foreign-investment RBI rules and the Companies Act. For a new share-capital company, section 10A requires paid subscriptions, a director’s declaration and registered-office verification before business or borrowing.
For an EOR, agree who directs work, handles performance and complaints, funds payroll, files, pays and supplies records. Where the contract-labour Part applies, sections 53 to 55 assign welfare and unpaid-wage backstop duties to the principal employer. A service contract cannot erase those duties or settle the client's tax presence.
An EOR does not settle tax presence. For a US parent, the India-US treaty covers permanent establishment and business profits in Articles 5 and 7; apply the parent's treaty and facts. Also assess local authorization and immigration separately. An entity adds operating value only if permitted for its activity. See India employment law.
Compare costs on the same basis
These route-only totals assume indefinite employment for the same resident, non-managerial, non-supervisory technical employee in Karnataka, at INR 100,000 gross per month with the same pay structure and benefits. Headcount and package stay constant through each horizon. Actual duties still determine worker category. Gross salary is shown but excluded. Employer contributions, premiums, substantive severance or other employee claims, and payroll funding are excluded equally; add actual route differences. Per-worker exit inputs below cover administration only, not employee claims. Fees exclude GST, recruitment, immigration, premises, product infrastructure and company-profit taxes.
All commercial inputs are hypothetical, not quotes or India market prices. Additional service charges are assumed absent; add quoted extras. Replace them with written scopes for inclusions, tax, funding, employee volume, internal effort and exit.
If the entity remains open after the employee horizon, remove the closure reserve and model continuing fixed costs.
Three headcount and time-horizon scenarios
The totals assume both routes pass their legal and operational gates. If a route fails, mark it “not available for this case,” not as a purchasable alternative.
These route-only totals follow the assumptions above. For 5 employees over 24 months: EOR = 15,000 + 5 × 24 × 11,000 + 5 × 15,000 = INR 1,410,000. Entity = 250,000 + 24 × (30,000 + 15,000 + 5 × 3,000) + 5 × 20,000 + 100,000 = INR 1,890,000. All figures are INR.
For a stable headcount, define N as the number of employees and M as months:
- EOR route cost = EOR setup + N × M × (per-worker EOR service fee + per-worker internal effort) + N × EOR exit cost.
- Entity route cost = entity setup + M × (company-level fixed support + company-level internal effort + N × (worker administration + per-worker internal effort)) + N × transition cost + closure reserve if the company is actually closing.
With changing headcount, sum each staffing period. Add common employment costs only for a genuine total and include any route-specific differences.
In the five-person, 24-month plan, raising only the hypothetical EOR service fee from INR 8,000 to INR 12,000 per worker per month adds INR 480,000 and ties the modeled entity total at INR 1,890,000. At INR 13,000, the EOR total becomes INR 2,010,000, or INR 120,000 more. This is no market break-even: different overhead, audit scope, closure cost, internal capacity or employee obligations change the result.
A need to sign customer contracts, invoice locally, hold operating assets or direct continuing core work can favor an entity before costs cross. A legal restriction, sector approval or launch delay can make it unsuitable even when the model is cheaper. Test the need with a role and authority map, an activity and ownership analysis, and matched written cost scopes. Do not use a universal employee threshold.
For role-level EOR payroll estimates, benefits and compensation detail, see India employee costs.
How to move between routes later
Plan a move before onboarding. A sensible sequence is:
- Review notice, accrued benefits, data, IP and records in the EOR and employment terms.
- Confirm the destination route is available and ready, with bank, payroll, registrations and named operators.
- Decide whether the change is a rehire, novation or establishment transfer; do not assume the result.
- Map continuity, leave, gratuity, notice, claims, final pay and required consent. Explain terms to employees.
- Set a cutover date after payment, records, support and liability owners are documented.
Section 73 of the Industrial Relations Code concerns transfer of establishment ownership or management. A worker with at least one year of continuous service immediately before transfer is entitled to notice and compensation as if retrenched unless all three conditions hold: service is uninterrupted, terms are no less favorable, and the new employer is legally liable for retrenchment compensation calculated on uninterrupted service. An EOR-to-subsidiary switch is not automatically such a transfer. Check the Code and instrument before promising continuity or a reset.
Decide what to confirm before committing
Before choosing, confirm the decision gates and what to do when evidence is missing:
FAQs
Is EOR employment in India's core activity always prohibited?
No. Apply the worker, contract-labour and section 45 tests first. Section 57 restricts covered contract labour in core activity but has specific exceptions. The actual work and establishment determine whether one fits.
Does the 50-person threshold count every employee?
No. Section 45 counts contract labour on any day in the preceding 12 months for the covered establishment and separately for a manpower-supply contractor. It is not a general threshold for every employment duty.
Must a foreign company incorporate an Indian subsidiary to hire in India?
Not always. An EOR may be an option if the worker, provider relationship, client activity and OSH Code tests support it. A branch, project office or direct-employer route may fit specific conditions but is also fact-dependent. Confirm activity, ownership and place-of-business implications first.
At how many employees does an entity become cheaper?
There is no universal number. Compare the same horizon, service scope, company overhead, internal effort, exit costs and route-specific employment obligations.
Can employees move to the company's entity without losing service?
It depends on contracts, the transition instrument, employee rights and any applicable transfer rule. Document continuity, notice, accrued benefits, consent and final pay before setting a date.
Ask Borderless whether its global EOR service for contracts, payroll and benefits could fit the proposed India role, work state and operating plan; confirm case eligibility and terms.
