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Everything you need to know about employing full-time staff in India — the legal framework, statutory obligations, onboarding process, and costs — in plain language.
India has become the world's most sought-after destination for building remote teams. A deep talent pool across technology, finance, operations, and creative disciplines — combined with salaries that are significantly lower than Western markets — makes India one of the most cost-effective hiring markets globally.
For a mid-level software engineer, total employment cost in India typically runs $12,000–$25,000 per year, compared to $100,000–$180,000 in the US or UK. This isn't just about cost — the quality of talent at Indian universities and in major tech hubs like Bangalore, Hyderabad, and Pune is genuinely world-class.
India produces over 1.5 million engineering graduates each year. Bangalore alone has more software engineers than Silicon Valley.
Employment in India is governed by a combination of central and state-level legislation. The key laws that affect hiring as a foreign company are:
You cannot legally employ someone in India as a foreign company without either a registered India entity or an Employer of Record arrangement. Informal employment creates significant legal and tax exposure.
An EOR like Davzon employs the worker on your behalf through their own India entity. You direct the work — the EOR handles the legal employment, payroll, compliance, and benefits. This is the fastest and lowest-risk route for most companies hiring 1–50 people in India.
Best for: Companies that want to hire quickly, avoid entity setup costs, and ensure compliance without building internal India HR expertise.
A Private Limited Company or Branch Office registration gives you full control but takes 2–4 months, costs ₹1–3 lakh in setup fees, and requires ongoing compliance filings. You'll also need local directors and a registered address.
Best for: Companies with 25+ India employees who are committed to a long-term India presence and want to build local HR capability.
Engaging workers as independent contractors avoids employment obligations — but comes with significant misclassification risk. Indian courts have reclassified contractor arrangements as employment and ordered back-pay plus statutory contributions. TDS under Section 194C must still be filed.
Best for: Short-term, genuinely project-based engagements where the worker operates independently and uses their own tools.
For most global companies hiring in India, an EOR is the right starting point. It gets you compliant quickly, costs a fraction of entity setup, and can be unwound easily if plans change. Move to your own entity only when the India team is large enough to justify the operational overhead.
Beyond the employee's salary, Indian employment law requires the following employer contributions:
| Obligation | Rate | Notes |
|---|---|---|
| Provident Fund (PF) | 12% of basic salary | Employer contribution; employee contributes another 12% |
| Employees' State Insurance (ESI) | 3.25% of gross salary | Only for employees earning ≤ ₹21,000/month gross |
| Professional Tax | ₹200/month | State-specific; deducted from employee, employer liable |
| Gratuity (provisioning) | ~4.81% of basic salary | Payable after 5 years; good practice to provision monthly |
| Medical Insurance | Varies | Not statutory but standard practice; ₹10,000–₹25,000/year |
As a rough rule: total employer cost in India is approximately 15–18% above the employee's gross salary (lower than most Western markets).
Confirm the job title, CTC (Cost to Company), and start date. Your EOR will issue the offer letter and employment contract, with the salary approved by you — no cut is taken.
The employee submits Aadhaar, PAN, bank account, and prior employment documents. The EOR verifies and files these correctly.
PF registration (UAN allocation), ESI (if applicable), and state professional tax enrollment are set up for the employee.
The salary structure — basic, HRA, LTA, special allowance — is set up to optimise tax efficiency within Indian law.
Salary is processed on the agreed payroll date. Payslip is issued. All statutory deductions are calculated and set up for filing.
With an EOR, this full process typically takes 3–5 working days. With your own entity, expect 4–8 weeks minimum.
Once an employee is on payroll, these filings are required every month without exception:
Late PF filing attracts a penalty of ₹5 per employee per day. Late TDS deposit attracts 1.5% per month interest plus potential prosecution. These penalties are the employer's liability.
India employment law varies significantly by company size, but key principles for most international hires:
Davzon handles the entire employment process — from offer letter to monthly compliance — so you can focus on building your team, not managing filings.