Well, let’s start by imagining that you are one of the CEOs of a thriving startup that is trying to hire the perfect group of individuals from India for your work. However, you are torn between setting up a new legal entity in India versus getting an employer of record in India which is almost a new concept and seems too good to be true. In such a case which option should you choose while conducting remote hiring in India? Well, there might be quite a lot of questions arising when it comes to choosing between an Employer of Record (EOR) vs entity establishment. However, worry not such a dilemma is quite common and we have just the right solution for you which will not just simplify your expansion in India but will also empower your team to hit the ground running.
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Table of Contents
- Introduction to Remote Hiring in India
- EOR vs. Setting Up an Entity in India
- Factors to Consider When Choosing EOR or Entity Establishment
- Why Time to Market Matters for Global Companies
- Cost Implications of Entity vs. EOR in India
- Compliance and Legal Exposure: Entity vs. EOR
- Foreign Compliance: Setting Up a Legal Entity vs. Using EOR in India
- Switching from EOR to Entity Establishment in India
- Choose Asanify for EOR in India
- Frequently Asked Questions (FAQs)
Introduction to Remote Hiring in India
From the serene backwater of Kerala to the timeless beauty of the Taj Mahal, India is home to almost 1.4 billion people and is a vibrant mix of both modernity and tradition. Such a land of history and festivals has surely become one of the growing hubs for skilled remote talents. The Indian Government has also significantly invested in the digital infrastructure to improve digital literacy and connectivity. With almost 1.5 million engineers graduating each year, India is rapidly becoming one of the main hotspots for businesses especially when it comes to remote hiring of IT and tech professionals. This can be done in two ways where you can either set up a new legal entity or you can hire an EOR.
An EOR is a third party that helps businesses to compliantly employ, pay, and administer all the benefits in your country where the latter does not need to have a registered entity. It takes care of everything right from hiring employees in India remotely to onboarding of talent to even tax and global compliance. The EOR for India hence acts as your legal partner while you handle the day-to-day tasks of your employee.
A legal entity on the other hand involves registering with local authorities, hiring compliance and HR experts, and having the capital requirements. You also need to keep up with the new regulations.
Hire in India Without a Legal Entity
Onboard your first employee in just 48 hours — no company setup required.
EOR vs. Setting Up an Entity in India
Now that you have decided to hire talent in India it should be your goal to attract the top candidates to join your organization and contribute their best to the growth. To assist you in this you might want to choose between an Employer of Record (EOR) vs entity establishment in India. Here’s a table that helps you understand the main differences between the both.
| Feature | Employer of Record (EOR) | Setting Up Your Own Entity |
| Cost | Lower entry barriers; predictable monthly fees. | High initial investment; recurring onboarding costs. |
| Legal Compliance | Ensures compliance, and handles global regulation updates. | Full compliance responsibility, liable for fines. |
| Speed of Setup | Quick setup, enabling rapid deployment of employees. | Lengthy setup process involving registration and legal procedures. |
| Administrative Burden | Significantly reduces administrative burden for the company. | Creates a substantial administrative burden for managing HR, payroll, and legal matters. |
| Scalability | Enables quick market entry and expansion. | Difficult to establish new businesses abroad. |
| Employee Satisfaction | Provides employees with location flexibility. | Ensures employees receive the full range of legal benefits mandated by local law. |
Factors to Consider When Choosing Employer of Record (EOR) vs Entity Establishment
When expanding internationally, businesses face a critical decision: partner with an Employer of Record (EOR) or establish their own legal entity in the target market. This decision hinges on several key factors that you might want to take a look at.
Suggested Read: Employer of Record Services India- The Ultimate Guide
1. Legal and Compliance Considerations:
- EOR: An EOR ensures that you get proper compliance with all local labor laws, tax regulations, and employee benefits, relieving your company of this burden.
- Entity: Setting up an entity places full responsibility for compliance on your company, exposing it to potential fines and penalties for non-compliance.
2. Control, Flexibility, and Hiring:
- EOR: Offers flexibility, particularly in existing markets during business downturns, which can be challenging with a significant entity investment.
- Entity: Provides greater control over employee relationships but limits your hiring flexibility to the country of incorporation.
3. Cost Implications:
- EOR: Generally more cost-effective initially, with predictable monthly fees, eliminating the need for upfront investment in setting up an entity.
- Entity: Involves substantial upfront and ongoing costs related to registration, operations, and employee management.
4. Employee Satisfaction:
- EOR: Enables companies to offer competitive and locally compliant employee benefits, attracting top talent without the overhead of a dedicated HR team in each country.
- Entity: Allows for greater customization of employee experiences to align with company culture but requires managing multiple vendors for various HR functions.
5. Responsibility and Risk:
- EOR: Minimizes compliance risk by assuming responsibility for navigating local labor regulations, reducing the likelihood of legal action.
- Entity: Places full responsibility for compliance on the company, exposing it to potential legal and financial repercussions for non-compliance.
6. Scalability and Market Entry:
- EOR: Facilitates rapid and cost-effective expansion into new markets by streamlining administrative processes, enabling businesses to scale quickly.
- Entity: Presents significant challenges in scaling operations due to the time, resources, and expertise required to establish and manage entities in multiple countries.
Why Time to Market Matters for Global Companies
In today’s fast-paced business world, the time taken to enter a market is one of the very important factors that could either make or break your entire success journey when expanding abroad. Registering a business entity, especially in India could take a lot of months and this lengthy process could lead to you losing out on potential top talents.
Moreover, the later you set up your entity you risk your preferred candidates losing interest and disengaging from the hiring process. This could highly damage the employer brand you have built and could even make it hard to attract potential talent in the future. This also means that your competitors can hire quickly and may snap up these valuable assets which leaves you with a dwindling talent pool at the end.
However, do not let bureaucratic red tape hinder your growth. Partnering with an employer of record could help you bypass the need for a legal entity and help you hire top talent in only a matter of days. This is one of the fast hiring solutions that will allow you to seize opportunities, gain a competitive edge, and position your organization for success in new markets. In the global race for talent every second matters. Prioritizing time to market India and hence securing the best candidate over your competitors should be your main goal.
Cost Implications of Employer of Record (EOR) vs Entity Establishment in India
When considering expansion into India, businesses need to weigh down the cost implications of establishing their own Employer of Record (EOR) vs entity establishment. To understand more about the hiring cost in India and the EOR pricing in India here’s a detailed breakdown on the same.
Setup and Maintenance Costs
Setting up your own entity could involve a lot of upfront costs for incorporation, legal fees, and registration. There are also ongoing expenses that you need to handle such as for the utilities, office space, and the administrative staff. While these costs are too high in the short term, they could become more cost-effective in the long run with a huge workforce.
Using an employer of record incurs no setup costs as the EOR already has its own entity in India. You tend to pay a service fee, either a fixed monthly amount per employee or a percentage of the employee’s salary. This tends to avoid costs related to office space, administrative staff, and equipment.
Compliance Costs
Managing an entity usually requires an expert-based knowledge of local labor laws, compliance requirements, and tax regulations. Non-compliance could lead to financial penalties and legal risks and may also necessitate additional staff or external consultants to handle the compliance.
An EOR on the other hand usually handles all the compliance aspects which include benefits administration, payroll taxes, and adherence to employment laws. This reduces any risk related to non-compliance and associated penalties or legal costs.
Time Savings
When it comes to the time taken to set up an entity it could take a lot of weeks to months which requires a significant time investment to navigate local regulations, laws, and administrative processes. There is also an ongoing time commitment to manage benefits, payroll, and compliance.
An EOR on the other hand will help you with a quick setup process which enables organizations to start hiring employees just within days. By management of compliance, payroll, and benefits administration the EOR frees up time for organizations to focus on only core business activities.
Compliance and Legal Exposure: Employer of Record (EOR) vs entity establishment
When it comes to compliance and legal exposure there are quite a lot of differences between using an Employer of Record (EOR) vs entity establishment based on the labor laws India. An EOR which is the third party organization assumes all of the responsibility for ensuring compliance with local employment laws, statutory regulations, and tax regulations. This could highly reduce the risk of non-compliance along with associated penalties or legal costs for the legal client company. However, it is crucial to thoroughly vet the EOR’s compliance practices and conduct regular audits to ensure they remain aligned with evolving laws and regulations.
On the other hand, when you set up your own legal entity the company is one who is solely responsible for navigating through the complex legal landscape and ensuring compliance. This requires expert knowledge of local labor laws, compliance requirements, and tax regulations which could be challenging and quite a time-consuming process. Non-compliance could also result in a large amount of fines and legal risks.
While an EOR could definitely help you mitigate any compliance risks. It is important to note that the client company might however face potential liability in certain conditions such as joint employment or co-employment claims. To minimize the risk, clear out the employment contracts outlining the expectations and responsibilities of both parties is important.
Hence using an EOR could provide you with a layer of protection and reduce any compliance burden but it is not a complete shield against legal exposure. Setting up your owned entity provides great control however it comes with a lot of responsibility for managing potential risks and ensuring compliance.
Foreign Compliance: Setting Up an Employer of Record (EOR) vs Entity Establishment in India
When you try to expand into India, a lot of the companies as part of foreign countries tend to face the crucial decision of partnering with an Employer of Record (EOR) vs entity establishment. Both of them have their own unique implications for foreign compliance and here are both the options that could help you out.
Setting Up a Legal Entity
For a foreign company to set up its own entity in India will require investor or board approval to establish the entity. Once the own entity has been established the company must be able to provide annual reporting of subsidiary activities and financials to the parent company where they ensure compliance with both Indian and foreign country laws. Companies must also manage the permanent establishment or PE risks along with tax implications in India which could be complex and require careful navigation.
Using an Employer of Record (EOR)
Using an EOR simplifies compliance for foreign-based companies. The EOR also handles all the local regulations and compliance which eliminates the need to set your own local entity. This approach also ensures compliance with both home country and Indian regulations, which allows the organizations to focus only on their core business needs.
Suggested Read: EOR India- A Detailed Guide on Employer of Record 2024
Switching from EOR to Entity Establishment in India
While using an Employer of Record (EOR) offers initial benefits for foreign companies entering the Indian market, transitioning to entity establishment may become necessary as operations grow and evolve.
- Planning ahead for the time-intensive process of establishing an own local entity in India
- Management of tasks such as employee benefits, compliance in-house, and HR processes
- Assessment of permanent establishment risks and all the tax implications
- Considering the size of the organization, industry regulations, resources, and the cultural nuances
- Evaluation of intellectual property protection and government contract requirements.
Choose Asanify for EOR in India
Want an EOR that will help you simplify almost all of the processes? Well, Asanify is one of the leading employers of record service providers that enables global companies to hire, pay, and manage talent in India effortlessly without having any local bank accounts or entities. We also ensure to offer the best in class EOR services with features such as equipment integration, local payments, lowest FX rates, and even employee tax saving options. Not to mention we will also help you by providing guide on which one is the best while selecting between an Employer of Record (EOR) vs entity establishment.
As a comprehensive platform, Asanify provides a number of services which is all powered by advanced technology. We also stand out for our transparency, local expertise, and value. If you feel like you are ready to explore more about Asanify why not contact us and we can help you achieve your goals while minimizing the compliance risks and costs taken to reach them.
FAQs
- What is an Employer of Record (EOR) in India?
An EOR is a third-party company that acts as the legal employer for foreign companies operating in India. They handle all employment-related responsibilities, allowing foreign companies to hire employees without setting up a legal entity in the country.
- How does an EOR help with labor law compliance in India?
EORs ensure compliance with Indian labor laws by:
- Handling all legal and administrative aspects: Including payroll, taxes, benefits, and statutory compliances.
- Employing workers on their own payroll: Making them responsible for all legal and statutory obligations.
- Staying updated on legal changes: Ensuring compliance with the evolving regulatory landscape.
- What are the costs involved in using an EOR in India?
Costs vary based on services but generally include:
- Monthly fees per employee: Covering payroll processing, benefits administration, and compliance.
- Additional fees for specific services: Such as onboarding, background checks, and insurance.
- What benefits do employees get under an EOR arrangement in India?
Employees receive benefits as per Indian labor laws, including:
- Social security contributions: To provident funds (EPF), pension funds, and insurance schemes.
- Maternity/paternity leave: As per applicable laws.
- Paid time off: Including annual leave, sick leave, and public holidays.
- How does payroll management work with an EOR in India?
EORs handle all payroll processing, including:
- Salary calculations and disbursements: Ensuring timely and accurate payments.
- Tax withholdings and deductions: Complying with income tax and other applicable taxes.
- Generating necessary tax reports and filings: For both the employer and employees.
- Can EOR handle independent contractors in India?
While EORs primarily focus on employee relationships, some may offer limited support for independent contractors, such as facilitating payments and ensuring tax compliance.
- What are the key differences between EOR and setting up an entity in India?
There are a lot of differences between an EOR and setting up an entity in India and a few can be provided as follows:
- Control: EORs offer less control over HR functions compared to setting up an entity.
- Costs: EORs may have higher ongoing costs, while entity setup involves higher initial investment.
- Compliance: EORs assume greater compliance responsibility.
- Is it mandatory to have written employment contracts in India?
Yes, written employment contracts are mandatory in India for all employees, regardless of their employment duration.
- What are the tax obligations for foreign companies hiring in India?
Foreign companies hiring in India may be subject to corporate income tax, withholding tax on employee salaries, and other applicable taxes.
- What are the maternity leave rules in India under EOR?
Maternity leave in India is typically 26 weeks for women employees. EORs ensure compliance with these regulations.
- How does health insurance work under EOR in India?
EORs can facilitate health insurance coverage for employees, either by offering group insurance plans or by guiding employees in obtaining individual coverage.
- What is the Employees Provident Fund (EPF), and who is eligible?
EPF is a retirement savings scheme for employees. All establishments employing 20 or more employees are required to register for EPF.
- What is the difference between employees and contractors in India?
Employees have an employer-employee relationship, while contractors are self-employed individuals engaged for specific projects.
- How does an EOR ensure timely salary payments in India?
EORs have established processes for timely salary processing and disbursements, ensuring employees receive their salaries on time.
- What are the professional tax rules in different Indian states
Professional tax rules vary by state. EORs ensure compliance with the applicable professional tax regulations in the relevant state.
- Can EOR handle multi-state compliance in India?
Yes, EORs with a pan-India presence can handle compliance requirements across multiple Indian states.
- Why is an independent contractor agreement important in India?
An independent contractor agreement clearly defines the terms of engagement, responsibilities, and payment terms for both parties.
- What is a Professional Employer Organization (PEO) in India?
PEO also called as Professional Employer Organization is another term used for Employer of Record.
- How does an EOR simplify payroll and compliance for foreign companies?
EORs simplify payroll and compliance by:
- Assuming all administrative burdens: Related to payroll processing, tax filings, and statutory compliances.
- Providing expert guidance: On Indian labor laws and regulations.
- Mitigating compliance risks: By ensuring adherence to all applicable laws.
- What are the key labor laws foreign employers need to know in India?
Key labor laws include the Factories Act, the Industrial Disputes Act, the Minimum Wages Act, and the Payment of Wages Act.
Not to be considered as tax, legal, financial or HR advice. Regulations change over time so please consult a lawyer, accountant or Labour Law expert for specific guidance.
