A Guide to Employer of Record (EOR) vs. Entity Establishment in India

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

• What is an Employer of Record?
• Establishing a Legal Entity in India: What It Involves
• EOR vs. Setting Up an Entity in India
• Factors to Consider When Choosing EOR vs Entity Establishment
• Why Global Companies Choose India for Remote Hiring
• Cost Implications
• Compliance and Legal Exposure
• When Should You Set Up a Legal Entity vs EOR
• Decide Between EOR and Entity Setup
• Consider Before Partnering With an EOR
• Transitioning From an EOR to Your Own Entity
• Foreign Compliance
• Switching from EOR to Entity Establishment
• Asanify the Best Choice for EOR Services in India
• FAQs

What is an Employer of Record?

An Employer of Record (EOR) is a third-party organization that legally employs workers on behalf of a company. While you manage the employee’s daily tasks, the EOR handles HR, payroll, contracts, and compliance with local labour laws.

For businesses looking to hire employees in India without setting up a legal entity, an EOR ensures smooth onboarding, payroll in local currency, tax deductions, and statutory benefits like provident fund and gratuity. This saves time, reduces compliance risks, and allows companies to scale quickly.

In short, an Employer of Record in India acts as your legal employer, making global hiring faster, safer, and more efficient.

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Establishing a Legal Entity in India: What It Involves

Setting up a legal entity in India means creating a formally registered business structure, such as a subsidiary, branch office, or private limited company, that allows you to directly hire employees, run operations, and establish a permanent footprint in the country. This model gives businesses complete control but also brings high costs, legal responsibilities, and complex compliance requirements.

The process generally includes:

• Business Registration – Filing incorporation documents and registering with Indian authorities.
• Compliance Labour Laws – Managing corporate tax filings, social security contributions, and employee regulations.
• Payroll and HR Setup – Creating systems for salary disbursement, benefits, and statutory deductions.
• Operational Setup – Leasing office space, setting up infrastructure, and managing day-to-day operations.
• Ongoing Obligations – Annual audits, regulatory reporting, and keeping up with frequent policy changes.

While this route requires significant time, capital, and local expertise, it is best suited for companies planning long-term operations in India with a need for full control over employees and business strategy.

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.

Suggested Read: Employer of Record Services India- The Ultimate Guide 

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.

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 Global Companies Choose India for Remote Hiring: EOR vs Legal Entity?

India, with its 1.4 billion people and nearly 1.5 million engineering graduates each year, has become a global hub for remote IT and tech talent. Strong digital infrastructure and government support make it an attractive destination for global hiring.

Companies can hire in India in two ways:

• Employer of Record in India – Enables hiring without a legal entity while managing onboarding, payroll, compliance, and benefits.
• Legal Entity Setup in India – Requires registration, compliance management, HR expertise, capital investment, and ongoing regulatory updates.

Cost Implications of Employer of Record (EOR) vs Entity Establishment in India

When expanding into India, businesses must weigh the cost implications of Employer of Record (EOR) vs setting up a legal entity.

Setup and Maintenance Costs

• Entity: High upfront costs for incorporation, legal registration, and consultancy. Ongoing expenses include office rent, utilities, HR, and admin staff. More cost-effective only with a large, permanent workforce.
• EOR: No setup required. Pay a monthly fee per employee or a percentage of salary. Saves on infrastructure and admin costs.

Compliance Costs

• Entity: Full responsibility for tax, labour law, and statutory filings. Often requires hiring payroll experts or external consultants. Risk of penalties if non-compliant.
• EOR: Manages payroll taxes, statutory benefits, and compliance with Indian regulations. Reduces legal risks and overhead.

Time Savings

• Entity: Incorporation can take weeks or months. Ongoing time needed to manage payroll, benefits, and compliance.
• EOR: Hiring possible within days. Handles compliance, payroll, and benefits, letting businesses focus on growth.

Summary

• EOR in India → Fast, low-risk, and cost-efficient entry into the market.
• Legal Entity → Greater control but requires heavy investment, ongoing costs, and dedicated compliance management.

Comparison of Cost Implications: EOR vs Entity Establishment in India

Factor	Employer of Record (EOR) in India	Entity Establishment in India
Setup Costs	No setup costs. Pay a monthly service fee per employee (fixed or % of salary).	High upfront costs for incorporation, legal fees, and registration.
Maintenance Costs	No need for office space, admin staff, or utilities. All handled by EOR.	Ongoing expenses for office rent, utilities, HR, and administrative staff.
Compliance Costs	EOR manages payroll taxes, statutory benefits, and labour law compliance.	Requires in-house experts or consultants to handle compliance and tax regulations.
Risk of Penalties	Low risk—EOR ensures compliance with Indian labour laws.	Higher risk—non-compliance can lead to fines, penalties, or legal disputes.
Time to Start Hiring	Quick—can hire employees within days.	Slow—entity setup can take weeks to months before hiring starts.
Best For	Companies seeking fast, low-cost, compliant entry into India.	Companies planning long-term presence with a large workforce.

Compliance and Legal Exposure: Employer of Record (EOR) vs entity establishment

When comparing an Employer of Record (EOR) with setting up a legal entity in India, the key differences often lie in compliance management and legal exposure.

1. Compliance with Local Laws

• An EOR in India acts as the legal employer and assumes responsibility for following labour laws, statutory regulations, and tax rules.
• This reduces the client company’s risk of non-compliance, penalties, and legal disputes.
• However, businesses must carefully vet the EOR’s compliance practices and conduct periodic reviews to ensure they remain aligned with evolving regulations.

2. Responsibilities Under a Legal Entity

• If you establish your own entity, your company is solely accountable for navigating India’s complex legal and tax landscape.
• This requires expert knowledge of local labour laws, compliance obligations, and payroll regulations.
• Failing to meet these requirements can lead to heavy fines, operational risks, and legal consequences.

3. Potential Liabilities

• While an EOR reduces compliance risks, it does not eliminate them entirely. Companies may still face potential liability in cases such as joint employment or co-employment claims.
• To safeguard against such risks, it’s important to clearly define responsibilities in employment contracts between the client company, the EOR, and the employee.

4. Balancing Control and Risk

• An EOR provides a protective layer by handling compliance and reducing legal exposure, making it ideal for companies seeking quick, low-risk entry into India.
• Setting up your own entity offers greater control but comes with the full responsibility of managing risks, compliance, and ongoing regulatory updates.

When Should You Set Up a Legal Entity vs Choose an Employer of Record (EOR)?

Expanding into India presents two clear pathways: building your own legal entity or partnering with an Employer of Record (EOR). Each approach offers advantages depending on your business goals, team size, and long-term plans.

When Does It Make Sense to Establish Your Own Entity?

Setting up a legal entity in India is a major decision that requires significant investment and long-term commitment. While the process is complex, it is the right choice when:

• You plan to hire a large workforce and want full control over payroll, benefits, and HR operations.
• Your business strategy is focused on a long-term presence in India, not just testing the market.
• You need the ability to customize contracts, benefits, and policies to reflect your unique company culture.
• Building brand credibility and local recognition with clients, partners, and government bodies is a priority.
• You have adequate financial and internal resources to manage setup, compliance, annual reporting, and legal requirements.

In short, entity establishment in India is best suited for companies ready to invest heavily and build a permanent base in the market.

When Should You Opt for an Employer of Record (EOR)?

If your priority is speed, flexibility, and compliance, then using an EOR in India is the smarter choice. EORs already have local entities and handle all employment administration on your behalf. Choose this route when:

• You want to hire employees in India quickly, often within days instead of months.
• Your goal is to test a market, run a pilot project, or explore opportunities without heavy upfront investment.
• Your business lacks in-house HR or legal expertise to manage payroll, taxes, and compliance in India.
• Reducing administrative burden and compliance risk is a top priority.
• You want to focus on core business operations while outsourcing HR and payroll tasks to experts.

In this scenario, an Employer of Record service in India provides a cost-effective, low-risk entry point into the market.

How to Decide Between EOR and Entity Setup?

Deciding between EOR vs entity setup in India comes down to your company’s growth plans, compliance readiness, and available resources. Consider these key factors:

• Speed of hiring – Need to hire in days? Go with an EOR. Have months to plan? Entity setup may work.
• Market commitment – Short-term or pilot projects fit an EOR model, while long-term expansion favors an entity.
• Team size – Smaller teams are more cost-effective with an EOR; larger teams may justify an entity.
• Level of control – EOR reduces admin responsibility, while an entity offers full customization and oversight.
• Compliance complexity – Without internal HR/legal expertise, EORs safeguard you against costly mistakes.
• Geographical expansion – Multi-country hiring is easier through EORs, while entities limit you to one market.

If you’re unsure, consider starting with an EOR in India to test the waters, then move to entity establishment once you’re confident of long-term growth.

What to Consider Before Partnering With an EOR

Before you choose an Employer of Record provider in India, evaluate these factors carefully:

• Local expertise – Ensure the EOR understands Indian labour laws, taxation, and compliance inside out.
• Transparent pricing – Look for clear fee structures with no hidden costs.
• Service range – Confirm the EOR offers payroll, onboarding, benefits, and visa/work permit support.
• Geographic reach – If you plan multi-country expansion, choose an EOR with strong international presence.
• Track record – Research reviews, client success stories, and years of experience in the EOR space.

Transitioning From an EOR to Your Own Entity

Many global companies start with an Employer of Record in India for speed and compliance, then move to a legal entity once growth stabilizes. The transition works best when:

• Your headcount grows significantly and ongoing EOR service fees outweigh entity costs.
• You’re committed to a long-term market presence in India.
• You want greater customization and control over employment terms.

Steps to ensure a smooth transition:

1. Begin entity registration while still working with your EOR to avoid hiring delays.
2. Secure licenses, set up payroll systems, and open a local bank account.
3. Work with your EOR to transfer contracts, payroll, and benefits seamlessly to your new entity.
4. Engage local legal and HR advisors to manage compliance and avoid disruptions.

A planned transition keeps employees supported, ensures compliance, and allows your business to scale smoothly.

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 in India

• Requires investor or board approval to establish the entity.
• Once established, the company must provide annual reporting of subsidiary activities and financials to the parent company.
• Must ensure compliance with both Indian and home country laws.
• Companies need to manage Permanent Establishment (PE) risks and complex tax implications in India.
• Involves ongoing compliance management, audits, and regulatory obligations.

Using an Employer of Record (EOR) in India

• Allows organizations to focus on core business activities while the EOR handles administrative and legal responsibilities.
• Simplifies compliance for foreign-based companies.
• The EOR manages all local regulations, payroll, and statutory compliance, removing the need for a local entity.
• Ensures compliance with both Indian and home country laws.

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.

What Makes Asanify the Best Choice for EOR Services 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

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.