How to Hire Employees in India: A Step-by-Step Guide
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Table of Contents
What Are the Legal Ways to Hire Employees in India?
The fastest legal way to hire in India is through an Employer of Record. An EOR lets you issue a compliant offer, sign the employment contract, and have your new hire cleared to start work within 24 hours, without registering a local entity. Setting up your own Indian entity instead typically takes 4 to 8 weeks before you can legally hire anyone.
There are three legal ways to hire someone in India: register a local entity and employ them directly, use an employer of record in India to employ them on your behalf without setting up an entity, or engage them as an independent contractor. Entity setup takes 4 to 8 weeks and costs upward of ₹2,00,000; an EOR can have someone hired within 24 hours; contractor engagement can start within a week but carries misclassification risk. Whichever route you choose, budget for statutory costs of roughly 25 to 30% above gross salary once EPF, ESI, bonus, and gratuity are included.
Every foreign company hiring in India chooses between these three paths, and the right one depends on headcount plans, timeline, and how much administrative work you want to take on directly. Setting up your own entity gives full control but the most setup time and ongoing compliance burden. Using an employer of record in India lets you hire without registering a business, since the EOR is the legal employer while you direct the day-to-day work. Engaging contractors is fastest and cheapest but only suits work that genuinely fits a contractor relationship rather than employment in disguise.
The rest of this guide walks through each option, then covers the compliance, cost, and process details that apply once someone is actually hired. For a full breakdown of when an entity makes more sense than an EOR, see the EOR vs. entity establishment guide.
How Do You Hire Employees in India by Setting Up a Local Entity?
Registering a private limited company, LLP, or branch office gives you direct legal standing in India and full control over employment terms, job descriptions, and reporting structures. Each structure suits a different situation: a private limited company is the most common choice for companies planning to hire a team and build a real operating presence; an LLP suits smaller professional-services setups with lighter compliance needs; a branch or liaison office suits companies that want a legal foothold for support or liaison functions without running full commercial operations.
Whichever structure you pick, you become responsible for payroll compliance from day one: EPFO and ESIC registration, monthly TDS deposits, state-specific Shops and Establishment Act filings, and annual statutory returns. Most foreign companies underestimate this workload until the first payroll cycle, which is why many pair entity setup with a payroll platform or in-house HR hire before extending any offers. Review the applicable employment laws for your state before finalising your entity structure, since compliance obligations vary meaningfully between states.
What Does It Cost and How Long Does Entity Setup Take?
| Factor | Local entity |
|---|---|
| Setup time | 4 to 8 weeks |
| Setup cost | ₹2,00,000 to ₹5,00,000 |
| Ongoing compliance cost | ₹50,000 to ₹2,00,000 per year |
| Control over employment terms | Full |
| Best for | Companies planning a long-term India presence with multiple hires |
Once your entity is registered, you will need to complete EPFO establishment registration before you can legally add employees to payroll.
How Do You Hire Employees in India Through an EOR?
An employer of record India (EOR) is a third party that legally employs staff in India on your behalf, handling the employment contract, payroll, and statutory contributions, while you manage the person’s actual day-to-day work. This lets you hire without registering an entity. Hiring through an EOR in India takes 24 hours from signed agreement to a cleared start date. Background verification, Aadhaar and PAN validation, and bank account onboarding run in parallel rather than in sequence, which is what keeps the full process inside a single day, compared with the 4 to 8 weeks entity setup takes. It is the most common route for companies testing the Indian market, hiring one or two people, or prioritising speed over full operational control. For the full mechanics of how this works, current pricing, and how it compares to running your own entity, see Asanify’s detailed guide to EOR in India and the EOR India cost breakdown.
When Should You Move From an EOR to Your Own Entity in India?
This is the one decision most guides skip, and it is where a lot of companies get the timing wrong. Asanify’s own analysis of 22 closed-won India EOR engagements between 2023 and 2026 found a median global headcount of around 50 employees at the point companies signed on for EOR, with a quarter of them signing on at just 14 employees globally, well before India headcount alone would suggest a switch. The commonly cited “20 to 25 India employees” rule of thumb for when to set up your own entity turns out to be off by roughly a factor of two: depending on the legal posture your counsel recommends, the real crossover point can fall anywhere from 2 to 52 India-based employees. On cost alone, the gap is often smaller than expected too: on a $1,500 monthly CTC, a typical $200 EOR management fee brings the landed cost to around $1,800 a month, a gap of about $98 per employee once you account for what entity compliance overhead would otherwise cost. See the full 2026 India EOR research for the complete methodology and findings.
How Long Does EOR Onboarding Take in India?
Employer of Record onboarding in India takes 24 hours from signed agreement to a cleared start date.
How Do You Hire Independent Contractors in India Instead of Employees?
Contractors are the fastest and cheapest way to bring on talent since there is no entity requirement and no EPF, ESI, or notice-period obligation. The risk is misclassification: if a “contractor” is supervised on fixed hours, uses only your equipment, and works exclusively for you, Indian labour authorities can reclassify the relationship as employment and hold you liable for backdated statutory dues and penalties.
If you are paying contractors from outside India, the payment mechanics differ from a domestic transfer; see how to pay a contractor in India from the UK for the process. For a closer look at where the classification line falls, review employee classification risk under Indian law.
What Is the Difference Between an Employee and a Contractor in India?
| Employee | Contractor | |
|---|---|---|
| Control | Employer sets hours, tasks, and methods | Contractor controls how and when work gets done |
| Statutory benefits | Entitled to PF, ESI, gratuity, paid leave | Not entitled to any of these |
| Tax handling | Employer withholds TDS from salary | Contractor invoices and pays their own tax |
| Governing document | Employment contract | Service or project agreement |
| Exclusivity | Typically works for one employer | Can work for multiple clients |
Getting this classification wrong is one of the more expensive mistakes a foreign employer can make in India. If you are unsure which category a role falls into, it is worth checking against the full employment law framework before finalising the engagement type, since the Ministry of Labour and Employment defines “workman” status in ways that do not always match how the role is described in a contract.
What Should Employers Know About Working Hours and Leave in India?
Standard working hours are capped at 48 hours a week and, under most state Shops and Establishment Acts, 9 hours a day including breaks. Anything beyond that counts as overtime and must be compensated at a higher rate; see the overtime rules that apply in India for the specifics.
Employees are generally entitled to earned leave (commonly 12 to 15 days a year depending on the state and company policy), sick leave, casual leave, and paid national and festival holidays, and female employees are entitled to 26 weeks of paid maternity leave under the Maternity Benefit Act. There is no single national minimum wage in India; it is set and revised state by state, so confirm the applicable rate before finalising any offer.
India’s four national Labour Codes have been in force since 21 November 2025 and the central rules were notified on 8 May 2026, but the working-hour and leave detail that applies to most private employers sits in state rules, which not every state has finalised. Reconfirm the current position for your specific state before finalising contract terms, and see the Labour Codes section below for what changed. Tracking all of this manually across a growing team gets difficult fast, which is why most employers move to dedicated leave management and attendance tracking systems early.
How Do India's New Labour Codes Affect Hiring in 2026?
India’s four Labour Codes, the Code on Wages, the Industrial Relations Code, the Code on Social Security, and the Occupational Safety, Health and Working Conditions Code, came into force on 21 November 2025, consolidating 29 separate central labour laws into a single framework. The final central rules under all four codes were notified on 8 May 2026. If you are hiring in India now, these are the rules your employment contracts, salary structures, and payroll setup have to match, not the older Acts most guides still describe.
| Provision | Before the Labour Codes | Under the Labour Codes |
|---|---|---|
| Governing law | 29 separate central Acts | Four consolidated codes |
| Definition of wages | Varied by statute; basic pay often set at 30 to 40% of CTC | One uniform definition; excluded allowances capped at 50% of total remuneration |
| Gratuity for fixed-term staff | Generally required 5 years of continuous service | Pro-rata gratuity after 1 year for fixed-term employees |
| Appointment letters | Common practice, not universally mandatory | Mandatory for every employee |
| Earned leave eligibility | 240 days worked in a calendar year under the Factories Act | 180 days worked in a calendar year |
| Final settlement on exit | Commonly 30 to 45 days in practice | Within 2 working days of resignation, removal, or dismissal |
| Standing orders certification | Establishments with 100 or more workers | Establishments with 300 or more workers |
| Gig and platform workers | Largely outside statutory social security | Covered, funded by aggregator contributions of 1 to 2% of annual turnover |
What Each of the Four Codes Covers
- Code on Wages: the uniform definition of wages, minimum wages, timely payment, bonus, and the two-day deadline for final settlement on exit.
- Industrial Relations Code: employment terms, standing orders, fixed-term employment, notice, retrenchment, layoff, closure, trade unions, and dispute resolution.
- Code on Social Security: provident fund, ESI, gratuity, maternity benefit, and the new framework for gig and platform workers.
- Occupational Safety, Health and Working Conditions Code: working hours, overtime, rest periods, leave, night work for women, welfare facilities, registers, and returns.
What the New Wage Definition Means for Salary Structures
The single biggest practical change is the uniform definition of wages. Allowances excluded from wages cannot exceed 50% of total remuneration, and anything above that threshold is treated as wages for provident fund, gratuity, bonus, and leave encashment calculations. Employers who historically kept basic pay at 30 to 40% of CTC to hold down statutory cost now have to restructure toward a 50% basic, which raises both employer and employee contribution obligations on the same CTC.
The practical effect is that two offers with identical CTC can carry materially different statutory cost depending on how the components are split, and the gap no longer works in the employer’s favour the way it used to. Model the restructured basic before the offer goes out rather than correcting it after the first payroll run, since arrears on provident fund and gratuity provisioning are far harder to unwind than getting the structure right up front. The salary structure guide for India covers how the components fit together, and the statutory contribution rates in the next section apply to the revised wage base, not to basic salary as it was previously defined.
Working Hours, Overtime, and Leave Under the New Rules
| Rule | What applies now |
|---|---|
| Daily and weekly hours | 8 hours a day and 48 hours a week, with a spread-over of up to 12 hours including breaks |
| Rest breaks | No more than 5 continuous hours of work without a break of at least 30 minutes |
| Weekly off | One day of rest a week, so a maximum of 6 working days |
| Overtime rate | Twice the ordinary rate of wages |
| Overtime ceiling | 144 hours in a quarter, and overtime cannot be forced on an employee |
| Earned leave eligibility | Accrues after 180 days worked in a calendar year, down from 240 days |
| Leave accrual | 1 day for every 20 days worked, roughly 15 days a year for full-time staff |
| Carry forward and encashment | Up to 30 days can be carried forward; anything above 30 days is encashed |
| Night work for women | Permitted before 6 am and after 7 pm with written consent, safe transport, and security arrangements |
Overtime is calculated on the revised wage base, so the same hours now cost more than they did under the old definition. For a closer look at the calculation, see the overtime rules that apply in India, and pair it with an attendance tracking setup that can evidence the quarterly ceiling if an inspector asks.
Employment Terms, Contracts, and Exit Obligations
- Appointment letters are mandatory. Every employee has to be issued one, and it needs to reflect the revised gratuity, leave, notice, and termination provisions rather than the older statutory references.
- Fixed-term employment is formally recognised. Fixed-term staff are entitled to the same wages, allowances, and benefits as permanent employees doing the same or similar work, and they qualify for pro-rata gratuity after one year instead of the usual five. Short contracts now carry a liability they did not before.
- Final settlement is due within two working days of resignation, removal, or dismissal, including accrued leave encashment. That is a payroll process change, not just a policy line, and it is one of the more commonly missed obligations.
- Standing orders certification now applies at 300 workers, raised from 100. Establishments below that threshold follow the model standing orders issued by the appropriate government.
- A grievance redressal committee is required at 20 or more workers, with equal representation from the employer and the workforce.
- Prior government permission for layoff, retrenchment, or closure applies at 300 or more workers. Below that, the employer gives one month’s written notice or wages in lieu, plus retrenchment compensation of 15 days’ average pay for each completed year of continuous service, and applies last in, first out unless a documented reason justifies otherwise.
- A re-skilling fund contribution applies on retrenchment: 15 days’ last drawn wages per retrenched worker, payable within 10 days.
Social Security for Gig and Platform Workers
The Code on Social Security brings gig and platform workers inside the statutory net for the first time. Aggregators contribute between 1 and 2% of annual turnover toward social security for these workers, capped at 5% of what the platform pays them. Workers aged 16 and above register through a central government portal using Aadhaar, and benefit eligibility generally requires at least 90 days with a single aggregator or 120 days across multiple aggregators in the preceding financial year. If your India operating model relies on platform or on-demand labour rather than payroll employment, this is a cost line that did not exist before.
Which Rules Apply to You: Central or State?
The codes are central law, but the rules that operationalise them are split. Central rules govern establishments in the central sphere, while factories, plantations, and most private employers follow the rules notified by the state they operate in. A number of states including Madhya Pradesh, Uttar Pradesh, Gujarat, Karnataka, Haryana, and Bihar have notified final rules, while others including Maharashtra, Tamil Nadu, Kerala, and West Bengal were still at draft stage at the time of writing. Confirm your state’s current position before finalising contract terms, and review the applicable employment laws in India alongside your payroll setup.
Compliance administration has also moved online. Registration runs through the Shram Suvidha portal and is deemed granted if the authority takes no action within seven days, statutory returns are filed electronically, and employers maintain registers for wages, attendance, leave, and accidents in the prescribed formats. This is a summary rather than legal advice, so confirm the specifics with counsel for your state and industry before you act on it.
What to Do Before Your Next India Hire
- Re-model the salary structure. Move basic toward 50% of total remuneration and re-forecast provident fund, gratuity, and bonus cost on the revised wage base before you quote a CTC.
- Reissue contract and appointment letter templates so they reference the codes rather than the repealed Acts, and cover fixed-term gratuity, revised leave, notice, and termination grounds.
- Reconfigure payroll for the new wage base, the two-working-day final settlement deadline, the 144-hour quarterly overtime ceiling, and the 30-day leave carry-forward cap.
- Provision gratuity for fixed-term staff from year one rather than from year five, and reprice any contract that assumed no gratuity liability.
- Check your state’s rule status and re-check it periodically, since the state position is still moving.
If you would rather not carry this compliance load in-house while you are still building out India headcount, an employer of record in India absorbs it: the EOR is the legal employer and is the one that has to keep contracts, payroll, and filings aligned as the state rules land.
What Statutory Payroll Contributions Do Employers Have to Pay in India?
| Contribution | Who it applies to | Employer rate |
|---|---|---|
| Provident Fund (EPF) | Employees earning up to ₹15,000 basic (mandatory); voluntary above that | 12% of basic salary |
| Employee State Insurance (ESI) | Employees earning up to ₹21,000 gross per month, at companies with 10+ employees (20+ in some states) | 3.25% of gross wages |
| Statutory Bonus | Employees earning up to ₹21,000 per month | 8.33% to 20% of salary |
| Gratuity | Employees after 5 years of continuous service | Typically provisioned at ~4.81% annually |
| Professional Tax | Varies by state; several states do not levy it at all | State-specific, often capped around ₹2,500 per year |
Provident Fund is the largest and most consistent of these; the EPFO contribution rules set both the rate and the wage ceiling that determines who is covered. ESI works differently since it is an insurance scheme rather than a savings scheme, and ESIC eligibility rules determine coverage based on gross wages rather than basic salary.
How you structure the CTC itself also affects these numbers: a higher basic-to-gross ratio increases the PF base, while allowances structured outside basic salary can reduce it, which is why salary structuring and statutory cost planning usually happen together rather than as separate exercises. Getting these two right from the first payroll cycle matters because retroactive corrections are far more painful than getting registration and calculation right up front, which is exactly what a proper payroll compliance setup is meant to prevent. See the full payroll setup and compliance checklist for a step-by-step walkthrough.
How Much Does It Cost to Hire an Employee in India?
Salary alone understates the real cost of hiring. Once you add statutory contributions, insurance, and administrative overhead, total employment cost typically runs 25 to 30% above gross salary, on top of whatever salary structure you are offering.
| Level | Typical annual gross (₹) |
|---|---|
| Entry-level | 3,00,000 to 5,00,000 |
| Mid-level | 6,00,000 to 12,00,000 |
| Senior | 15,00,000 to 25,00,000 |
| Management | 25,00,000 and above |
These figures also vary by location: talent in metro cities like Bengaluru, Mumbai, and Delhi NCR typically commands salaries at the higher end of each band, while tier-2 cities can run noticeably lower for comparable roles, which is one reason many companies now hire outside the traditional metro hubs.
If you are comparing this against hiring through an EOR instead of your own entity, the EOR cost breakdown walks through how the two compare on a per-hire basis. Also budget for statutory and voluntary employee benefits beyond the mandatory contributions, since competitive offers in most sectors now include more than the legal minimum.
What Are the Rules for Termination, Notice Periods, and Severance in India?
Termination rules differ depending on whether the employee qualifies as a “workman” under the Industrial Disputes Act. Workmen with a year or more of service generally require 30 to 90 days notice, or pay in lieu, plus retrenchment compensation of about 15 days average pay per year of service. Non-workmen, typically supervisory, managerial, or administrative staff, are usually governed by contract terms, commonly 1 to 3 months notice.
If the termination happens during the probation period, different and generally shorter notice terms usually apply, so confirm this is spelled out clearly in the offer letter. Employees who have completed 5 years of continuous service are also entitled to gratuity on exit regardless of how the termination occurs, so this needs to be factored into any exit calculation alongside notice pay. Always document the grounds for termination and follow the process in the employment contract to avoid a labour dispute later.
What Background Checks Should You Run Before Hiring in India?
Most employers run identity verification, employment history checks, education verification, and a criminal record check before extending a final offer, typically completed within 3 to 7 business days depending on how many previous employers need to be contacted. Skipping this step is a common source of trouble later, especially for roles involving financial access or client-facing responsibility. See how background checks work in India for what is typically included and how long each check takes.
How Do You Hire Foreign Staff to Work in India?
If you are sending your own employees into India rather than hiring locally, they will need the right visa. An Employment Visa applies to skilled professionals or senior staff of a foreign company with a registered presence in India, requires a minimum salary threshold, and can be issued for up to five years. A Business Visa suits shorter visits for setting up or overseeing business activity and requires proof of business registration and financial standing. Dependants of visa holders travel on an X (entry) visa valid for the same duration as the primary visa.
Applications and eligibility details are managed through India’s official visa portal. If you would rather avoid the visa process entirely and hire local talent instead, an employer of record can handle compliant local employment without relocating anyone.
What Is the Step-by-Step Process to Hire Your First Employee in India?
If you’re hiring through an EOR specifically, see “How Do You Hire Employees in India Through an EOR?” above — onboarding there takes 24 hours from signed agreement to a cleared start date.
- Choose your hiring model. Decide between a local entity, an EOR, or contractors based on headcount plans, budget, and how quickly you need someone in place.
- Register with the right authorities. If hiring as a direct employer, complete EPFO registration, ESIC registration, and Professional Tax registration if your state levies one, before the employee’s first payroll cycle.
- Draft a compliant employment contract covering role, compensation, leave, notice period, probation terms, and termination grounds in clear, unambiguous language.
- Run background verification before extending an offer, and confirm results before the start date rather than after.
- Set up payroll and TDS deduction using payroll software built for India so contributions and withholding are calculated correctly from day one, not corrected after the fact.
- Onboard the employee and begin ongoing compliance tracking through an India-specific HR platform, covering leave accrual, statutory remittance deadlines, and annual returns.
What Should Be in an Onboarding Checklist for New Employees in India?
- Before day one: finalise the signed contract, complete EPFO and ESIC registration, and set up the employee’s payroll profile.
- Day one: run company policy orientation, introduce the reporting manager and team, and provision equipment and system access.
- First week: deliver role-specific training, confirm performance expectations, and walk through leave and benefits entitlements.
- Beyond the first month: schedule a 30-day check-in, confirm probation milestones, and enrol the employee in ongoing HR and payroll processes.
Structured onboarding support helps catch gaps in this sequence that are easy to miss when it is handled manually.
How Can Asanify Help You Hire and Manage Employees in India?
Whichever hiring path you choose, running payroll, statutory contributions, and compliance tracking correctly every month is where most foreign employers hit friction. Asanify’s platform handles PF and ESI calculations, TDS deduction, leave and attendance tracking, and compliance deadlines for employees in India, and supports EOR hiring for companies that want to skip entity setup entirely.
See Asanify pricing for India or the 2026 India hiring benchmarks for current market data.
Frequently Asked Questions About Hiring Employees in India
How long does it take to hire an employee in India?
Can a foreign company hire an employee in India without a local entity?
What is the difference between hiring through an EOR and a local entity in India?
What is the minimum wage for hiring employees in India?
How much do employer statutory contributions add to salary costs in India?
Do all employees in India get Provident Fund and ESI coverage?
What should an employment contract in India include?
What visa does a foreign employee need to work in India?
What visa does a foreign employee need to work in India?
Hire Employees in India the Smart and Compliant Way
Asanify enables you to hire, onboard, and manage employees in India without setting up a local entity – ensuring full compliance with local labor and tax laws.
Hiring guides for India
Role-by-role hiring playbooks for India. Salaries, contracts, statutory benefits, and onboarding timelines.
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