What does an Employer of Record do?
An Employer of Record (EOR) is a firm with its own registered Indian entity. It becomes the legal employer of your India staff, issues their contracts, runs payroll and handles statutory registrations and deductions, while you direct the daily work. You do not need your own Indian company to start.
There is no dedicated EOR law in India, and the EOR runs under general contract, employment, contract labour and staffing laws.
When does an EOR fit?
An EOR fits when you want to hire quickly, test the market or place a handful of people before you commit to an entity. It also fits a short project, or a senior hire who will support your home team rather than lead a local business.
In ProLead’s experience, an EOR works for teams ranging from a single employee to tens of employees, depending on the facts of each case, including the role of the staff, their level of engagement with home-country staff and customers, and the overall group structure when assessing transfer pricing and permanent establishment risk. An EOR is typically quicker to start than incorporating; ProLead has onboarded staff in as little as two working days in some instances, though the time depends on the specifics of each case.
When does your own subsidiary fit?
A wholly owned subsidiary fits when your India team will sign contracts, invoice customers, hold IP, lease premises, hold a bank account or grow into a global capability centre. It gives you a separate legal entity, direct control of employment terms and no third-party employer between you and your team.
It also brings an annual compliance calendar, including company law filings, FEMA returns, transfer pricing and tax returns. If you plan a large captive centre, read our GCC set-up guide.
How do the two compare?
| Point | Employer of Record | Own subsidiary |
|---|---|---|
| Legal employer | The EOR | Your subsidiary |
| Own bank account, lease, registrations | No | Yes |
| Contract-signing authority in India | Not advisable to place it with staff | Yes, through the subsidiary’s directors and signatories |
| Control of employment terms | Shared with the EOR contract | Full |
| Set-up effort | Low | Higher: incorporation, FEMA reporting, ongoing compliance |
| Suits | Small teams, market tests, short projects | Larger teams, long-term presence, GCCs |
| Cost pattern | Service fee per employee | Set-up fees plus running compliance costs |
What about permanent establishment risk?
A permanent establishment (PE) is a taxable presence of a foreign company in India. An EOR does not by itself remove that risk, because the outcome depends on conduct. The usual concerns are a person in India who habitually concludes contracts for you, a fixed place at your disposal, and deputed staff working for you beyond treaty day thresholds.
Indian Supreme Court decisions, including the Morgan Stanley and Formula One cases, have looked at these questions, and they do not settle that an EOR arrangement is safe. A vendor rule of thumb is to keep contract-signing, pricing and closing authority with the home entity and to treat India roles as support functions. Take advice on your facts, because a subsidiary changes the analysis but does not remove the need for it.
What have the Labour Codes changed?
The four Labour Codes came into force on 21 November 2025, and final central rules were notified on 8 May 2026, with state rules still being notified. Reported changes relevant to employers include a prescribed appointment letter format and principal-employer liability for a contractor’s default on minimum bonus and worksite facilities. That liability is a reason to review the contract with any EOR. Our guide on hiring in India and the new Labour Codes has more.
Can you start with an EOR and move to a subsidiary later?
Yes, and many companies do. A common pattern is to start with an EOR, then incorporate once headcount or contract authority requires it, and transfer the team across. Plan the move early, including notice periods and continuity of employee benefits. ProLead offers EOR services and subsidiary set-up, so you can compare both for your plan through a free consultation on the contact page.
Note: Rules and forms change often. This page is general information, not legal or tax advice. Check the current position with a practising Chartered Accountant or Company Secretary before you act.
Frequently asked questions
Is an Employer of Record legal in India?
Does using an Employer of Record avoid permanent establishment risk?
When should we move from an EOR to our own subsidiary?
Can ProLead act as our Employer of Record?
Sources
General information only, not legal or tax advice. Rules and forms change, so confirm the current position with a practising Chartered Accountant or Company Secretary before you act. See our disclaimer.