What does payroll for an Indian subsidiary involve?
Payroll is a monthly cycle: gross-to-net calculation, statutory deductions, payslips, payments and returns. For an Indian company it usually includes:
- Salary tax deduction (TDS): the company deducts tax on salary, deposits it and files quarterly returns.
- Provident fund and ESI: registration with EPFO and ESIC is part of the linked incorporation form (INC-35), so the company is registered from the start. Which employees are covered depends on wages and headcount.
- Professional tax and shops and establishment rules: these are state laws, so they vary by location.
- Records and payslips: kept in a form the labour and tax authorities can inspect.
- ESOP and RSU compliance: perquisite valuation, withholding at exercise or vesting, and reporting for employees holding parent-company equity awards.
ProLead lists payroll processing among its finance services, alongside accounting, tax and compliance.
How do the Labour Codes affect a new employer?
The four Labour Codes on wages, industrial relations, social security and occupational safety came into force on 21 November 2025, consolidating 29 central laws. Final Central Rules were notified on 8 May 2026, and states are still notifying their own rules. ProLead supports payroll and EOR clients pan-India, so state-by-state rule status is tracked as part of the service rather than listed here.
Reported headline changes for a new employer include mandatory appointment letters. Some thresholds, such as those for grievance committees and other facilities, depend on headcount. The definition of wages may also raise contribution costs. The hiring guide goes further.
What is an Employer of Record?
An Employer of Record is an Indian entity that legally employs your staff, runs their payroll and handles statutory compliance, while you direct their day-to-day work. It lets you hire before you have a subsidiary.
An EOR does not remove tax risk on its own. If people employed through an EOR habitually conclude contracts for you, or work from a fixed place at your disposal, your foreign company can still be treated as having a permanent establishment in India. Contractor and principal-employer liability under the Labour Codes is one reason an EOR arrangement needs a proper contract and compliance review.
EOR or your own subsidiary?
| EOR | Own subsidiary with payroll service | EOR first, subsidiary later | |
|---|---|---|---|
| Legal employer | The EOR | Your Indian company | The EOR, then your company |
| Suits | A market test or the first few hires | A team that will grow, sign contracts or hold assets | Companies that want to hire now and incorporate on their own timetable |
| Needs | An EOR contract and PE review | Incorporation, bank account, registrations | Transfer of employees when the entity is ready |
| Watch for | PE risk from conduct; dependence on the EOR | Set-up time and fixed compliance duties | Two sets of arrangements to manage |
ProLead’s guidance is that the case for an own subsidiary strengthens as headcount grows past the first handful of hires, but this is a rule of thumb, not a legal test. The EOR vs subsidiary comparison covers the decision in more depth.
How does ProLead run payroll and EOR?
ProLead processes payroll for already incorporated companies, and also offers EOR. On the EOR route, ProLead acts as the employer through its own Indian entities, not through a partner or a shell entity created solely for EOR, so your team sits inside an operating entity with a genuine business. Payroll scope covers statutory returns and payslips; there is no minimum headcount.
To scope either route, book a free consultation.
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 an EOR remove permanent establishment risk?
When should I move from an EOR to my own subsidiary?
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.