Hiring & EOR 15 min read

You've heard the pitch a hundred times: India has 500,000 engineering graduates a year, salaries are 60–70% lower than Silicon Valley, and the talent pool is deep. All of that is true.

What nobody tells you is what happens after you decide to hire.

The compliance obligations. The payroll setup. The laptops that can't cross the border without paying 40% import duty. The EOR contract you signed that makes it nearly impossible to ever leave. The tax filing you missed in month three because nobody warned you it existed.

This guide is for founders and engineering leaders who are serious about building an India team — and want to do it without making the mistakes that derail most first attempts.

We'll cover every option available to you, the real cost of each, and the one structure that gives you speed now and ownership later.

1. Your three options for hiring in India

There is no single right answer — the best structure depends on your timeline, headcount, and risk tolerance. Here's how to think about each one.

Option A: Hire as an independent contractor

The fastest and cheapest option on paper. You find an engineer, sign a service agreement, and transfer money. Simple.

In practice, this works fine for a short-term, project-based engagement with a freelancer. It breaks down fast when:

• The engagement runs longer than 6 months
• The person is working exclusively for you
• You're directing their day-to-day work
• You need them to have access to sensitive systems or IP

There's a second, larger risk that most founders don't know about — and we'll cover it in detail in Section 4.

Option B: Set up your own Indian entity

The gold standard — but not for day one.

Incorporating an Indian Private Limited company as a foreign-owned entity involves:

• Appointing at least one director resident in India
• Filing a mandatory investment report with India's central bank (Reserve Bank of India) under FEMA — India's foreign exchange law
• Registering for GST, Professional Tax, and other state-level taxes
• Registering under 15 different labour laws
• Opening an Indian bank account (which requires the entity to already be incorporated)

Total timeline: 3–6 months minimum. Realistically 6–12 months if you're starting from scratch without local advisors.

And if it doesn't work out? Winding up an Indian company takes a minimum of two years under Indian law. You cannot just close it and walk away.

This is the right structure at scale — 40+ employees, stable team, proven market. It is not the right structure for your first five hires.

Option C: Employer of Record (EOR)

An EOR is a company that is already legally established in India. They hire your engineers on your behalf — the engineers are on the EOR's payroll, covered under the EOR's compliance registrations, and employed under Indian law through the EOR's entity.

You direct the work. The EOR handles the employment.

This gives you:

• A legal, compliant hire in 48–72 hours
• No Indian entity required
• No compliance filings to manage
• A single USD invoice covering payroll, taxes, and benefits

The catch: not all EORs are built the same. More on that shortly.

2. What does hiring an Indian engineer actually cost?

This is the number most founders get wrong. They see an Indian salary benchmark and assume that's the cost. It isn't.

Here's the full cost breakdown for a mid-level software engineer in Pune or Bengaluru:

3. What an EOR actually does — and what it doesn't

The Employer of Record model is well understood in theory and poorly understood in practice. Here's what you should actually expect.

What a good EOR does

• Drafts and executes a compliant employment contract under Indian law
• Runs monthly payroll — salary calculation, tax deduction at source (TDS), net pay to the employee's bank account
• Manages Provident Fund (PF) and ESI contributions — including monthly deposits and annual returns
• Administers health insurance and other benefits
• Handles onboarding paperwork — offer letters, background verification, joining formalities
• Manages offboarding — full and final settlement, PF transfer, relieving letters
• Files all required returns — monthly, quarterly, and annual
• Gives you a live dashboard showing salary, attendance, leave, and compliance status

What most SaaS EORs don't do

• Procure, deliver, and recover laptops locally — you'll face import duties and logistics nightmares on your own
• Set up a physical office for your team — you're on your own for space
• Give you a structured path to transitioning to your own entity — most make this deliberately painful
• Actually understand the law — many are tech platforms that outsource compliance to local vendors

4. The hidden tax trap: Permanent Establishment risk

This is the single most important thing in this guide. Read it twice.

When a foreign company (your US entity) directly engages workers in India — whether as employees, contractors, or through an EOR — there is a risk of creating what tax law calls a Permanent Establishment (PE) in India.

A Permanent Establishment is essentially a taxable presence. If the Indian tax authorities determine that your US company has a PE in India, they can tax a portion of your global profits under Indian tax law. Not just your India revenue — your global profits.

How PE risk is triggered

• You have employees in India with authority to sign contracts on your behalf
• You have a fixed place of business in India (an office, server room, etc.) that your company controls
• Your Indian "contractors" are effectively functioning as employees
• Your Indian team is habitually concluding contracts on behalf of your US company

How to mitigate it

• Ensure your Indian team members are support/execution roles — not business development or contract-signing roles
• Route all contractor engagements through a local Indian entity (such as an EOR) rather than directly from your US company
• Get a PE risk assessment from a qualified Indian tax advisor before your first hire
• Document clearly that strategic and commercial decisions are made in the US, not India

5. From first hire to your own entity — the BOT model

Here's the problem with most EORs: they're a dead end.

You start with an EOR because it's fast and low-risk. But two years later, you have 35 engineers on someone else's payroll, you're paying a per-head markup every month, and transitioning to your own entity means renegotiating contracts, migrating payroll systems, and paying a large exit fee. So you stay. That's exactly what the EOR wants.

The right model is different. It's called Build-Operate-Transfer (BOT) — and it's built around the goal of graduating you out of the EOR at the right time.

6. The 7 questions to ask any EOR before you sign

Not all EORs are equal. Here are the questions that separate the platforms from the real operators.

7. Your India hiring checklist — first 90 days

If you're planning your first India hire in the next quarter, here's your sequenced action list:

Written by Peple Team