Hire Employees in India: A Comprehensive Guide for 2026

Introduction

Employment in India is governed by a layered set of central labor codes and state-specific rules, including the Employees' Provident Fund Act, the Payment of Gratuity Act, and the Industrial Disputes Act, alongside state-level Professional Tax and Shops and Establishments Act requirements.

Companies that hire employees in India need to register for and manage contributions to the Employees' Provident Fund (EPF) and Employee State Insurance (ESI), calculate Tax Deducted at Source (TDS) on salaries, and track gratuity eligibility, which now differs for permanent and fixed-term staff.

The friction most foreign companies underestimate is that these obligations do not apply uniformly. Professional Tax rates and Shops and Establishments Act registration shift by state, so a payroll process built for one city rarely transfers to the next. Treating a long-term contractor as self-employed when the working relationship looks like employment exposes a company to retroactive EPF, ESI, and gratuity liability.

In this guide, we cover how to pay employees in India, the real cost of hiring beyond base salary, the main compliance challenges employers face, and how to convert contractors into full-time employees as roles shift from project-based to ongoing.

‍How to hire employees in India?

Companies hiring in India generally choose between two paths: 

1. Setting up a legal entity, typically a Private Limited Company or LLP, or
2. Partnering with an Employer of Record (EOR) that already has one.

Setting up a Private Limited Company in India usually takes three to six months and requires registering with the Ministry of Corporate Affairs, obtaining a PAN and TAN, and setting up EPF (Employees Provident Fund) and ESI (Employees State Insurance) registration before you can legally run payroll. 

It gives you full operational control, but it's a real commitment before a single employee is hired, and most companies only justify it once they're planning a sizable, long-term India team.

Skuad supports the alternative without requiring entity setup. Skuad acts as the legal employer in India, so your company can hire, onboard, and pay employees while Skuad manages the local employment relationship.

Here is what Skuad helps with:

• Employment contract generation across 160+ countries, aligned with local labor laws and statutory requirements
• Payroll processing in 70+ currencies with tax withholding and statutory deductions
• Termination and offboarding support aligned with local labor law requirements

Book a demo to see how Skuad gets your first India hire onboarded in weeks, not months

How to pay employees in India? 

Paying employees in India requires navigating local labor laws and tax regulations and implementing efficient payroll systems to ensure timely, accurate, and compliant payments. 

Relying on traditional methods such as direct deposits, checks, or international payment platforms can become increasingly time-consuming, further increasing your chance of committing errors as your workforce grows.

Delayed payments or miscommunications can damage employer-employee relationships and negatively impact morale. 

Here is what Skuad supports on the payroll side:

Skuad supports this end-to-end, without requiring you to build in-house payroll infrastructure for India. Here is what Skuad helps with:

• Payroll processing in 70+ currencies, so employees are paid in local currency without manual conversion
• Statutory contribution workflows across supported markets, covering applicable social insurance and pension obligations
• Automated payroll calculations for salary disbursement, tax deductions, and benefits, reducing manual processing
• Expense and reimbursement management on the same platform used for payroll
• Bulk payment support, so teams of any size get paid on a consistent schedule
• Payroll compliance monitoring as statutory requirements change

Whether you're paying one hire or scaling a full India team, the payroll mechanics stay the same problem to solve, and Skuad handles it as one workflow rather than a patchwork of banking relationships and spreadsheets.

What is the cost of hiring employees in India? 

Hiring employees in India can unlock incredible opportunities, but it’s essential to understand the costs involved. Navigating these expenses, from payroll processing to legal compliance, can be complex. 

Hiring in India rarely costs what the base salary line suggests. Statutory contributions typically add 16 to 20 percent on top of salary (EPF, ESI, gratuity, and professional tax), and that's before factoring in currency conversion, payroll administration, or the cost of setting up a local entity in the first place.

Skuad supports cost visibility before you commit to a hire.

Estimate the actual cost of hiring in India, salary plus statutory contributions plus service fees, before you make an offer.

Calculate the true cost of hiring in India

Comparing that estimate against direct hiring shows where the tradeoffs actually sit:

What are the challenges of hiring in India? 

Employers face three main challenges associated with hiring employees in India:

• Navigating Complex Labor Laws: India’s labor laws can be complex, with federal and state-specific rules covering wages, benefits, working hours, etc. Employers must navigate these regulations carefully to ensure compliance with key laws, such as:
  
  • The Industrial Disputes Act governs termination and disputes.
  • The Employees’ Provident Fund Act mandates retirement fund contributions.
  • The Payment of Gratuity Act requires gratuity payments for eligible employees.

Non-compliance can lead to legal penalties and employee dissatisfaction. It’s also a good idea to study the distinction between employees and contractors to avoid common misclassification errors.

• Managing Payroll and Taxes: Managing payroll in India involves navigating multiple tax obligations and statutory deductions, such as:
  
  • Tax Deducted at Source (TDS): Employers must calculate and deduct applicable taxes before disbursing salaries.
  • Professional Tax (PT): A state-specific tax levied on professionals.
  • Provident Fund (PF) and Employee State Insurance (ESI): Contributions to employee welfare programs. Errors or delays in payroll management can lead to compliance issues, employee dissatisfaction, and penalties.

• Currency Exchange and Payment Processing: For international businesses, paying employees in INR can feel like navigating a maze of currency exchange rates and payment systems. Without the right tools, it’s easy to run into unexpected costs, salary payment delays, and inefficient processes. Here’s a closer look at the key challenges businesses face and what to consider to get it right:
  
  • Exchange Rate Volatility
  • Currency Conversion Fees
  • Payment Processing Delays
  • Multi-Currency Payment Management
  • Compliance with Indian Banking Regulations

By addressing these challenges proactively, businesses can streamline their payroll processes in India, ensuring cost efficiency and employee satisfaction.

Understanding and ensuring adherence to tax regulations can be challenging for employers. This is why so many businesses deploy employee management software to handle the international employee payroll process.

PureRED, a marketing and advertising agency, needed to onboard employees across six countries, including India, without setting up local entities in each market. Skuad supported this through localized employment contracts, multi-currency payroll, and ongoing compliance monitoring. PureRED onboarded 65 employees across those six countries.

"Skuad made our team expansion possible, handling the complex onboarding and payroll processes across six different countries with ease. Their local expertise ensured our compliance, letting us focus on what we do best, serving our clients."
- Brian Butcher, EVP Corporate Development, PureRED

Read the full case study

How to convert contractors into full-time employees in India? 

India’s employment laws provide a clear and manageable framework for converting contractors into full-time employees. For a step-by-step process and key considerations, explore our comprehensive guide on hiring contractors in India for more information.

Once a contractor relationship in India moves from project-based to ongoing and exclusive, it starts to look like employment under Indian labor law, and misclassification exposes a company to back payments for EPF (Employees’ Provident Fund), ESI (Employee State Insurance), and gratuity. 

Converting to a formal employment structure at that point, whether through Agent of Record (AOR) or Employer of Record (EOR), depends on how long-term the role actually is.

Skuad supports both models from a single platform:

Compare AOR and EOR pricing for your India team

Hire employees in India with EOR 

Between state-level tax variation, EPF and ESI contributions, gratuity rules that now differ by employment type, and the misclassification risk that comes with converting contractors, hiring in India involves more moving parts than most foreign companies expect going in.

Skuad supports the operational complexity of hiring in India, employment contracts, EPF and ESI contributions, payroll in 70+ currencies, and AOR-to-EOR conversion, so your team can focus on the hire, not the paperwork.

Companies across SaaS, technology, and professional services use Skuad to build India teams without setting up local HR infrastructure from scratch.

Book a demo to see how Skuad supports hiring in India

FAQs

1. What is an employer of record in India?

An employer of record in India is a third-party organization that legally employs staff on a company's behalf, managing contracts, payroll, and statutory contributions under the Employees' Provident Fund Act and Payment of Gratuity Act, without the company setting up a local entity.

2. How much does an EOR cost in India?

EOR costs in India typically combine the employee's base salary, statutory contributions of roughly 16 to 20 percent (covering EPF, ESI, gratuity, and professional tax), and a provider service fee. This usually ranges from around $99 to $400 per employee per month, depending on the provider.

3. Can a foreign company hire employees in India without a local entity?

Foreign companies can typically hire in India through an EOR without registering a local entity, since the EOR acts as the legal employer of record. This generally avoids the three to six months and capital commitments that setting up a Private Limited Company or LLP usually requires.

4. What happens if a company misclassifies workers in India?

Misclassifying employees as contractors in India can expose a company to back payments for EPF, ESI, and gratuity, along with penalties under the Industrial Disputes Act. Indian labor authorities generally scrutinize the actual working relationship, not just the contract label, when assessing classification disputes.

5. Is an EOR or setting up an entity better for hiring in India?

An EOR is generally faster and requires less upfront capital than entity setup, since it skips incorporation and local compliance registration. Setting up an entity in India usually takes three to six months, while an EOR arrangement can typically onboard employees within a few weeks.

6. How quickly can a company onboard an employee in India through an EOR?

Onboarding timelines through an EOR in India generally range from one to three weeks, depending on documentation and background checks. This is usually much faster than the three to six months it typically takes to incorporate an entity and register for EPF, ESI, and professional tax.

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