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Hire Employees in India Without a Legal Entity
Home » Hire Employees in India Without a Legal Entity

A Complete Guide to Hiring Talent in India Without Incorporation

Hiring employees in India without setting up a local legal entity is a workforce expansion approach used by foreign companies that want to access Indian talent without incorporating a subsidiary or branch office. This model allows overseas businesses to engage employees in India while meeting local employment, payroll, and tax compliance requirements through legally compliant structures.

For global startups, multinational companies, and foreign employers, this approach reduces entry complexity while maintaining adherence to Indian labour laws. It is commonly used for remote teams, market testing, distributed engineering teams, and international operations support.

How Hiring Employees in India Without a Legal Entity Works

When a foreign company hires employees in India without a legal entity, employment is structured through an intermediary arrangement that is compliant with Indian regulations. The employees work exclusively for the foreign company, but local statutory responsibilities are managed in India.

  • Employees are hired under Indian employment laws
  • Local payroll processing is conducted in Indian currency
  • Statutory contributions and tax deductions are handled in India
  • Employment contracts align with Indian labour regulations
  • The foreign company retains day-to-day operational control

This structure allows companies to operate legally in India without registering a permanent establishment or corporate entity.

Employment Contracts and Workforce Structure

Employment contracts for employees hired in India must comply with Indian labour standards, regardless of the employer’s country of origin.

  • Job role and responsibilities
  • Compensation structure and payment terms
  • Working hours and location
  • Leave entitlements
  • Termination and notice periods
  • Confidentiality and intellectual property clauses

Payroll, Tax, and Statutory Obligations

Payroll compliance is a critical aspect of hiring employees in India without a legal entity.

  • Monthly salary payments in INR
  • Tax Deducted at Source (TDS) on salaries
  • Employee and employer contributions to Provident Fund
  • Professional Tax deductions
  • Issuance of payslips and annual tax statements
Payroll, Tax, and Statutory Obligations

Payroll compliance is a critical aspect of hiring employees in India without a legal entity.

  • Monthly salary payments in INR
  • Tax Deducted at Source (TDS) on salaries
  • Employee and employer contributions to Provident Fund
  • Employee State Insurance (where applicable)
  • Professional Tax deductions
  • Issuance of payslips and annual tax statements
Benefits, Leave, and Working Hours Overview

Indian employment laws mandate minimum benefits and working conditions for employees.

  • Paid annual leave and public holidays
  • Sick leave and casual leave (state-dependent)
  • Standard working hours and overtime rules
  • Maternity and paternity benefits
  • Statutory bonus eligibility (if applicable)

Risks, Limitations, and Compliance Challenges

While hiring without a legal entity simplifies market entry, it is not without risks.

  • Permanent establishment risk if operational control is excessive
  • Misclassification of employees as contractors
  • State-specific labour law variations
  • Data security and cross-border information transfer
  • Limited ability to conduct certain commercial activities

Comparison: Hiring Without a Legal Entity vs Setting Up an Indian Subsidiary

FAQs – Hiring Employees in India Without Legal Entity

Frequently Asked Questions

1. Is it legal to hire employees in India without a legal entity?

Yes. Foreign companies can legally hire employees in India without setting up a local entity by using an Employer of Record (EOR) or Professional Employer Organization (PEO).

2. Do employees hired this way receive the same legal protections?

Yes. Employees hired through an EOR or PEO receive full protection under Indian labour laws, including statutory benefits, minimum wages, leave, and termination safeguards.

3. Can foreign companies pay salaries directly from overseas accounts?

Typically no. Salaries are paid locally in INR by the EOR to ensure compliance. Direct overseas payments may create tax and regulatory risks.

4. Does this create a permanent establishment risk in India?

When structured correctly through an EOR or PEO, permanent establishment risk is significantly reduced.

5. Are state labour laws applicable to remote employees?

Yes. State labour laws apply based on the employee’s location, and the EOR ensures full state-level compliance.

6. Can companies hire senior executives using this model?

Yes. Senior executives, leadership roles, and specialized professionals can be hired through an EOR model.

7. Is this model suitable for long-term expansion?

Yes. Many global companies use EOR and PEO models as a long-term strategy or before setting up an Indian subsidiary.

8. What happens if Indian labour laws are not followed?

Non-compliance can lead to penalties, fines, legal disputes, and reputational damage. A compliant EOR helps mitigate these risks.

CriteriaHiring Without a Legal EntitySetting Up an Indian Subsidiary
Legal PresenceNo incorporated entity in IndiaSeparate legal entity registered in India
Setup TimeFast, typically a few weeksLonger, often several months
Initial CostLower upfront costsHigher incorporation and advisory costs
Compliance ScopeEmployment, payroll, and labour law complianceFull corporate, tax, employment, and regulatory compliance
Payroll & Statutory FilingsHandled locally in India through compliant structuresManaged directly by the Indian entity
ScalabilitySuitable for small to mid-sized teamsBetter suited for large-scale and long-term operations
Business ActivitiesLimited to employment and support functionsCan conduct full commercial and revenue-generating activities
Permanent Establishment RiskLower if structured correctlyInherent due to local incorporation