India

While there are generally four ways of employing people across borders, not all are legal or sensible. Here is an overview of each way to employ a worker in India, outlining the potential cons.

HQ country employment & payroll
What it is: While the person is in India, they are employed and paid directly by the company’s HQ entity.
Cons: This may appear attractive, but it generally isn’t compliant in the long term. Indian labor laws and tax requirements mean that workers physically in India are subject to local employment regulations and tax withholding. HQ payroll is not viable if the individual is not a tax resident in the HQ country.

Independent contractor agreements
What it is: People operate as independent contractors in India, invoicing for their services under contractual terms. They are responsible for filing their own taxes, and may also need to register for GST depending on the nature of their services.
Cons: Contractors are not covered by India’s labor laws or statutory benefits like Provident Fund, ESI, gratuity, or leave. Misclassification is a major risk—courts look at multiple factors (control, integration, supervision, financial risk, etc.) to determine whether someone is really an employee. If misclassified, employers can face back contributions, penalties, and fines.

Direct local employer setup
What it is: The company sets up as a fully compliant local employer in India, registering a legal entity and fulfilling local tax and labor law obligations (such as EPF, ESI, gratuity, statutory leave, and bonus).
Cons: This option is expensive, time-consuming, and administratively complex. Employers must keep up with state-specific requirements (e.g., Shops & Establishments Acts, Professional Tax, and Labour Welfare Fund contributions). Compliance obligations and costs evolve over time, creating an ongoing management burden.

Partnering with an Employer of Record or full-service Professional Employer Organisation
What it is: Employment is handled by a third-party provider that acts as the legal employer in India. The EOR ensures statutory compliance, manages payroll, and provides employee benefits on behalf of the customer company.
Cons: Costs may be higher than direct local employment. In addition, Indian employees may need education on how the EOR relationship works, since many expect to be employed directly by the company.

Generally, the process of registering a company in India can take several weeks, depending on the complexity of the company structure, approvals from different authorities, and the completeness of filings.

However, the difficult part comes after the initial setup. Once a company is registered, it must comply with extensive ongoing obligations: registering employees with social security schemes such as the Employees’ Provident Fund (EPF) and Employees’ State Insurance (ESI), providing statutory benefits like gratuity and paid leave, ensuring compliance with state-specific Shops & Establishments laws, deducting and remitting income tax (TDS), and maintaining statutory registers and filings. Employers must also keep up with evolving regulations across India’s states, which can add significant administrative burden.

While many employers engage remote workers as independent contractors, this practice carries significant compliance risks in India. Independent contractors operate under commercial contracts, invoice for their services, and are responsible for their own taxes. They are not covered by most labour laws and do not receive statutory protections such as Provident Fund, State Insurance, gratuity, paid leave, or maternity benefits.

If a contractor is working full-time and exclusively for your company, Indian courts may consider them an employee regardless of contract wording. Courts apply a multi-factor test, looking at supervision, integration into the business, control over work, financial risk, and other elements to determine the true nature of the relationship. Misclassification can lead to serious consequences, such as back payment of wages and benefits, retroactive Provident Fund/ESI contributions with interest, tax liabilities, and fines from labor authorities.

For this reason, while it is legally possible to hire independent contractors in India, it is not advisable as a substitute for compliant employment if the individual is effectively functioning as an employee.

Read more on why hiring remote people as independent contractors is a bad idea.

When you hire employees in India, you take on a wide range of obligations as an employer. HR compliance means ensuring that your company’s policies, contracts, and practices align with India’s labor laws and state-level regulations.

In India, compliance covers areas such as working hours, timely payment of wages, social security contributions like the Employees’ Provident Fund (EPF) and Employees’ State Insurance (ESI), statutory benefits including gratuity and maternity leave, as well as adherence to state-specific requirements under Shops & Establishments Acts and professional taxes. Employers must also maintain statutory registers, file returns, and provide a safe and dignified workplace.

These laws are designed to protect employees and guarantee their rights to fair wages, social protection, and job security. For employers, proper compliance minimises risks such as financial penalties, interest on missed contributions, fines from labor authorities, and even legal disputes in labor courts. In short, HR compliance in India not only ensures employees are protected but also safeguards your business from liabilities and reputational damage.

As with every other country, there are certain costs associated with employing a worker in India that come on top of the gross salary you are offering. Employers are responsible for a range of statutory contributions and benefits in addition to wages.

Key employer costs include:

• Employees’ Provident Fund (EPF): 12% of basic salary plus dearness allowance, with part allocated to the Employees’ Pension Scheme (EPS).
• Employees’ Deposit Linked Insurance (EDLI): 0.5% of basic salary plus dearness allowance (capped at ₹15,000).
• EPF Administrative Charges: 0.5% of wages, with a minimum monthly charge.
• Employees’ State Insurance (ESI): 3.25% of gross wages, mandatory for employees earning up to ₹21,000/month (₹25,000 for disabled employees).
• Gratuity (accrual): approximately 4.81% of basic salary, with a statutory payout of 15 days’ wages per completed year after 5 years of service.
• Statutory Bonus: 8.33% to 20% of eligible wages, for employees earning up to ₹21,000/month.
• Labour Welfare Fund (state-specific): small contributions that vary by state, typically ₹24–₹75 per employee on a monthly or half-yearly basis.

In short, the true cost of employment in India extends significantly beyond the employee’s gross salary and varies depending on factors such as wage level, employee eligibility, and state-specific rules.

It means that Boundless is the legal employer of the individual, as far as the Indian government, tax, and employment authorities are concerned.

We are responsible for:

• informing you about any pre-employment requirements
• ensuring employment is compliant with Indian employment law
• informing you about the length of the maternity leave, paternity leave, public holidays, illness benefits, medical benefits
• providing a locally compliant employment contract
• processing local payroll
• filing employment-related tax returns
• issuing payslips to the employee
• distributing salary payments
• payments to the local tax authorities

Customers that work with an Employer of Record in India are responsible for:

• sourcing and recruiting their own workers
• managing the employee’s day-to-day workload
• contributing to the personal/professional development of the employee through their work
• following any guidance we give on employment and HR best practices or legal obligations in India, such as the employment contract, public holidays, annual leave, sick leave, maternity and paternity benefits, probationary periods, overtime pay, statutory redundancy payments, liability insurance and many others
• ensuring that payroll bills relating to their team are paid to Boundless before the cut-off point in each pay cycle

Boundless as the Employer of Record files all pertinent taxes and social security contributions as they relate to the compliant employment of an individual in their home country.

We carefully choose employment lawyers or advisories to partner with in each country we operate in, including India. They ensure the Indian employment contracts and any other relevant documents required for new employees comply with the local jurisdiction.

We have thorough discussions on specific norms such as payroll services, social protection, data protection, notice periods or work-from-home regulations. Whenever a potentially sensitive issue arises in India, our internal team contacts the relevant firm to ensure all steps are taken to resolve it promptly.

The company remains responsible and informs employees of the day-to-day management of the people and teams employed through Boundless, including any disciplinary or performance issues. Boundless ensures compliance with India-specific procedures, practices, and labour laws while employing people and teams on behalf of the company.

In India, both employers and employees have statutory tax and contribution obligations on top of salary.

Employer contributions include:

• Employees’ Provident Fund (EPF): 12% of basic salary + dearness allowance, with 8.33% directed to the pension scheme (EPS, capped at ₹1,250/month).
• Employees’ Deposit Linked Insurance (EDLI): 0.5% of basic + DA (capped at ₹15,000).
• EPF administrative charges: 0.5% of wages, subject to a minimum monthly fee.
• Employees’ State Insurance (ESI): 3.25% of gross wages, mandatory for employees earning up to ₹21,000/month (₹25,000 if disabled).
• Gratuity accrual: about 4.81% of basic salary for long-term severance planning.
• Statutory bonus: 8.33% to 20% of wages for employees earning ≤ ₹21,000/month.
• Labour Welfare Fund: small state-specific contributions (e.g., ₹24–₹75 per employee).

Employee contributions include:

• EPF: 12% of basic salary + DA.
• ESI: 0.75% of gross wages (if eligible).
• Professional Tax: state-level tax, usually ₹0–₹200/month at the top slab.
• Income tax: Employees pay personal income tax on a progressive scale under the new regime, ranging from 0% to 30% of gross salary.