The Core Decision
Every company that wants to hire employees in India faces the same question: should we set up our own Indian entity, or use an Employer of Record (EOR)?
There’s no universally correct answer. The right choice depends on your team size, hiring timeline, budget, long-term commitment to the Indian market, and tolerance for administrative complexity. This guide lays out the real trade-offs so you can make an informed decision.
Side-by-Side Comparison
| Factor | EOR | Own Entity (Private Limited Company) |
|---|---|---|
| Setup time | 5–10 business days | 8–16 weeks |
| Setup cost | $0 (included in service fee) | $15,000–$30,000 (legal, accounting, registration) |
| Monthly cost per employee | $99–$299 with Omnivoo | $2,000–$5,000/month (accounting, compliance, HR) regardless of headcount |
| Break-even headcount | Cheaper below ~20–30 employees | Cheaper above ~20–30 employees |
| Compliance responsibility | EOR handles everything | You handle everything (or hire local accountants/lawyers) |
| Direct employment relationship | EOR is legal employer | You are legal employer |
| IP ownership | Via assignment clause in contract | Direct ownership |
| Exit complexity | Cancel the agreement | Wind-down takes 12–24 months |
| State-level registrations | EOR handles | You must register separately per state |
Setting Up a Private Limited Company in India
What’s Involved
Registering a Private Limited Company under the Companies Act, 2013 requires:
- Digital Signature Certificates (DSC) for all directors, 3–5 business days
- Director Identification Number (DIN), 1–2 business days
- Name reservation via RUN (Reserve Unique Name) service, 2–5 business days
- SPICe+ form filing (simplified proforma for incorporating a company electronically), 7–15 business days
- PAN and TAN (tax identification numbers), issued automatically with incorporation
- Bank account opening, 2–4 weeks (Indian banks require in-person verification for foreign-owned companies in many cases)
- Shops & Establishments registration in each state where employees will work, 1–3 weeks per state
- PF and ESI registration, 1–2 weeks each
- Professional Tax registration in applicable states, 1–2 weeks per state
- GST registration if providing services, 1–2 weeks
Total realistic timeline: 8–16 weeks from decision to first employee onboarding.
Ongoing Compliance for Your Own Entity
Once the company exists, you’re responsible for:
- Monthly: PF ECR filing, ESI contribution, TDS deposit, Professional Tax deposit
- Quarterly: TDS returns (Form 24Q, 26Q), advance tax payments, GST returns (if applicable)
- Annually: Income tax return, ROC annual filings (Form AOC-4, MGT-7), tax audit (if applicable), transfer pricing documentation (mandatory for foreign-owned companies), statutory audit, board meeting minutes
- As needed: Board resolutions for major decisions, RBI compliance for foreign investment (FC-GPR form within 30 days of share allotment), annual FEMA compliance
The compliance burden is substantial. Most foreign-owned Indian subsidiaries need a local accounting firm ($1,500–$3,000/month), a company secretary ($500–$1,000/month), and legal counsel on retainer.
Advantages of Your Own Entity
- Direct employment relationship. You are the employer. No intermediary.
- Full control over HR policies, benefits, salary structures, and internal processes.
- Direct IP ownership. Work product belongs to your entity without needing assignment clauses.
- Client-facing presence. You can sign contracts with Indian customers, bid on government tenders, and operate as an Indian company.
- Cost-effective at scale. Once you have 20+ employees, the fixed compliance cost is spread across a larger headcount, making per-employee cost lower than EOR fees.
Disadvantages of Your Own Entity
- Slow to start. 2–4 months before you can onboard your first employee.
- Expensive to maintain even with zero employees. ROC filings, audits, and tax returns are required whether you have 1 employee or 100.
- Very difficult to exit. Winding down an Indian company requires clearing all tax liabilities, obtaining NOCs from various government departments, and filing with the Registrar of Companies. This process routinely takes 12–24 months and costs $10,000–$20,000 in legal and accounting fees.
- Transfer pricing scrutiny. Foreign-owned Indian subsidiaries face mandatory transfer pricing documentation requirements, and the Indian tax authorities are known for aggressive transfer pricing audits.
Using an EOR in India
How It Works
You select your candidate, the EOR creates a compliant employment contract, registers the employee for statutory benefits, processes monthly payroll, handles all tax filings, and manages the employment relationship from a legal and compliance perspective.
You retain full control over the employee’s work, what they do, how they do it, who they report to, and their performance evaluation.
Advantages of EOR
- Immediate start. Onboard employees within 5–10 business days.
- Zero setup cost. No company registration, no bank account setup, no initial legal fees.
- Compliance is their problem. PF, ESI, Professional Tax, TDS, state registrations, all handled.
- Easy to scale up or down. Adding or removing employees doesn’t change your compliance burden.
- Simple exit. If you decide to leave India, you terminate the EOR agreement after offboarding employees. No entity wind-down.
- Multi-state coverage. Good EOR providers are registered across Indian states, so your employees can be in Mumbai, Bangalore, Hyderabad, or Chennai without separate registrations.
Disadvantages of EOR
- Per-employee cost keeps scaling. The fee is charged per head. Volume pricing lowers it, but at $59–$199 per employee per month a 30-person team still costs $1,770–$5,970/month in EOR fees. An entity’s compliance cost is broadly fixed, which is why it eventually wins on volume.
- Indirect employment relationship. The EOR is the legal employer. Some employees may perceive this differently, though in practice it rarely affects day-to-day work.
- Less control over HR processes. Leave policies, benefits, and payroll timing follow the EOR’s standard processes. Customization varies by provider.
- IP considerations. While EOR contracts include IP assignment clauses, the chain of ownership (employee → EOR → your company) adds a link that some legal teams are uncomfortable with.
- Provider risk. If the EOR has compliance issues, it affects your employees. Due diligence on the provider is essential.
The Break-Even Analysis
The math varies, but here’s a realistic model:
EOR Cost (Per Year, 10 Employees)
Priced at Omnivoo’s ₹2L–₹3.5L monthly CTC band for 10–24 employees, for engineers on about ₹30 LPA (~$357,000 total annual payroll).
| Item | Monthly | Annual |
|---|---|---|
| EOR fee ($169/employee) | $1,690 | $20,280 |
| Transaction fee (0.4% of payroll) | $119 | $1,428 |
| Total | $1,809 | $21,708 |
Own Entity Cost (Per Year, 10 Employees)
| Item | Monthly | Annual |
|---|---|---|
| Accounting firm | $2,000 | $24,000 |
| Company secretary | $750 | $9,000 |
| Legal counsel (retainer) | $500 | $6,000 |
| Statutory audit | - | $3,000 |
| Transfer pricing documentation | - | $4,000 |
| ROC filings and misc compliance | - | $2,000 |
| Payroll software/service | $200 | $2,400 |
| Total | ~$3,450 | $50,400 |
At 10 employees the EOR costs less than half the entity and requires zero administrative effort on your part. On these numbers the two meet at about 24–28 employees, and the break-even generally falls between 20–30 employees depending on salary band and what local professional services cost you. The seat fee is what moves that line: in the lowest band the entity does not catch up until past 60 heads, in the highest it catches up around 16.
Hybrid Approach: Start with EOR, Transition to Entity
Many companies use a phased approach:
- Phase 1 (Month 1–12): Use an EOR to hire your first 5–15 employees. Validate the India market, build the team, and understand local requirements.
- Phase 2 (Month 6–12): Begin entity registration in parallel while the EOR handles existing employees.
- Phase 3 (Month 12–18): Transition employees from the EOR to your own entity. This involves new employment contracts, PF transfers (UAN stays the same), and updated registrations.
This approach gives you speed at the start and cost optimization long-term. A good EOR provider will support this transition rather than fight it.
Decision Framework
Choose EOR if:
- You’re hiring fewer than 15 employees
- You need to start within 2 weeks
- You don’t have local legal/accounting resources
- You want the ability to exit India quickly if plans change
- You’re hiring across multiple Indian states
Choose your own entity if:
- You’re hiring 25+ employees and committed long-term
- You need a client-facing Indian presence
- You want direct control over all HR and compliance processes
- You need to sign contracts with Indian clients or government
- Your legal team requires direct IP ownership without intermediary assignment
Consider hybrid if:
- You’re starting small but expect to grow past 20 employees within 18 months
- You want to de-risk the initial phase while building local knowledge
Final Thought
The entity vs. EOR decision isn’t permanent. The smartest approach is usually to start with the option that gets you hiring fastest, then optimize as your India presence matures. An EOR removes the risk from that first step, if India works for your company, you can always set up an entity later. If it doesn’t, you can exit cleanly.