Employer of Record (EOR) vs setting up your own entity in India: Which is better?
- Natia Gabarashvili
- Sep 17
- 12 min read
Table of contents:
Introduction: The India expansion dilemma
A massive talent pool, competitive salaries, and a workforce fluent in English make it an obvious choice for global companies scaling their teams in India.
But there’s one big decision that can shape your entire India strategy:
Do you set up your own legal entity or hire through an Employer of Record (EOR)?
This isn’t just a paperwork choice. It’s about compliance risk, speed-to-market, and total cost.
Incorporating an entity locks you into months of setup, endless filings, and ongoing liability. An EOR, on the other hand, can get employees legally onboarded in weeks, but with a monthly fee attached.
The right call depends on your hiring goals, timeline, and appetite for risk.
Get it wrong, and you could stall expansion or overspend on compliance you don’t actually need.
Let’s get into it.
Key takeaways: EOR vs entity setup in India
India is a hiring powerhouse. Millions of skilled, English-speaking professionals are available at competitive salaries, making it a prime destination for global companies.
EOR = speed. With an Employer of Record, you can hire in weeks instead of months. No incorporation, no waiting, just compliant onboarding.
Entity = control. Setting up your own company gives full ownership and flexibility, but comes with higher costs, ongoing filings, and legal complexity.
Match model to goals.
EOR works best for short-term growth, market testing, or small teams. An entity makes sense if you’re investing long-term, scaling headcount, or building a local presence.
Compliance is non-negotiable. An EOR manages payroll, benefits, and HR compliance for you. With your own entity, you’ll need in-house expertise to handle India’s legal and tax systems.
What does setting up your own entity in India involve?
Short answer: a paperwork thali. Incorporation is just the first dish, then come the sides you didn’t order:
Shops & Establishments, PAN/TAN, GST, PF/ESI, bank KYC, payroll, and ROC filings. Miss one, and the bill gets steep.
Core registrations you can’t skip
MCA incorporation (SPICe+): Private Limited companies are incorporated on the MCA V3 portal using SPICe+, which bundles name reservation, DIN allotment, PAN, and TAN issuance into a single flow.
PAN & TAN (Income Tax): PAN identifies the company for income tax; TAN is mandatory if you deduct TDS—must be quoted on TDS returns, challans, and certificates.
GST (if you make taxable supplies): Registration is required once aggregate turnover exceeds ₹20 lakh (₹10 lakh in special category states) or earlier in specific cases under Section 24 (e.g., inter-State supplies, e-commerce operator obligations).
Shops & Establishments Act (state): Every office/commercial site must register under the local Act. Example: Maharashtra’s 2017 Act requires online registration (Form A for ≥10 employees; Form F for 0–9). Other states run similar online services.
Bank current account: KYC with proof of incorporation, PAN, board resolution, and authorized signatories. Banks take their time; plan for it.
Timeframe (realistic)
Incorporation via SPICe+ can be fast on paper. But “go-live” hiring readiness—bank account opened, Shops & Establishments done, payroll stack configured, PF/ESI set up, and vendor contracts signed, often lands in the 8–12+ week window. Add hiring, offers, and FRRO/visa support for expats, and 3–6 months isn’t unusual for a fully operational entity. (This is an operational estimate; your mileage varies by city, bank, and state portals.)
Ongoing compliance (the metronome you must keep)
PF (EPF) registration & monthly deposits: Mandatory once you hit 20 employees (others can join voluntarily).
ESI registration & contributions: For eligible establishments/employees under the ESI Act; current rates: employer 3.25%, employee 0.75% of wages.
ROC annual filings: File AOC-4 (financials) within 30 days of the AGM and MGT-7/7A (annual return) within 60 days. Late filing attracts ₹100/day additional fees, plus statutory penalties.
Monthly/quarterly tax: TDS deducted, deposited, and reported under your TAN; GST returns if registered.
Shops & Establishments upkeep: Maintain prescribed registers, honor working-hour limits, weekly offs, leave rules, and display requirements (state-specific).
People and platform costs you’ll actually feel
Local HR & payroll ops: hiring a generalist or retaining a payroll vendor; policies tailored to state rules; employee helpdesk.
CA/CS retainer: board minutes, statutory registers, ROC filings, tax coordination, audits.
Systems: payroll, leave tracking, compliance calendars, DSC management for MCA filings.
Time: leadership hours on reviews, signatures, and chasing portal glitches (DSC, V3 quirks, and the occasional “try Chrome, clear cache” moment are a rite of passage).
Risk of delays and penalties (why buffers matter)
ROC filings: miss AOC-4/MGT-7 cutoffs and watch ₹100/day rack up; persistent default adds statutory penalties on the company and officers.
TDS/TAN mistakes: wrong or late deposits trigger interest, penalties, and notices, avoidable if your TAN processes are tight.
PF/ESI gaps: non-registration or late remittances can lead to damages and prosecution under respective Acts.
Shops & Establishments: missing registration or registers invites inspections and fines at the state level.
What does an Employer of Record do in India?
Companies choosing Employer of Record (EOR) in India, not because of a fancy payroll vendor; it’s the legal employer on paper for your team, while you keep full control of day-to-day work. Think of it as your shortcut to hiring in India without creating a legal entity and battling through endless compliance hurdles.
Here’s what an EOR actually does in India:
1. Issues legally compliant contracts
Employment agreements must reference Indian labor laws, sometimes be bilingual (English + local language), and include everything from probation rules to termination clauses. Your EOR drafts, reviews, and signs these contracts so they hold up in Indian courts.
2. Runs payroll and handles taxes
Payroll in India isn’t just gross-to-net. It’s Provident Fund (PF) contributions (12%), ESI contributions, professional tax (state-specific), and TDS (tax deducted at source) filings with the Income Tax Department. An EOR calculates, withholds, pays, and files—all under your company’s name.
3. Provides statutory benefits
Employees expect more than salary. EORs make sure PF, ESI, gratuity, maternity leave, and other statutory benefits are set up correctly. They also manage paid leave, overtime, and public holiday compliance under the Shops and Establishments Act.
4. Manages HR admin and compliance
From onboarding to exit, the EOR maintains employee records, monitors labor law changes, and ensures you don’t miss a compliance filing (which in India, can mean audits and painful penalties).
5. Handles terminations legally
Termination in India is highly regulated. An EOR ensures notice periods, final settlements (gratuity, leave encashment, unpaid wages), and documentation (relieving letter, experience certificate) are done by the book, keeping you out of disputes.
6. Supports benefits and perks
Beyond statutory benefits, many EORs help with health insurance, ESOP distribution, or allowances for remote work and equipment. That’s often the difference between an accepted offer and a declined one in India’s competitive talent market.
7. Navigates visas and immigration
If you need to relocate foreign employees to India, an EOR can act as a sponsor for work visas and residency permits, ensuring compliance with the Ministry of Home Affairs.
In short, an Employer of Record in India is your compliance shield + HR department + payroll processor, all rolled into one monthly fee. You focus on scaling your team, and they make sure you never get a call from the Indian tax office.
Cost comparison: Entity setup vs EOR in India
Hiring in India isn’t just about salary; your hiring model determines how much time, money, and risk you take on. Let’s break down the cost side of setting up your own entity vs using an Employer of Record (EOR).
Entity setup costs
Incorporation fees & registrations: Ministry of Corporate Affairs incorporation, Shops & Establishments Act registration, PAN, TAN, GST. Expect ₹1–2 lakh upfront.
Office lease & overhead: A physical office is often required for banking and compliance. Even a modest space in Bengaluru runs ₹50,000+ per month, plus utilities.
HR & payroll staff: To run payroll, manage PF/ESI filings, and handle compliance, you’ll need at least one HR generalist and a part-time accountant. That’s another ₹50,000–₹75,000 per month.
Legal & CA retainers: Companies typically spend ₹1–2 lakh annually for ROC filings, audits, and tax compliance.
Ongoing costs
Once you’re live, the metronome never stops:
Monthly filings: PF, ESI, TDS, GST returns.
Annual audits & ROC filings: Mandatory regardless of revenue.
Penalties for mistakes: Miss a deadline, and fines can pile up fast (ROC penalties are ₹100/day for late filings).
EOR costs
Flat-rate model (TeamUp): €199 per employee, per month (~₹18,000 at current rates).
Percentage model (other providers): 10–15% of gross salary, which balloons costs for senior hires.
No incorporation, no audits, no office lease. The EOR carries all compliance.
Real-life scenario: Hiring 5 employees in Bengaluru
Entity setup:
Upfront incorporation & registrations: ~₹2 lakh
Monthly overhead (office + HR/CA support): ~₹1.5 lakh
Compliance filings + audits: ~₹1 lakh annually
Total Year 1 = ₹20–25 lakh+ (before salaries)
EOR (Team Up):
5 employees × €199 = ~€995/month (~₹90,000)
Total Year 1 = ₹10.8 lakh flat fee (on top of salaries)
Employees are legally employed in 2–3 weeks, not 3–6 months.
Speed to hire with EOR vs entity setup in India: Time as a cost
When it comes to building your India team fast, time is money. Delayed onboarding means lost opportunity, talent snapped up by competitors, and projects pushed back. Here’s a breakdown of how long each path takes in India, what causes delays, and how much your wait might cost you in real value.
Typical timeframes
Setting Up an Entity
But that’s just Step 1, add bank account setup, PF/ESI registration, Shops & Establishment Act compliance, hiring payroll staff, and you’re looking at 3–6 months to get fully operational.
Companies often face delays from document corrections, name rejections, and state-specific license or registration requirements.
Using an EOR
Many EOR providers in India can onboard employees in 1–2 business days once all necessary documents are ready.
Some claim 24-hour or even same-day onboarding in favorable scenarios.
What Causes Delays When Setting Up an Entity
Document errors — Missing or incorrect proofs for identity/address, poorly drafted articles of association, or name reservation rejections. Each requires a resubmission that can cost days.
Regulatory backlog — During busy filing seasons or near fiscal deadlines, many state or MCA offices slow down.
State/state-variations — Shops & Establishments registration, labor law compliance, and other licenses differ by state in India. One state might approve in days; another could take weeks.
Bank and financial KYC — Banks may impose strict KYC checks, require proof of address/income, and board resolutions. Some banks still want physical signatures, physical visits.
Real cost of delay
While your entity is forming, every extra week might cost you lost productivity. Suppose you were planning to onboard 5 employees by Week 4 but only hire in Week 12—8 weeks down, your planned revenue or deliverables are late.
Salary and benefits for those unfilled roles, opportunity cost of delayed projects, and onboarding costs happening later (which often rise).
Risk of losing excellent candidates who accept other offers because “EOR route got them started sooner.”
Putting it in perspective
Let’s say you need a software team of 5 in Bengaluru now:
With entity setup: Incorporate → rent minimal office / register with Shops & Establishments → hire HR/payroll team → PF/ESI registrations → offer contracts. Could take 10-12 weeks if everything goes well; more likely 12-16+ with snags.
With EOR: Offer letter, document collection (PAN/Aadhaar/resident proof, etc.), compliance checks, onboarding, payroll setup. Assuming employees are local and documents are in place, 1–2 business days for many providers.
Compliance and risk management while hiring through EOR vs an entity in India
When you hire in India, compliance isn’t a footnote; it’s the whole book. Labor laws, social security, tax filings, and state-specific rules pile up quickly, and mistakes get expensive fast. The real difference between setting up your own entity and using an Employer of Record (EOR) is who carries the liability.
Hiring through your own entity
Full liability sits with your company. You’re responsible for registering under the Shops & Establishments Act, maintaining registers, honoring working-hour and leave rules, and filing annual returns.
Statutory contributions (PF, ESI, gratuity, maternity leave) must be calculated and deposited on time. Late filings mean penalties, interest, and possible inspections.
Tax compliance involves monthly TDS deposits, quarterly returns, annual audits, and ROC filings.
Immigration risk for expats also sits on you. Your entity must sponsor employment visas and manage FRRO registration within 14 days of arrival—miss it, and the fines are steep.
Hiring through an EOR
The EOR acts as your compliance shield. They own the liability for PF, ESI, gratuity, maternity leave, professional tax, and Shops & Establishments compliance.
All employment contracts are bilingual, state-compliant, and enforceable.
Payroll filings, TDS, and contributions are handled by the EOR under its registered entity.
For expat hires, the EOR can serve as a visa sponsor, handle residency permits, and manage FRRO registration.
Employee experience and benefits delivery
In India, salary might get a candidate’s attention, but benefits and employee experience decide if they stay. How those benefits are delivered depends heavily on whether you build your own entity or use an Employer of Record (EOR).
With your own entity
Running benefits through your own company means building an HR function from scratch:
Drafting compliant policies for PF, ESI, gratuity, and leave.
Negotiating with insurers for group health coverage.
Coordinating with multiple vendors for payroll, workspace, and allowances.
Handling grievances, claims, and employee queries in-house.
That’s a lot of moving parts, and every missed policy or late benefit payout risks trust—and retention.
With an EOR
An EOR in India bundles it all into one package:
Statutory benefits: PF, ESI, gratuity, and maternity leave are handled without delay.
Insurance coverage: Group health and accident insurance added from day one.
Workspace and equipment: Remote stipends, laptops, and coworking allowances folded into payroll.
Smooth HR processes: Employees access payslips, leave tracking, and tax forms in one system.
For the employee, it feels seamless. They don’t see a maze of vendors—they see a company that’s professional, organized, and supportive.
Why it matters for retention
In India’s Tier 1 job markets—Bengaluru, Mumbai, Delhi—candidates have choices. When onboarding is smooth, benefits are clear, and equipment shows up on time, employees stay longer. That’s the retention advantage of having an EOR run the backend.
EOR vs entity vs payroll outsourcing in India
A lot of companies lump these models together, but they’re not the same. If you’re hiring in India, knowing the difference between Employer of Record (EOR), setting up your own entity, and plain payroll outsourcing is the difference between running smoothly and getting blindsided by compliance notices.
Employer of Record (EOR)
What it is: The EOR is the legal employer on paper. They hire your people under their registered Indian entity, handle payroll, benefits, compliance, and even visas, while you direct the day-to-day work.
Best for: Companies that want to hire in weeks, not months, without the upfront cost of incorporation.
What you get: Full compliance shield (PF, ESI, gratuity, maternity, Shops & Establishments), bundled benefits, workspace support, and immigration sponsorship if needed.
Setting up your own entity
What it is: Incorporating a private limited company or LLP with the Ministry of Corporate Affairs, registering for GST, Shops & Establishments, PF/ESI, and maintaining annual ROC filings.
Best for: Long-term investment, physical offices, or scaling to 50+ employees.
What you get: Full control and brand presence—but also full liability, ongoing legal costs, audits, and a 3–6 month setup timeline before your first hire.
Payroll outsourcing
What it is: A payroll vendor processes payslips and tax deductions but doesn’t employ your staff legally. You still need your own registered entity in India to use them.
Best for: Companies that already have an entity in India and just want to offload admin.
What you get: Pay calculation, TDS filing, PF/ESI deductions—but no contracts, benefits management, or compliance protection beyond payroll.
Quick reality check
EOR = hire without entity, full compliance coverage.
Entity = maximum control, maximum responsibility.
Payroll outsourcing = admin relief, but only if you already have an entity.
Which is better for your business?
The choice between setting up your own entity and using an EOR in India isn’t about which is “right” in general; it’s about which is right for your business stage, goals, and appetite for complexity.
When setting up an entity makes sense
You’re in India for the long haul and plan to scale a team of 50+ employees.
You need a big physical presence—offices, warehouses, or retail outlets.
You want full control over HR, vendor contracts, and branding.
You have the budget and patience for compliance, audits, and the occasional government inspection.
When an EOR is the smarter move
You’re testing the market and don’t want to wait six months to start hiring.
You need to scale quickly with zero red tape.
You’re running a remote-first or hybrid model, so physical offices aren’t necessary.
You want cost control with predictable, flat fees instead of surprise audits and penalties.
The hybrid model
Many companies do both:
Start with an EOR to get people on board in weeks.
Build traction, secure funding, and prove the market.
Transition to your own entity once the scale and long-term commitment justify the cost and overhead.
This hybrid approach gives you the best of both worlds: speed now, control later.
Conclusion
When it comes to hiring in India, the model you choose shapes everything. EOR means speed, compliance, and cost clarity. You can hire in weeks, skip entity setup, and let someone else carry the compliance burden.
Entity setup means control and permanence; you own the registrations, the filings, the brand, and the risks, making it better suited for companies with long-term, large-scale ambitions.
With Team Up, you don’t have to guess. Our flat €199/employee/month EOR coverage in India gives you predictable costs, fully compliant contracts, payroll, benefits, and workspace support, all without a six-month wait to incorporate.
If you’re unsure whether EOR or your own entity makes more sense, the smartest next step is to run the numbers.
Talk to Team Up today for a tailored cost comparison and get a clear answer on which model fits your expansion plans.
