Employment Costs Compared: India vs Vietnam vs Philippines vs Eastern Europe

Why Salary Comparisons Mislead — Total Cost-to-Company Is What Matters

When companies evaluate offshoring or nearshoring destinations, the first question is usually: "What's the average salary?" This is the wrong question. Base salary typically represents only 65-80% of the total cost of employing someone. Mandatory social contributions, statutory bonuses, leave entitlements, gratuity provisions, and compliance overhead can add 20-45% on top of gross pay — and the percentage varies dramatically by country.

This article breaks down the real total employment cost across five destinations that foreign companies most commonly evaluate: India, Vietnam, Philippines, Poland, and Romania. We use 2025-2026 verified data on statutory contribution rates, mandatory benefits, and market salary benchmarks for three representative roles: software engineers, manufacturing operators, and shared services staff.

Mandatory Employer Contributions by Country

Before comparing salaries, you need to understand what the employer pays on top of every employee's gross salary. These are non-negotiable statutory costs.

India

India's employer contribution structure is governed by the Employees' Provident Fund and Miscellaneous Provisions Act, the Employees' State Insurance Act, and the four Labour Codes (effective November 2025).

Total employer burden: approximately 16.75-20% of gross salary for EPF/ESI-eligible employees. For senior employees above EPF/ESI thresholds, the mandatory burden drops to gratuity provision (~4.81%) plus professional tax.

The four Labour Codes, implemented in November 2025, introduced a critical change: wages must form at least 50% of total remuneration (CTC). This means companies can no longer load CTC with allowances to reduce the PF-eligible base. The practical impact is a 25-50% increase in gratuity and PF liabilities for many employers.

For a detailed guide on India's employment framework, see our article on India's 4 new Labour Codes for foreign employers.

Vietnam

Vietnam's Social Insurance Law 2024 (effective July 2025) tightened contribution rules and expanded coverage.

Total employer burden: 23.5% of salary (21.5% social + 2% trade union). Vietnam has the highest mandatory contribution rate among the five countries in this comparison. The trade union fee of 2% is unique — it applies to the entire payroll even if no employees are union members.

Philippines

The Philippines uses three separate mandatory contribution systems plus the unique 13th-month pay requirement.

Total employer burden: approximately 14.5% in monthly contributions + 8.33% annualised for 13th-month pay, totalling roughly 22.8% of base salary. The SSS rate increase in January 2025 (from 14% to 15% combined) added to employer costs, with the employer portion rising to 10%.

Poland

Poland has one of the highest employer social contribution rates in the EU.

Total employer burden: 19.48-22.14% of gross salary. For a mid-level employee earning the minimum wage of PLN 4,666 gross in 2025, the total employer cost is approximately PLN 5,600-5,700 per month after adding all contributions.

Romania

Romania restructured its social contribution system in 2018, shifting most contributions to the employee side.

Total mandatory employer burden: 2.25% of gross salary — the lowest in the EU. However, this is misleading. Romania compensates with higher gross salaries because employees bear the full social insurance (25%) and health insurance (10%) burden themselves. The total labour taxation rate is 37.25% when combining employer and employee costs.

Software Engineer Salary Comparison

Software engineers are the most commonly benchmarked role for offshoring decisions. Here are 2025 market rates for mid-level (3-5 years experience) software engineers:

The Philippines offers the lowest total employer cost for software engineers at USD 9,820-17,190 annually. India and Vietnam are comparable at the mid-level, with India offering a larger talent pool and stronger English proficiency. Poland and Romania cost 3-5x more in absolute terms but offer EU timezone alignment, EU legal framework, and stronger IP protection.

Senior software engineers (7+ years) in India (Bengaluru) can earn INR 25-55 lakh (USD 30,000-66,000), pushing costs closer to Eastern European levels. For salary guidance when hiring in India, see our guide on hiring employees in India as a foreign company.

Manufacturing Worker Cost Comparison

For manufacturing labour, the cost differentials are more dramatic:

India's Tier 2/3 cities (Pune, Jaipur, Ahmedabad, Coimbatore) offer the lowest manufacturing labour costs in this comparison at USD 1-2.5 per hour. Vietnam is competitive at USD 2.5-4 per hour but wages have been growing 8-10% annually, eroding the cost advantage. Eastern Europe is 4-7x more expensive than Asia for manufacturing labour.

For companies evaluating India for manufacturing, explore our comparison of India vs Vietnam for manufacturing and India vs Thailand for manufacturing.

Shared Services / BPO Staff Comparison

India and the Philippines dominate BPO and shared services due to English proficiency and timezone flexibility. Vietnam is slightly cheaper but English capability is more limited, restricting its suitability for customer-facing roles. Poland and Romania serve the European nearshoring market effectively but at 2-4x the Asian cost.

For companies building shared services operations in India, see our article on GCC build-out timeline: board to 100 employees.

Hidden Costs Most Companies Miss

India

• Gratuity acceleration: Under the new Labour Codes (November 2025), fixed-term employees qualify for gratuity after 1 year instead of 5. Companies with significant contract staff face 25-50% higher gratuity liabilities.
• 50% wage rule: Basic pay + DA must be at least 50% of CTC, increasing PF and gratuity bases. For senior employees, this can add INR 50,000-2,00,000 annually per head.
• Bonus: Statutory bonus of 8.33% of basic (minimum) to 20% (maximum) for employees earning up to INR 21,000/month basic.
• Leave encashment: Unused earned leave must be encashed on separation — potentially 30-45 days of salary.
• Compliance infrastructure: A foreign subsidiary needs a resident director, registered office, and annual statutory audit — adding INR 5-10 lakh/year in fixed compliance costs.

Vietnam

• Trade union fee: 2% of total payroll regardless of whether employees are unionised. This is often missed in initial cost models.
• Salary cap changes: The social insurance salary cap is tied to the reference level (VND 2.34 million in 2025). As this rises, contribution caps increase proportionally.
• Severance pay: 0.5 months of salary per year of service for employees with 12+ months of tenure.
• Annual wage growth: 8-10% annually — the fastest among the five countries. A 2025 cost model will be 25-30% understated by 2028.

Philippines

• 13th-month pay: Mandatory by December 24 — equals 1/12 of annual basic salary. This effectively adds 8.33% to annual costs.
• SSS rate escalation: The SSS contribution rate increased from 14% to 15% in January 2025 and is scheduled to increase further to 17% by 2030.
• Separation pay: One month salary per year of service for authorised causes (retrenchment, redundancy).
• Regional wage variation: Minimum wage in Metro Manila (PHP 695/day) is significantly higher than rural areas (PHP 345-400/day).

Poland

• Zloty strengthening: PLN has appreciated against USD, making Polish labour more expensive in dollar terms year over year.
• IT salary inflation: 3-6% annual growth for standard roles, 5-8% for senior and in-demand specialisations.
• Employee Capital Plans (PPK): Employer contributes 1.5% of salary (optional additional 2.5%), adding to total cost.
• Holiday and leave: 20-26 days of paid annual leave plus 13 public holidays — among the highest in this comparison.

Romania

• Low mandatory employer cost is deceptive: The 2.25% rate looks attractive but gross salaries are inflated because employees bear 35% in personal contributions. The net-to-gross conversion means you are effectively paying for employee contributions through higher salary offers.
• Meal vouchers: Tax-advantaged meal vouchers (RON 40/day in 2025) are standard practice and expected by employees — not technically mandatory but practically required for talent attraction.

Total Cost of Employment: India vs All (Side-by-Side)

For a mid-level software engineer (3-5 years), the all-in annual cost including salary, contributions, mandatory benefits, and estimated compliance overhead:

The Philippines offers the lowest total cost at roughly 77% of India. Vietnam is nearly identical to India in total cost. Poland costs 3.1x India; Romania costs 2.3x India. However, these numbers do not capture quality of talent pool, English proficiency, timezone alignment, or scalability — factors that often make India the preferred choice despite not being the absolute cheapest.

Compliance Infrastructure Costs: The Fixed Overhead

Beyond per-employee costs, companies must budget for the fixed compliance infrastructure required to legally employ people in each country. These costs exist regardless of headcount.

India

• Entity setup: Private limited company registration via SPICe+: INR 20,000-50,000 (USD 240-600)
• Resident director: Mandatory — nominee service costs INR 2-5 lakh/year if no internal candidate available
• Registered office: Required at incorporation — lease cost varies by city (INR 10,000-50,000/month for virtual/serviced office)
• Statutory audit: Mandatory for all companies — INR 50,000-1,50,000/year depending on complexity
• Annual compliance: ROC filings (AOC-4, MGT-7), FLA return, FEMA compliance — INR 3-8 lakh/year total
• Total fixed overhead: INR 8-15 lakh/year (USD 9,600-18,000)

Vietnam

• Entity setup: Investment Registration Certificate + Enterprise Registration Certificate: USD 1,500-4,000
• Registered office: Required — lease in HCMC or Hanoi typically USD 300-800/month
• Annual audit: Mandatory — USD 2,000-5,000/year
• Total fixed overhead: USD 6,000-12,000/year

Philippines

• Entity setup: SEC registration + business permits: USD 1,000-3,000
• Annual business permits: Must be renewed every January — USD 500-2,000
• Annual audit: Required for corporations — USD 1,500-4,000
• Total fixed overhead: USD 5,000-10,000/year

Poland

• Entity setup: sp. z o.o. (limited liability company) registration: EUR 1,500-3,000
• Annual accounts: Must be filed with KRS (National Court Register)
• Annual audit: Required above size thresholds — EUR 3,000-8,000
• Total fixed overhead: EUR 6,000-15,000/year (USD 6,600-16,500)

Romania

• Entity setup: SRL (limited liability company) registration: EUR 500-1,500
• Annual accounts: Filed with the Trade Register
• Total fixed overhead: EUR 3,000-8,000/year (USD 3,300-8,800)

When you divide the fixed overhead by headcount, the per-employee impact is significant for small teams. A 5-person team in India carries USD 1,920-3,600 in fixed overhead per employee; at 50 employees, this drops to USD 192-360 per head. This is why Employer of Record (EOR) services make financial sense for teams under 10-15 employees — the entity setup cost is not justified.

Wage Growth Projections: 3-Year Cost Modelling

Building a cost model on current salaries without accounting for wage growth is a common and expensive mistake. Here are annualised growth rates by country and role type:

Vietnam's wage growth is the most aggressive — a cost model built on 2025 data will understate costs by 26-40% by 2028. The Philippines has the most stable wage trajectory, making it the most predictable for long-term budgeting. India falls in the middle, with tech salary growth at 6-10% driven by intense competition from Global Capability Centres (GCCs) established by Fortune 500 companies in Bengaluru, Hyderabad, and Pune.

When building your 3-year cost model, use the upper end of wage growth estimates and add a 5% contingency for regulatory changes (contribution rate increases, new mandatory benefits). Our article on 10 hidden costs of running a company in India provides additional line items that should be in every India cost model.

Strategic Recommendations

Choose India When:

• You need to scale quickly (1.5M+ STEM graduates annually)
• English communication is critical for the role
• You want a common law legal framework for employment contracts
• You are building a GCC with 50+ employees
• You need timezone overlap with US (evening shift) or EU (daytime overlap)

Choose Vietnam When:

• You need manufacturing labour at competitive rates
• Your operations are export-oriented and benefit from Vietnam's 16 FTAs
• You can accept more limited English capability
• You want exposure to a fast-growing domestic market (100M population)

Choose the Philippines When:

• Customer-facing roles requiring native-level English and American cultural affinity
• BPO and voice-based support operations
• You want the lowest total employment cost in Asia
• Your operations suit a talent pool strong in service orientation

Choose Eastern Europe (Poland/Romania) When:

• EU timezone and regulatory alignment are essential
• You need EU data residency for GDPR compliance
• Your roles require deep technical expertise (Poland's developer community is world-class)
• You are willing to pay 2-3x Asian costs for proximity and cultural alignment

For companies setting up employment operations in India, our foreign subsidiary registration service includes payroll setup and compliance configuration. See also our guide on setting up payroll for your first 10 Indian employees and our analysis of hiring contractors vs employees in India.

If you are not ready to establish a full entity, explore the entity setup vs employer of record comparison or read our guide on when to use an Employer of Record in India.

Entity vs EOR: When the Math Changes

For smaller teams (under 10-15 employees), the fixed overhead of setting up a legal entity may exceed the cost savings from direct employment. Employer of Record (EOR) services allow you to hire legally without establishing a local subsidiary.

EOR providers typically charge a per-employee fee on top of the employee's CTC. Current market rates for EOR services in 2025-2026:

In India, an EOR makes financial sense until you reach approximately 10-15 employees. Beyond that, the monthly EOR fee (USD 3,600-9,000 for 15 employees) exceeds the entity compliance overhead (USD 800-1,500/month). For a detailed analysis, see our guide on when to use an EOR in India.

However, EOR arrangements have limitations: you cannot build company culture as effectively, the EOR — not you — is the legal employer, and IP assignment can be more complex. For technology teams where code ownership and IP protection are critical, establishing a wholly owned subsidiary is strongly recommended regardless of headcount.

Tax Implications of Employment Structure

The tax treatment of employment costs varies by jurisdiction and affects your effective savings. Key considerations:

• India: Salary costs paid to employees of an Indian subsidiary are fully deductible as business expenses. However, if the parent company bears the cost (cost-sharing or secondment arrangements), transfer pricing arm's length requirements apply. The markup expected by Indian tax authorities on cost-plus arrangements is typically 10-15%. See our guide on GCC tax structure and transfer pricing.
• Vietnam: Employment costs are deductible if properly documented. Vietnam requires transfer pricing documentation for related-party transactions, with penalties for non-compliance increasing under the revised CIT law.
• Philippines: Salary costs are deductible. The Philippines has relatively relaxed transfer pricing enforcement compared to India, though this is tightening with new BIR regulations.
• Poland and Romania: Both follow OECD transfer pricing guidelines closely as EU members. Documentation requirements are stringent for related-party employment arrangements. Poland's arm's length benchmarking is well-established and rigorously enforced.

Key Takeaways

• Base salary is only 65-80% of total employment cost. Mandatory employer contributions range from 2.25% (Romania) to 23.5% (Vietnam) — a 10x difference that transforms cost comparisons.
• Vietnam has the highest mandatory contribution rate at 23.5% (including 2% trade union fee on entire payroll), making it more expensive than headline salaries suggest.
• India's new Labour Codes (November 2025) increased employment costs by mandating 50% wage-to-CTC ratio, accelerating gratuity vesting to 1 year for fixed-term employees, and expanding PF contribution bases.
• The Philippines offers the lowest total employment cost for mid-level software engineers at approximately 77% of India's cost, with strong English proficiency as a bonus.
• Poland and Romania cost 2.3-3.1x India for equivalent roles, but offer EU regulatory alignment, timezone proximity to European clients, and strong IP protection frameworks.
• Vietnam's 8-10% annual wage growth is the fastest in this comparison — a 2025 cost model will understate costs by 25-30% within three years.