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Payroll, Hiring and Labour Law for Foreign Companies in India

Once your Indian company exists, the next question is who runs it day to day, and that means employing people under Indian law rather than the law you are used to at home. Payroll deductions, provident fund and health insurance contributions, the clauses an employment contract must carry, what happens when a role ends: all of it sits inside Indian labour and tax rules, and a template written for another country will miss what those rules actually require.

Two decisions come before any of the detail. First, whether you hire through your own Indian entity, which makes that entity the employer on record for every obligation described here, or through a third-party employer while you decide whether an entity is worth setting up at all. Second, how far you are scaling: a handful of local hires need far less infrastructure than a large team built for growth. India has also replaced many older labour statutes with four codes; the codes and their central rules are in force, but states still write their own rules on much of the detail.

This hub brings together our payroll, provident fund, labour code, contract, equity and hiring content, and points you to the clearest page for whichever question is in front of you, whether you are drafting an offer letter, checking a salary deduction, or still deciding whether you need an Indian entity before you hire anyone. NRIs running an Indian team face the same payroll and labour questions as any other employer.

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  1. India's Four Labour Codes (2019-2020)

    Defines the four labour codes and the older laws they replaced, with their effect on wages, provident fund, gratuity and termination.

  2. Payroll Setup in India: TDS, PF, ESI & Professional Tax from Day One

    Walks through registering and running payroll for your own entity from the first hire, in the order deadlines fall.

  3. EOR vs PEO vs Independent Contractor in India

    Lays out the legal and cost difference between an EOR, a PEO-style setup and contractors before you pick a structure.

  4. Employer of Record in India: When EOR Makes Sense (and When It Doesn't)

    Explains when hiring through a third-party employer beats setting up your own entity, and when it stops making sense.

  5. Payroll Services By Country

    Payroll guides written for parent companies from particular home countries, useful if your group is headquartered in one of them.

  6. ESOP Advisory for Cross-Border Companies in India

    How equity compensation for an Indian team is structured, taxed and reported, whether options are in the Indian entity or the foreign parent.

Once staff are employed through your own Indian entity, our outsourced payroll processing runs the provident fund, ESI, professional tax and salary tax deductions and filings for you, so you do not need that expertise in-house. Once hiring through your own company makes more sense than a third-party employer, registering a foreign subsidiary gives you the entity that becomes the actual employer on record.

payroll and payslips

Running payroll for your own Indian entity means calculating pay, deducting provident fund, ESI, professional tax and salary tax at source, and depositing and reporting each of them on its own monthly or quarterly deadline. The deductions and the paperwork differ from payroll elsewhere, and a missed deadline usually costs interest or damages rather than earning a grace period.

PF ESI and social security

Provident fund and ESI are compulsory for covered establishments and employees, paid into government-run schemes from both employer and employee contributions. Foreign staff working in India are usually covered by provident fund too, unless a social security agreement with their home country and a certificate of coverage say otherwise, so check before assuming an exemption.

labour codes

India has replaced a long list of older labour statutes with four codes covering wages, industrial relations, social security and workplace safety. The codes and their central rules are in force, but a few provisions were held back and states write their own rules on much of the detail, so check the obligation in your staff's state.

employment contracts

An Indian employment contract has to reflect mandatory statutory entitlements, not just whatever you and the employee agree to, and a template drafted for another country's law will miss clauses Indian law expects. Get the notice period, probation and termination language right at signing rather than discovering the gap when someone leaves.

ESOP and equity pay

Granting options or shares to an Indian team, whether in the Indian entity or the foreign parent, touches company law, tax and FEMA rules at the same time, and which entity reports what depends on who issues the instrument and to whom. Treat a scheme drafted for another jurisdiction as a starting point, not something you can use unchanged.

hiring and onboarding

Hiring in India runs through an offer, background checks, statutory registrations and onboarding paperwork before anyone's first payslip, and each step touches a different law or portal. The employer, not the employee, carries the compliance risk if any of it is skipped or filed late.

termination and severance

Ending someone's employment in India is not at-will; notice, process and severance depend on the role, the state, and which law or code provision covers that establishment. Getting the process wrong is usually what turns an ordinary exit into a dispute or a labour department complaint, not the exit itself.

employee visas and secondment

Foreign staff working in India need the visa category that matches the work they are actually doing, and seconding someone from the parent company raises separate tax and permanent-establishment questions from hiring locally. The choice between secondment and a local hire changes who is taxed, where, and on what.

POSH and workplace rules

Workplaces above a certain size must set up an internal committee to handle sexual harassment complaints, and a company confirms its compliance in its annual board report, a rule that applies regardless of where the parent company sits. It is easy for a foreign employer to miss because it does not read like a payroll matter.

contractors vs employees

Calling someone a contractor does not make them one; Indian courts look at the substance of the relationship, especially how much control you exercise over the work, not the label on the agreement. Misclassifying an employee as a contractor exposes you to back-dated provident fund, ESI and other employment dues if the arrangement is later challenged.

shops and establishment

Most commercial establishments, including an Indian subsidiary's office, have to register or file an intimation under their state's shops and establishment law and follow that state's rules on working hours, leave and holidays. These are state rules, not central ones, so requirements differ if you operate in more than one state.

professional tax

Professional tax is a small state-level deduction on salaries, and in some states a separate charge on the business itself, capped nationally but set state by state, and several states do not levy it at all. Whether it applies, and how much, depends entirely on which state your employees actually work in.

leave bonus and gratuity

Employees earn statutory leave, an annual bonus in some cases, and a lump-sum gratuity payment after enough continuous service, each governed by its own eligibility and calculation rules. Gratuity in particular gets underestimated as a cost because it never shows up in the monthly payroll run.

GCC hiring at scale

Building a large in-house team or a global capability centre in India is a different exercise from hiring the first few people: it means volume recruitment, tiered compensation bands and HR infrastructure built for growth from the start. The underlying compliance is the same as for any employer, just at a scale that punishes shortcuts faster.

salary benchmarks

Foreign companies routinely underestimate the true cost of an Indian hire because they price the salary and miss the statutory contributions, benefits and market repricing layered on top of it. Benchmark the full employer cost, not just the offer you plan to make, before you budget a team.

employer of record

An employer of record is a third party that becomes the legal employer of your India staff, letting you hire before, or instead of, setting up your own entity. It suits a small or short-term team; once you are hiring at scale through your own entity, the comparison usually shifts toward running payroll yourself.

More on payroll and employment

Frequently Asked Questions

Should a foreign company hire through its own Indian entity or use an employer of record?

If you already have an Indian entity, or plan to build a team there long-term, hiring through that entity keeps contracts and IP with your own company. An employer of record lets you hire before an entity exists, or for a small team, but puts a third party between you and your staff as the legal employer.

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What is the current provident fund wage ceiling in India?

The provident fund wage ceiling is ₹25,000 a month from 17 September 2026, replacing ₹15,000. Employer and employee each generally contribute 12% of wages, limited to wages up to the ceiling for most members, but the ceiling does not apply to international workers, whose contributions run on total wages.

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Are India's four labour codes already fully in force?

All four codes came into force on 21 November 2025, the Industrial Relations and Occupational Safety codes in full and the Wages and Social Security codes for listed provisions, and their central rules were notified in May 2026. States make their own rules on much of the detail, so check the specific obligation in the state where your staff work.

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