Payroll Outsourcing Services in India for Foreign-Owned Companies

What does a payroll outsourcing provider in India actually do?

An outsourced payroll provider runs the full statutory pay cycle for your Indian entity: computation, deductions, deposits, returns, payslips and year-end certificates, all in the entity's name. For a foreign-owned company, that cycle touches at least four regulators. The Income Tax Department handles salary tax. EPFO handles provident fund. ESIC handles health insurance for lower-paid staff. State governments handle professional tax, Labour Welfare Fund and shops and establishments registration.

The work splits into four layers:

• Set-up. Registrations, salary-structure design, employee master data.
• Monthly. Payroll run, payslips, tax deduction and deposit, provident fund and ESI returns, state levies.
• Quarterly and annual. Form 138 statements, Form 130 certificates, state annual returns, bonus.
• Event-driven. Joiners, exits, salary revisions, expatriate arrivals and departures.

Beacon Filing does all four for the entity you already own. If you are still deciding whether to incorporate, start with setting up a subsidiary or choosing between subsidiary, branch and liaison office. A branch office can employ staff and run payroll. So can an LLP.

Own-entity payroll vs Employer of Record: which do you need?

If your company already has an Indian subsidiary, branch or LLP, you need payroll for that entity, not an Employer of Record. An EOR is a third party whose own Indian company employs your people for you. It suits a company with no entity that wants a few hires quickly. Own-entity payroll suits a company that has incorporated, or plans to, and wants its people on its own contracts. The comparison table above sets out who is the legal employer in each model. Our EOR vs PEO vs contractor comparison and the subsidiary vs EOR break-even analysis show where the cost lines cross. Beacon Filing does not provide EOR services. We set up entities and run their payroll.

What changed under India's four Labour Codes?

The Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020 and the Occupational Safety, Health and Working Conditions Code, 2020 came into force on 21 November 2025. The Ministry of Labour and Employment says they rationalise 29 existing labour laws. The Industrial Relations and OSH Codes were brought into force in full. The Wages and Social Security Codes were brought in section by section. The Central Rules under all four were notified in Gazette issues dated 8 May 2026 (the OSH (Central) Rules issue went online on 9 May 2026). States make their own rules for matters in their sphere, so state rules still need checking for each location. Our state implementation tracker follows that.

What matters for payroll:

• Which old Acts are gone. The Payment of Wages Act, Minimum Wages Act, Payment of Bonus Act and Equal Remuneration Act are repealed by the Code on Wages. The ESI Act, Payment of Gratuity Act and Maternity Benefit Act are repealed by the Code on Social Security, with effect from 21 November 2025. Provident fund schemes are now made under the Code on Social Security, although the notification bringing the Code into force left out the repeal of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. The Employees' Provident Funds Scheme, 2026, the Employees' Pension Scheme, 2026 and the EDLI Scheme, 2026 were notified on 29 June 2026 and superseded the 1952, 1995 and 1976 schemes.
• A single definition of "wages" with a 50% rule. Wages mean all remuneration. They include basic pay, dearness allowance and retaining allowance. They exclude a closed list of items, such as house rent allowance, conveyance, the employer's provident fund contribution, overtime and commission. The key proviso: if the excluded items in clauses (a) to (i) exceed one-half of all remuneration, the excess is treated as wages. A structure with a very low basic and heavy allowances now carries higher provident fund, gratuity and bonus costs.
• Fixed-term employees. They must get wages and benefits no less than permanent staff doing the same work. They qualify for gratuity after one year of service under the contract.
• Payment deadlines. The wage period cannot exceed a month. Monthly wages are due before the end of the seventh day of the following month. Final wages on resignation, removal, dismissal or retrenchment are due within two working days.
• Working hours and overtime. No worker may be required to work more than 48 hours in a week under the OSH (Central) Rules. Overtime is paid at twice the ordinary rate of wages, and only with the worker's consent.
• Paperwork. Wage slips must be issued to every employee on or before payment. Registers of attendance, wages, overtime and deductions may be kept electronically and must be preserved for five years. Appointment letters must be issued to all employees.
• Floor wage. The Code on Wages lets the Central Government fix a national floor wage. We have found no notification fixing an amount as of September 2026, so state minimum wages remain the floor to check.

The Ministry's Labour Codes compliance handbook summarises the obligations. Our guide to the Labour Codes for foreign employers goes deeper.

Provident fund (EPF): rates, the ₹25,000 ceiling and who must join

Employer and employee each contribute 12% of wages to provident fund. For ordinary members, contributions are limited to wages of ₹25,000 a month from 17 September 2026.

• Coverage. Every establishment with 20 or more employees is covered. It stays covered even if headcount later falls below 20. Employer and a majority of employees can also agree to voluntary coverage.
• The 10% rate. It now applies only to the classes of establishment the Central Government has notified, such as certain insolvency-resolution cases and the jute, beedi, brick, coir and guar gum industries. It no longer covers ordinary small employers.
• Where the employer's 12% goes. 8.33% of wages up to the ceiling goes to the pension scheme (at most ₹2,083 a month on a ₹25,000 ceiling). The balance goes to the provident fund account. The employer also pays 0.5% towards EDLI insurance. EPFO's contribution-rate table lists administrative charges of 0.5%, with a minimum of ₹500 a month per establishment.
• The ceiling. The Central Government notified ₹25,000 a month by S.O. 5109(E) of 17 September 2026. It replaces ₹15,000. An employee whose wages exceed the ceiling when first eligible to join is an "excluded employee". An existing member earning above the ceiling contributes on the ceiling. The employee may add voluntary contributions above it.
• Deadlines. Contributions are paid, and the electronic challan-cum-return uploaded, within fifteen days of the close of each month.

Late payment. Interest runs at 12% a year. Damages under the 2026 Scheme are a percentage of the arrears for each month of default:

• 0.25% for defaults up to two months
• 0.5% for more than two but less than four months
• 1% beyond four months

A late return also attracts a fee of ₹500 a day, capped at that month's administrative charges.

See our EPF glossary entry and the step-by-step EPFO registration guide for foreign-owned companies.

How does provident fund work for foreign nationals (international workers)?

A foreign passport holder working for a covered establishment in India is an "international worker". Provident fund is payable on their total wages, with no ceiling, unless they are a detached worker from a country with which India has a social security agreement.

The corrigendum to the 2026 Scheme (4 August 2026) confirms that the wage ceiling does not apply to international workers. Where wages are paid in a foreign currency, the Scheme converts them at the State Bank of India telegraphic-transfer buying rate on the last working day of the month.

So an American engineer seconded to your Bengaluru subsidiary on total wages of ₹4,00,000 a month would carry ₹48,000 of employee contribution and ₹48,000 of employer contribution every month. An Indian colleague on the same salary who is an existing member contributes ₹3,000 on each side.

An international worker is excluded if they contribute to their home social security system under an agreement with India and hold detached-worker status, evidenced by a certificate of coverage. The 2026 Scheme also excludes a worker covered by a comprehensive economic agreement with a social security clause signed before 1 October 2008, if that clause specifically exempts the two countries' nationals from contributing in the host country.

EPFO lists 20 partners with agreements in force, with these maximum detachment periods:

• 60 months: Belgium, Luxembourg, France, Denmark, the Republic of Korea, the Netherlands, Hungary, Finland, the Czech Republic, Norway, Austria, Canada, Australia, Japan, Portugal, Brazil and Quebec
• 72 months: Switzerland
• 48 months: Germany
• 24 months: Sweden

Separately, the India–UK Double Contribution Convention came into force on 15 July 2026, with detachment of up to 60 months. The United States, Singapore and the UAE are not on EPFO's list.

The live list is on the EPFO international workers page. For more, read international worker (EPF), social security agreements and our guide for expatriates.

ESI: who is covered and what it costs

ESI applies to establishments with ten or more persons and covers employees earning up to ₹21,000 a month (₹25,000 for persons with disability). The employer pays 3.25% of wages and the employee 0.75%.

• Low earners. Employees on a daily average wage of up to ₹176 pay nothing. The employer still pays its share.
• Deadline. Contributions are due within 15 days of the end of the month.
• Contribution periods. These run from April to September and from October to March. An employee who crosses the ceiling mid-period stays covered to the end of that period.
• Where ESI applies. ESI is implemented district by district. ESIC reports 668 notified districts and 135 still to be notified, so we check your address.

Most foreign-company professional hires earn above the ceiling, but support, operations and junior staff often do not. Rates and limits are on ESIC's contribution page. Read more in our ESI glossary entry and ESIC portal guide.

Professional tax and Labour Welfare Fund: state by state

Professional tax is a state tax on employment. The Constitution caps it at ₹2,500 a person a year. Not every state levies it, and each state that does sets its own slabs and dates.

Two common examples:

• Maharashtra. Men earning over ₹10,000 a month pay ₹2,500 a year: ₹200 a month and ₹300 in February. Women pay the same only above ₹25,000 a month. The employer holds a registration certificate and files monthly if last year's liability was ₹1,00,000 or more; otherwise annually by 31 March.
• Karnataka. Salaries below ₹25,000 a month are exempt. Those at or above it pay ₹200 a month and ₹300 in February (the February rate follows a 2025 notification). Payment is due by the 20th of the following month.

Our state pages cover Maharashtra, Karnataka, Tamil Nadu, Telangana, West Bengal, Gujarat and others. The state-by-state guide compares them.

The Labour Welfare Fund is a separate, small state levy with its own coverage rules:

• Karnataka. ₹50 per employee and ₹100 from the employer each year, due by 15 January for the previous calendar year.
• Tamil Nadu. ₹20 from the employee and ₹40 from the employer annually.

See Labour Welfare Fund requirements by state.

Shops and establishments registration: the state-level licence to operate

Each state's shops and establishments law still applies after the Labour Codes; none of the Codes repealed them. For example, Maharashtra's 2017 Act requires establishments with ten or more workers to apply online for registration within 60 days of starting business. Smaller establishments give an online intimation instead. Separately, the OSH Code requires establishments it covers to register electronically within 60 days. Establishments already registered under a Central labour law do not register again; they update their particulars. See shops and establishment act and what foreign offices need to register.

Gratuity and statutory bonus

Gratuity is 15 days' wages for every completed year of service, based on the last wages drawn. It is payable after five years of continuous service, or after one year for fixed-term employees.

How it works:

• Formula. Monthly wages ÷ 26 × 15 × completed years.
• When the five-year rule does not apply. Death, disablement or expiry of a fixed-term contract. Fixed-term employees are paid pro rata.
• Coverage. Shops and establishments with ten or more employees on any day in the preceding twelve months, as well as factories and certain other establishments.
• Payment. Within 30 days of becoming payable, subject to the maximum amount notified by the Central Government.
• Which "wages". Gratuity uses the Code's definition of wages, so the 50% rule matters here too.

More in our gratuity glossary entry.

Statutory bonus under the Code on Wages works like this:

• Coverage. Establishments with 20 or more persons, for employees who have worked at least 30 days in the accounting year and whose wages are within the limit notified by the appropriate Government.
• Amount. At least 8.33% of wages or ₹100, whichever is higher, and at most 20%.
• Payment. By bank credit within eight months of the close of the accounting year.

Performance bonuses in offer letters are separate from the statutory bonus. They are still salary for tax.

How is income tax deducted from salary under the Income-tax Act, 2025?

Under section 392 of the Income-tax Act, 2025 (section 192 of the Income-tax Act, 1961), the employer deducts tax from each salary payment at the average rate of tax on the employee's estimated salary income for the tax year.

The deduction must take account of:

• salary from other employers in the same year
• any house-property loss
• other income the employee chooses to declare in Form 122

Employees prove old-regime claims in Form 124. Where the employer provides perquisites and salary exceeds ₹1,50,000, the employer gives a perquisite statement in Form 123 (formerly Form 12BA). The employer may choose to pay the tax on non-monetary perquisites itself.

Regimes. The new regime in section 202 of the Income-tax Act, 2025 (section 115BAC of the Income-tax Act, 1961) is the default. An employee without business income can opt out when filing the return, so we ask each employee which regime they intend to use and deduct on that basis. The slabs for tax year 2026-27 are:

Other amounts that feed the calculation:

• Standard deduction. ₹75,000 under the new regime and ₹50,000 under the old.
• Rebate. A resident individual whose total income under the new regime does not exceed ₹12 lakh gets a rebate of up to ₹60,000, which removes the tax.
• Cess. Health and education cess of 4% applies on top.
• Surcharge. Under the new regime it starts at 10% above ₹50 lakh and is capped at 25%.
• Employer retirement contributions. Provident fund, NPS and superannuation contributions for an employee are taxable to the extent the aggregate exceeds ₹7,50,000 in a tax year.

Deposits, returns and certificates.

• Tax deducted is deposited by the 7th of the following month, and by 30 April for March.
• The quarterly salary statement, Form 138 (formerly Form 24Q), is due by 31 July, 31 October, 31 January and 31 May.
• Form 130 goes to employees by 15 June after the tax year.

These form numbers apply to tax year 2026-27 onwards. For salary paid in FY 2025-26 and earlier years, the 1961-Act forms (Form 16 and Form 24Q) applied. The Income-tax Rules, 2026 contain no transitional provision saying which form a filing made after 1 April 2026 for an earlier year must use, so we file on whatever the e-filing portal enables for that year.

What goes wrong costs money:

• Interest of 1% a month from the date tax was deductible to the date it is deducted, and 1.5% a month from deduction to payment, under section 398(3)(a) of the Income-tax Act, 2025 (section 201(1A) of the Income-tax Act, 1961).
• A penalty equal to the tax not deducted, under section 448 of the Income-tax Act, 2025 (section 271C of the Income-tax Act, 1961).
• A late fee of ₹200 a day for a late statement, capped at the tax deductible, under section 427(1) of the Income-tax Act, 2025 (section 234E of the Income-tax Act, 1961).
• A penalty of ₹500 a day for failing to issue Form 130, under section 465(2)(g) of the Income-tax Act, 2025 (section 272A of the Income-tax Act, 1961), capped at the tax deductible.

Background: Income-tax Act, 2025, tax year and old vs new tax regime.

Worked example: CTC breakup and employer cost for a Bengaluru hire

Here is how a ₹18 lakh gross salary becomes about ₹19.08 lakh of employer cost and about ₹1.34 lakh of monthly take-home pay.

The assumptions:

• The employee works for your Karnataka subsidiary and is an existing provident fund and pension scheme member earning above the ceiling. If they are not a pension scheme member, the whole ₹3,000 goes to their provident fund account.
• They are on the new tax regime and claim no other deductions.
• The figures are for a month from October 2026 onwards, tax year 2026-27.

Does it pass the 50% test? The excluded items (house rent allowance ₹30,000 plus the employer's provident fund ₹3,000) are ₹33,000 out of ₹1,53,000 of remuneration, about 22%. That is under half, so nothing is added back.

Why gratuity is on ₹1,20,000. A special allowance is not one of the listed exclusions. On our reading of the text of the definition, we therefore accrue gratuity on basic plus special allowance, not basic alone. That is ₹69,231 a year rather than ₹43,269. This is an interpretation, not a settled position, and some employers still accrue on basic alone; the choice should be agreed with your auditors.

Why ESI and statutory bonus are absent. ESI does not apply above ₹21,000 a month. Statutory bonus would be added only if the employee's wages fell within the notified eligibility limit.

The tax. Salary of ₹18,00,000 less the ₹75,000 standard deduction leaves taxable income of ₹17,25,000. The new-regime slabs give ₹1,45,000. Adding 4% cess gives ₹1,50,800. The employer's provident fund is not taxed because the aggregate is well below ₹7,50,000. Under the new regime, professional tax is not deductible from salary income.

If the employee were an international worker. Provident fund would be 12% of total wages on each side, with no ceiling. On these numbers that is 12% of ₹1,20,000, or ₹14,400 a month each from employer and employee, and more again if any salary were paid abroad.

Monthly, quarterly and annual payroll compliance calendar

Most payroll deadlines fall on the 7th and the 15th of the month after salary is paid. The quarterly Form 138 and the annual Form 130 sit on top. The table shows the cycle for a monthly-paid employee.

For the company-law, tax and FEMA deadlines around this, use our compliance calendar service.

Expatriate payroll: split payroll, shadow payroll and residence

An expatriate's India tax depends on residence. Their salary for India work is taxable in India whether it is paid in India or abroad, and the Indian employer's deduction has to cover both parts.

The residence rules:

• Resident. An individual is resident in a tax year if in India for 182 days or more. They are also resident if in India for 60 days or more in the year and 365 days or more in the four preceding years.
• Not ordinarily resident. A resident who was non-resident in nine of the ten preceding years, or in India for 729 days or less in the seven preceding years, is "not ordinarily resident".
• Short-visit exemption. A foreign national employed by a foreign enterprise that does not carry on business in India is exempt on India-work remuneration if the stay does not exceed 90 days in the tax year and the pay is not deductible by that employer in India. This rarely helps once you have an Indian entity paying them.

How we handle expatriate payroll:

• Split payroll. Part of the salary is paid by your Indian entity and part by the parent. We gross the home-paid part into the Indian deduction.
• Shadow payroll. Your parent pays in full at home and India withholds on a "shadow" of that pay.
• Tax equalisation. We work alongside your global mobility adviser on hypothetical tax and year-end true-ups.
• Double tax relief. Where a treaty applies, relief usually comes through the employee's home-country return. Where treaty relief is claimed in India, it needs a tax residency certificate and Form 41 (formerly Form 10F).
• Funding. The India-paid part comes from the Indian entity's own account. The parent funds that through normal banking channels, for example as capital, a service fee or a cost recharge, and each route has its own FEMA and transfer-pricing consequences.

Read shadow payroll, expat salary structuring, tax obligations of foreign employees and secondment: tax, GST and social security.

Country notes for US, UK, Singapore, UAE, Canada and Australia parents

• United States. No social security agreement with India is on EPFO's list, so US nationals on your Indian payroll are international workers with provident fund on total wages: 12% from the employer as a cost on top of salary, and a matching 12% deducted from the employee. US-side Social Security for seconded staff is a separate question for your US advisers.
• United Kingdom. The India–UK Double Contribution Convention has been in force since 15 July 2026. A UK employee detached to India with a UK certificate of coverage can stay in UK National Insurance for up to 60 months, instead of Indian provident fund.
• Singapore and the UAE. Neither is on EPFO's social security agreement list. Treat nationals as international workers unless a specific exclusion in the 2026 Scheme applies. For Singapore, that means checking whether the pre-2008 economic-agreement exclusion reaches the employee. We check this case by case.
• Canada and Australia. Both have agreements in force, with detachment of up to 60 months. Quebec has its own agreement. Get the certificate of coverage before the first Indian payroll, not after.
• Germany, Japan, France, the Netherlands and Korea. All have agreements in force. Germany's detachment limit is 48 months; the others are 60.

Country guides: USA, UK, Singapore, UAE, Canada and Australia.

Full-and-final settlement: what is due and when

On any exit, outstanding wages are due within two working days, and gratuity, where earned, within 30 days of becoming payable.

A full-and-final settlement brings together:

• salary to the last day
• leave encashment under your policy and state law
• notice pay, paid or recovered
• reimbursements and recoveries
• gratuity
• final-month tax, including tax on any exit payments

Provident fund is transferred to the next employer or withdrawn. For international workers, withdrawal follows the 2026 Scheme and any applicable social security agreement. Our termination rules guide covers notice and retrenchment.

Common payroll mistakes foreign-owned entities make in India

• Using the ₹15,000 provident fund ceiling after 17 September 2026. Contributions for ordinary members now run on up to ₹25,000.
• Treating foreign nationals like Indian employees for provident fund. International workers contribute on total wages, including salary paid abroad, unless a certificate of coverage applies.
• Keeping a low-basic, high-allowance structure. Excluded items above half of remuneration are added back to wages. Special allowances are not in the exclusion list at all.
• Quoting the old forms. Salary TDS for tax year 2026-27 is reported in Form 138 and certified in Form 130, not Form 24Q and Form 16.
• Forgetting the home-paid part of an expatriate's pay. Tax is due on it in India and the Indian employer's deduction must include it.
• Missing state levies. Professional tax, Labour Welfare Fund and shops and establishments registration are small but separate, and each state enforces its own.
• Paying final wages at the next payroll run. The Code on Wages requires payment within two working days of exit.

How to choose a payroll service provider in India

Choose a provider that can show current law and your specific situation, not just software.

• Current law. Ask whether they already apply the ₹25,000 provident fund ceiling and the 2026 Scheme's damages table, and whether their filings use Form 130 and Form 138.
• Expatriates. Ask how they treat an international worker with salary paid abroad.
• Multiple states. Ask whether they run professional tax and Labour Welfare Fund in each of your states.
• Your control. Ask whether you approve each payroll before money moves.
• Group reporting. Ask whether they report employer cost in a format your group finance team can consolidate.
• Who the employer is. If the answer involves them becoming the employer, you are buying an EOR, not payroll outsourcing.

For a wider set-up checklist, see India payroll setup for foreign companies and hiring employees in India.