India has cemented its position as one of the most sought-after talent markets across the world. This is because the country is filled with a diverse talent pool across sectors including engineers, finance professionals, scientists, and operational specialists, which are all accessible at a globally competitive cost. Naturally, foreign companies which once expanded into other markets are now looking to grow in India to accelerate innovation and optimize operational efficiency.
Whether it is a U.S.-based technology company looking to build a remote engineering team, a European fintech business seeking compliance professionals, or a Singapore-headquartered startup hiring its first employee in India, businesses are increasingly asking the same question: Can foreign companies hire employees in India without establishing a legal entity?
The question is particularly relevant for startups, high-growth businesses, private equity-backed companies, and multinational enterprises seeking to test the Indian market before committing to a formal presence. Many businesses prefer to commence with flexible workforce model which allow then to hire talent quickly while postponing entity formation until operations reach a certain scale.
Hiring employees in India without establishing a legal entity is permissible provided legal and regulatory considerations are taken care of. The structure through which hiring is to be undertaken can have significant implications from employment law, tax, and compliance perspective.
This article examines the various hiring models which foreign companies can hire talent in India without setting up an entity including comparing Professional Employer Organisation (“PEO”) and direct hire, Employer of Record (“EOR”), and independent contractor, covering benefits of each model, the legal risks that may arise, and practical steps businesses can take to mitigate those risks while expanding their workforce in India.
The Regulatory Foundation
Before we jump into assessing the various hiring model, it is prudent to understand the legal framework. As far as employment law if concerned, the labour laws in India do not operate under a single unified statute but rather, it is a combination of central and state laws. At the central level, we have the four labour codes (“Labour Codes”), namely the Code on Wages, 2019; the Code on Social Security, 2020; the Occupational Safety, Health and Working Conditions Code, 2020; and the Industrial Relations Code, 2020. The Labour Codes are read along with state-specific legislation like the various Shops and Establishments Acts. These legislations impose substantive obligations on “employers,” a term defined by reference to registered Indian establishments. A foreign company without an Indian entity cannot register as an employer, run a compliant payroll, or make statutory contributions such as gratuity and provident fund.
Read full Blog Here: https://www.ahlawatassociates.com/blog/hire-in-india-without-an-entity