By Naraway
In this article
On 21 November 2025, India's Code on Wages, Industrial Relations Code, Social Security Code and Occupational Safety Code came into force together, replacing 29 central labour laws. The central rules followed on 8 May 2026. Every route for employing someone in India, with or without an Indian company, now runs on them.
Sources: Mondaq; Access Financial; Fisher Phillips.
Three Ways to Hire in India
| Who employs | What it carries | |
|---|---|---|
| Independent contractor | Nobody; a services contract | No PF or gratuity, but misclassification risk if the person works like an employee |
| Employer of record (EOR) | An Indian EOR company | Payroll, tax deduction and contributions handled by the EOR; client pays a fee on top of salary |
| Own subsidiary | The company's Indian entity | Full control; entity set-up and ongoing compliance |
Searches for "employer of record fees" and "employer of record pricing" reflect the usual trade-off: an EOR is quick to start and costs a fee per employee per month; an entity costs more to set up and less per head once the team grows.
What the Codes Changed for Employers
- One definition of wages. Basic pay must be at least 50% of total wages. Salary structures that kept basic pay low to reduce PF and gratuity have to be rebuilt.
- Fixed-term parity. Fixed-term employees get the same wages and benefits as permanent staff, and gratuity after one year.
- Faster exits. Full and final settlement within two working days of separation in most cases.
- Wider social security. The Social Security Code extends coverage to gig and platform workers.
Where EOR Stops Being Enough
An EOR employs people; it does not sign customer contracts, invoice Indian clients or hold the company's IP in India. Once the India team starts selling, or decisions are routinely made there, the arrangement also raises the question of whether the foreign company has a taxable presence in India. That is usually the point at which companies move staff to their own subsidiary.
The Part Still Being Written
Labour is a shared subject under India's constitution, so each state notifies its own rules under the codes. In mid-2026 many states had not, which means some details, such as working-hour limits and registration formats, still differ by state. An employer in Bengaluru and one in Gurugram can face different answers to the same question.
Part of Naraway's research series India Market Entry in 2026.
In short
A company without an Indian entity can engage people in India in three ways: as independent contractors, through an employer of record (EOR) that employs them on its own payroll, or by setting up its own subsidiary. India's four labour codes, in force since 21 November 2025 with central rules notified on 8 May 2026, replace 29 laws and change the cost of each route: wages are now defined so that basic pay is at least 50% of pay, fixed-term employees earn gratuity after one year instead of five, and final settlement is due within two working days of exit.
- Four labour codes replaced 29 central laws on 21 November 2025; central rules followed on 8 May 2026.
- Basic pay must be at least 50% of wages, raising PF and gratuity costs for many pay structures.
- Fixed-term employees qualify for gratuity after one year instead of five.
- Full and final settlement is generally due within two working days of exit.
- Many state rules were still pending in mid-2026.
Sources
Frequently Asked Questions
Can a foreign company hire employees in India without an Indian entity?
Not directly on its own payroll in the usual way. It can engage independent contractors, use an employer of record that employs the staff on its Indian payroll, or set up an Indian subsidiary.
What is an employer of record in India?
An Indian company that legally employs staff on behalf of a client: it issues contracts, runs payroll, deducts tax and pays PF and other contributions, while the client directs the day-to-day work.
When did India's new labour codes come into force?
On 21 November 2025. The Central Rules were notified on 8 May 2026; many state rules were still pending in mid-2026.
What changed for gratuity under the labour codes?
Fixed-term employees now qualify for gratuity after one year of service instead of five. The new definition of wages also raises the base on which gratuity is calculated for many employees.
How quickly must final dues be paid in India?
Full and final settlement is generally due within two working days of separation under the Code on Wages.
