EOR in India: How It Works, What It Costs, and What Employers Must Know

India is the most common EOR market for US companies and also the most complex — a patchwork of central and state labor laws, multiple mandatory benefit schemes, and a 60–90 day notice period culture that surprises many first-time international employers.

This guide covers India-specific EOR mechanics: what the employment contract includes, what statutory benefits apply, how payroll works, what compliance obligations the EOR manages on your behalf, and what you need to know about exits.

India Employment Law Basics for US Employers

Applicable legal framework

• Industrial Employment (Standing Orders) Act: governs employment terms for organizations above 100 employees
• Payment of Wages Act: payroll timing requirements (wages must be paid by 7th or 10th of following month)
• Employees' Provident Funds and Miscellaneous Provisions Act: mandatory EPF for organizations with 20+ employees
• Employees' State Insurance Act: mandatory ESI for employees below wage threshold
• Shops and Establishments Act (state-specific): governs working hours, leave, termination
• Maternity Benefit Act: 26 weeks paid maternity leave (one of the most generous globally)
• Payment of Gratuity Act: gratuity payable after 5 years of continuous service

What India EOR Employment Includes

Employment contract

The EOR generates an employment contract compliant with applicable central and state law. For Bengaluru-based employees, this means Karnataka Shops and Establishments Act compliance. Standard contract includes: job title and description, compensation structure (CTC breakdown), working hours, leave entitlements, notice period, confidentiality and IP assignment provisions.

Provident Fund (EPF)

Mandatory for all employees in organizations with 20+ employees (which EOR providers always meet by aggregating clients). Employee contribution: 12% of basic salary. Employer contribution: 12% of basic salary (8.33% to Employees' Pension Scheme, 3.67% to EPF). The EOR manages EPF portal registration, monthly contributions, and annual reconciliation.

Employee State Insurance (ESI)

Mandatory for employees earning up to INR 21,000/month gross. Employee contribution: 0.75% of gross salary. Employer contribution: 3.25% of gross salary. Provides medical benefits and sickness benefits. The EOR manages ESI registration, monthly ESIC portal filing, and employee card issuance.

Gratuity

Accrues at 15 days of salary per year of service. Payable upon exit after 5 years of continuous service. The EOR tracks gratuity accrual and pays from the client's invoice — it's not funded from a separate trust at small headcount levels.

Leave entitlements

Minimum per Karnataka Shops and Establishments Act: 12 earned leave days + 12 casual/sick leave days per year. EOR employment contracts typically offer 18–24 earned leave days to be competitive with market practices.

Maternity Benefit

26 weeks paid maternity leave for the first two pregnancies. EOR manages the maternity benefit claim process. Cost is shared between EOR client and ESIC (if employee is ESI-enrolled). Client should budget for replacement or productivity impact.

India Payroll Mechanics

CTC vs gross vs net

India uses Cost-to-Company (CTC) as the primary compensation metric. CTC = gross salary + employer EPF contribution + employer ESI contribution + any other employer-paid benefits. The employee receives net salary = gross - employee EPF - employee ESI - income tax (TDS). Understanding this structure is critical to aligning on compensation expectations with Indian candidates.

TDS (Tax Deducted at Source)

The EOR withholds income tax from the employee's salary monthly based on declared investment proofs (Chapter VIA deductions, HRA exemption, LTA). The EOR files quarterly TDS returns (Form 24Q) with the Income Tax Department and issues annual Form 16 to employees.

Payroll timeline

India payroll is typically processed in the last week of the month for same-month payment (or the first week for prior-month payment). The EOR consolidates your monthly invoice: gross salaries + employer statutory contributions + management fee. You pay the EOR; the EOR disburses to employees.

Notice Periods in India: What Employers Need to Know

Indian notice periods are significantly longer than US norms. Standard practice:

• Junior employees (0–3 years): 30 days notice
• Mid-senior employees (3–7 years): 60 days notice
• Senior and leadership roles: 90 days notice (some up to 180 days)

Notice periods cut both ways: you must give notice to terminate, and the employee must give notice to resign. Employees can 'buy out' their notice period by paying the equivalent salary to the company, and companies can buy out the employee's notice by paying the equivalent. The EOR manages the notice period process compliantly.

Termination in India: The EOR Process

Terminating an India EOR employee requires following a legally compliant process. The EOR manages this:

• Performance-based termination: requires documented performance improvement process and evidence
• Role elimination / redundancy: requires legitimate business reason; the EOR drafts retrenchment letter
• Misconduct: requires domestic inquiry process (like HR investigation); the EOR guides the process
• Mutual separation: simplest exit; both parties agree to terms; the EOR prepares separation agreement

Statutory payments on exit: unpaid salary, leave encashment (earned leave not taken), gratuity (if 5+ years), and any accrued variable compensation. The EOR calculates and processes all exit payments.

EOR Onboarding Timeline for India

• Day 1: Client submits job offer details and employee information to EOR
• Day 1–2: EOR generates employment offer letter and contract
• Day 2–4: Employee reviews, signs contract, submits documents (Aadhaar, PAN, bank account, previous employer Form 16)
• Day 4–6: EOR verifies documents, sets up payroll in system, initiates EPF and ESI registration
• Day 7–10: Employee is payroll-ready; start date confirmed
• First payroll run: next scheduled payroll cycle after start date