Global companies expanding into India face a critical early decision: hire through an Employer of Record (EoR) or set up a wholly owned subsidiary. The choice affects speed to market, compliance risk, cost structure and long-term strategic flexibility. With India attracting over $81 billion in total FDI in FY 2024-25 and the Asia-Pacific EoR market growing at roughly 10% annually, this decision has never been more consequential. T&A Consulting advises foreign companies on market entry structuring, entity setup and compliance frameworks to ensure a successful India launch.
Introduction: A New Era for India Market Entry
India’s economy continues to draw global attention. FDI inflows reached $81.04 billion in FY 2024-25, a 14% increase over the previous year, with manufacturing alone attracting $19.04 billion. At the same time, the global Employer of Record market is projected to grow from $5.6 billion in 2025 to over $10 billion by 2035. Asia-Pacific is the fastest-growing region, driven largely by hiring activity in India, China and Southeast Asia. For foreign companies, particularly mid-sized firms and growth-stage startups, the question is no longer whether to enter India but how to do it efficiently, compliantly and at the right cost.
Two primary models dominate the conversation. The first is the Employer of Record (EoR), where a third-party entity legally employs workers on behalf of the foreign company, handling payroll, tax, statutory contributions and local compliance. The second is the traditional subsidiary setup, where the foreign company incorporates its own legal entity in India, typically as a private limited company under the Companies Act, 2013. Each model carries distinct advantages and trade-offs, and the right choice depends on the company’s strategic intent, hiring scale, timeline and risk appetite.
Understanding the Employer of Record Model
An Employer of Record acts as the legal employer for a company’s workers in India. The foreign company retains day-to-day control over projects, goals and team management, while the EoR handles all employment-related compliance. This includes registering and remitting Provident Fund (12% employer contribution), Employees’ State Insurance (ESI), Tax Deducted at Source (TDS) under the Income-tax Act, 1961, gratuity and statutory bonus obligations.
The EoR model is particularly attractive for companies that need speed. Onboarding can happen within 48 hours in many cases, compared to the several months required for subsidiary incorporation, GST registration, TAN application and EPFO setup. There is no need to navigate the Registrar of Companies, appoint local directors or maintain a registered office. The foreign company can test the market, validate product-market fit and build an initial team without committing to long-term infrastructure.
However, the EoR model has limitations. The foreign company does not own the employment relationship, which can create challenges around intellectual property assignment, employee loyalty and brand identity. EoR fees, typically ranging from $400 to $700 per employee per month, add up as headcount grows. For teams larger than 15 to 20 employees, the cumulative cost of EoR services can exceed the operational cost of running a subsidiary. Additionally, certain regulated sectors, such as banking, insurance and defence, may require a local entity for licensing and compliance purposes.
Understanding the Subsidiary Model
Setting up a wholly owned subsidiary (WOS) in India gives the foreign company full control over operations, hiring, intellectual property and strategic direction. Under India’s FDI policy, most sectors allow 100% foreign ownership through the automatic route, meaning no prior government approval is required. The subsidiary is incorporated as a private limited company, governed by the Companies Act, 2013, and subject to annual compliance requirements including board meetings, statutory audits, income tax filings and GST returns.
The subsidiary model is the right choice for companies with a long-term India strategy, significant hiring plans and a need for direct contractual relationships with employees, clients and vendors. It allows the company to build its own brand in India, offer equity-based compensation (ESOPs), enter into direct customer contracts and participate in government tenders. It also provides greater control over data governance, which is increasingly important under India’s Digital Personal Data Protection Act, 2023.
The trade-off is time and cost. Incorporation typically takes two to four months, depending on the complexity of the structure, sector-specific approvals and the speed of regulatory filings. Ongoing compliance costs, including statutory audits, annual filings, transfer pricing documentation (for intercompany transactions) and GST returns, require either an in-house finance team or a reliable local compliance partner. Companies must also appoint at least one resident director in India and maintain a registered office.
A Decision Framework: When to Use Which Model
The choice between EoR and subsidiary is not binary. Many companies use both models at different stages of their India journey. The following framework can help guide the decision:
- Market testing (0 to 6 months, 1 to 5 employees). Use an EoR. The priority is speed, flexibility and minimal capital commitment. The EoR allows the company to hire local talent, test demand and gather market intelligence without the overhead of entity setup.
- Early scaling (6 to 18 months, 5 to 20 employees). Begin planning subsidiary incorporation while continuing to use the EoR for existing hires. This hybrid approach ensures continuity while the entity is being set up. Many EoR providers offer transition support, helping migrate employees from the EoR payroll to the company’s own payroll once the subsidiary is operational.
- Growth phase (18 months and beyond, 20+ employees). Operate through the subsidiary. At this scale, the cost savings, control benefits and strategic advantages of a local entity outweigh the convenience of the EoR model. The subsidiary also positions the company for government contracts, banking relationships and potential partnerships with Indian firms.
- Project-based or contract work. If the company’s India presence is tied to a specific project or contract with a defined timeline, a branch office or project office may be more appropriate than either an EoR or a full subsidiary. These structures are lighter than a subsidiary but still require RBI approval and regulatory compliance.
Compliance Considerations: What Foreign Companies Often Overlook
India’s employment and tax landscape is complex, with over 40 central labour laws and numerous state-specific regulations. The introduction of the four Labour Codes (on Wages, Industrial Relations, Social Security and Occupational Safety) aims to consolidate and simplify this framework, but implementation has been gradual and varies by state. Foreign companies must navigate multi-state compliance if hiring across geographies, as Professional Tax, Shops and Establishments Act registrations and certain labour welfare fund contributions differ from state to state.
Transfer pricing is another area of attention. Intercompany transactions between the Indian entity and the foreign parent must be at arm’s length, documented and reported. The Indian tax authorities are active in scrutinising transfer pricing arrangements, particularly in the services and technology sectors. Companies using the EoR model are not exempt from transfer pricing considerations if the EoR arrangement is structured as a service agreement between the foreign company and the EoR provider.
Data protection is an emerging compliance frontier. The Digital Personal Data Protection Act, 2023, imposes obligations on data fiduciaries regarding consent, purpose limitation and cross-border data transfers. Companies hiring in India, whether through an EoR or a subsidiary, must ensure that employee data handling practices comply with this legislation.
The India-UK CETA and EFTA: How Trade Agreements Are Changing the Calculus
Recent trade agreements are adding a new dimension to market entry decisions. The India-UK Comprehensive Economic and Trade Agreement (CETA), signed in July 2025, provides duty-free access on 99% of India’s exports to the UK and opens market access across 137 UK service sub-sectors. The India-EFTA agreement, which came into force in October 2025, commits Switzerland, Norway, Iceland and Liechtenstein to $100 billion in FDI over 15 years. These agreements create new incentives for companies to establish a formal presence in India, as preferential tariff treatment and market access commitments often require a local entity to fully benefit from the provisions.
For UK and European companies in particular, the CETA and EFTA agreements strengthen the case for subsidiary setup, especially in sectors like IT services, financial services, education, pharmaceuticals and manufacturing where the agreements offer the deepest commitments.
How T&A Consulting Supports Market Entry Structuring
T&A Consulting provides end-to-end advisory for foreign companies entering the Indian market. Our services include:
- Market entry strategy and feasibility assessment. We evaluate the optimal entry model based on sector, scale, timeline and regulatory requirements, including comparative analysis of EoR, subsidiary, branch office and joint venture structures.
- Entity incorporation and regulatory compliance. We manage the incorporation process, including company registration, director appointments, RBI filings, FEMA compliance and sector-specific licensing.
- EoR advisory and transition planning. For companies starting with an EoR, we advise on provider selection, contract structuring and the eventual transition to a subsidiary, ensuring no disruption to operations or employee relations.
- Ongoing compliance support. We provide ongoing support for statutory filings, transfer pricing documentation, GST compliance and labour law adherence across multiple Indian states.
- FDI policy and trade agreement advisory. We help companies understand and leverage the provisions of recent trade agreements, including the India-UK CETA and India-EFTA pact, to optimise their market entry and expansion strategies.
The right entry structure can save months, reduce compliance risk and position your company for long-term success in one of the world’s fastest-growing economies. The wrong one can create costly legal and operational liabilities that take years to unwind.
Whether you are a growth-stage startup exploring India for the first time or an established multinational planning a major expansion, the choice between EoR and subsidiary deserves careful strategic analysis.
Contact us at: pnijhawan@taglobalgroup.com to discuss the right market entry structure for your India plans.
Sources & references:
Press Information Bureau (PIB),
India Briefing,
SSR (EoR Market Data),
Ministry of Commerce, Government of India