EOR vs. setting up a subsidiary in India: full cost and timeline comparison

There are two ways to employ people in India: incorporate an Indian subsidiary and hire into it, or use an Employer of Record and hire through someone else's.

Both are legitimate. Neither is universally correct. What follows is the comparison as we would give it to a client asking which one to choose — including the parts that do not favour us.

Start with what does not differ

A useful comparison begins by removing the things that are identical, and in this case that is most of the money.

Statutory employer costs are the same under both models. Provident Fund at 12% of wages, ESI at 3.25% of gross for employees up to ₹21,000, gratuity accruing at roughly 4.81% of wages, statutory bonus within the Payment of Bonus Act threshold, Professional Tax at around ₹200 a month. These are statutory. They attach to the employment, not to the employer's structure. No route avoids them, and anyone suggesting otherwise is describing something else.

Salary is the same. The market rate for the role does not change based on whose payroll it sits on.

So the comparison is not really about employment cost. It is about three other things: time, fixed overhead, and who carries the compliance risk.

Time

This is the starkest difference and the easiest to state.

Setting up an Indian subsidiary means company incorporation, tax registrations, labour-law compliance and payroll infrastructure — all of it completed before your first employee can begin work. Realistically that is around six months before your first hire starts.

Through an EOR, none of that infrastructure has to be built, because it already exists. A first employee can be onboarded in as little as 5–7 working days.

• Own subsidiaryIncorporation, registrations, payroll build≈ 6 months
• Employer of RecordContract, enrollment, onboarding5–7 working daysFaster

Whether that gap matters depends entirely on your situation. If you are hiring a team in a quarter, it is decisive. If you have a two-year plan and a reason to be in India permanently, six months is a schedule rather than a problem.

Fixed overhead

A subsidiary is a company. It carries obligations whether or not it employs anyone this month: ongoing statutory filings, accounting, audit, and the administrative attention all of that requires. The filings never stop, and mistakes carry penalties.

An EOR arrangement carries no fixed overhead of that kind. You pay one flat fee per employee per month, with no setup fee, no deposit and no platform fee. If the team is two people, you pay for two people. If it goes to zero, so does the cost.

That asymmetry is the real financial argument, and it runs in a specific direction: the EOR model is cheaper while the team is small and the fixed costs of a company would be spread thinly, and the arithmetic moves the other way as headcount grows. Where exactly it crosses over depends on your incorporation and ongoing compliance costs, which is why we do not publish a break-even number — a figure quoted without knowing your circumstances would be a guess dressed as analysis. Ask us and we will work through it with your numbers.

Compliance risk

With a subsidiary, you are the employer. Every statutory obligation is yours, every filing deadline is yours, and every error is yours to remediate. That is not a criticism of the model — it is what owning an entity means.

With an EOR, the legal employment sits with us. We are the registered employer, our registrations are the ones filed against, and the compliance obligation is ours to meet. Your protection is what we give you alongside it: filing proofs and payroll registers every cycle, so compliance is something you verify rather than something you are assured of.

There is a version of this risk that is easy to underestimate. India's four Labour Codes came into force on 21 November 2025, replacing 29 laws and changing the wage base that statutory contributions are computed on. Employers who had structured salaries under the old definitions had to rebuild them. A subsidiary owner carried that transition themselves. An EOR client did not. Regulatory change is not a one-off event, and it is the recurring version of this cost that is easiest to leave out of a spreadsheet.

What you give up with an EOR

Two things, stated plainly.

You do not own the employment relationship in law. Your team works under your direction, on your projects and tools, and IP and confidentiality assign to you through the agreement and matching employee undertakings. But the contract is with us. Some companies have a strategic or investor reason to require direct employment, and that is a legitimate reason to incorporate.

You are dependent on a provider. That dependency should be examined rather than assumed away. Ours is bounded by contract: the agreement gives you a transition right, employees can move to another EOR or to your own entity with full handover of employment records, payroll registers and statutory filings — and those records are shared with you monthly anyway, so you always hold a current copy. Employee dues sit with government bodies and a regulated insurer, not on our books.

Ask any EOR those two questions before signing. If the answers are vague, that is the answer.

The sequence most companies actually follow

In practice the choice is rarely permanent, and framing it as either/or overstates it.

The common pattern is to start with an EOR — because the first hire is needed now and the size of the team is not yet known — and to incorporate later, once the operation has proven itself and the headcount justifies the fixed cost. We support that transition explicitly: we advise on incorporation and move employees from our EOR to your new entity, with the records that go with them.

Deciding to use an EOR is not deciding against ever having a subsidiary. It is deciding not to have one yet.

How to choose

• Hiring one to twenty people, soon, with uncertainty about the long term? The EOR route is usually the right answer.
• Committed to India, with a headcount plan that justifies fixed overhead? Incorporate, and get the salary structures right on the new Codes from day one.
• Not sure? Start with an EOR and revisit at the point the numbers change. It is the reversible option, and the reversible option is worth something when the plan is uncertain.

Our Employer of Record service sets out exactly what the model covers, and how pricing works explains how we quote it.

• EOR vs entity India
• subsidiary India
• market entry