Expert Spotlight: What To Know Before Using an EOR in India

Welcome to Employsome Expert Spotlight, a series where we put specific legal questions to employment lawyers who advise foreign companies in key Employer of Record (EOR) markets. No marketing language, no provider spin. Just independent legal perspective from practitioners who deal with these structures every day.

For this edition, we spoke with Anshul Prakash, Partner in the Employment, Labour and Benefits practice at Khaitan & Co in Mumbai. Anshul exclusively advises multinational companies on the full spectrum of Indian employment and labour law, from workforce structuring and outsourcing to industrial relations, workplace investigations, and representation before labour authorities. He leads the firm’s thought leadership in employment law and is recognised as a Litigation Star in Labour and Employment by Benchmark Litigation Asia Pacific 2024, ranked among the Top 10 Influential Employment Lawyers by Business Today, and a Leading Individual by Legal 500 Asia Pacific and Chambers & Partners Asia Pacific.

Khaitan & Co is one of India’s oldest and largest full-service law firms, with offices in Mumbai, Delhi, Bengaluru, and Kolkata. The firm’s Employment, Labour and Benefits practice, ranked Tier 1 across major league tables, regularly advises on the legal structuring of EOR engagements, permanent establishment risk, and the compliance realities foreign companies face when hiring in India.

His answers below are direct and lightly edited for clarity. If you are evaluating whether to use an EOR in India, this is the perspective your legal counsel would give you.

This interview was conducted in April 2026 and reflects the legal landscape at that time.

Anshul Prakash is a Partner in the Employment, Labour and Benefits practice at Khaitan & Co, Mumbai. B.A., LL.B. (Hons.) from the National University of Juridical Sciences (NUJS), Kolkata (2005). Recognised by Chambers & Partners Asia Pacific (Highly Recommended), Forbes India Legal Power List (Top Individual Lawyer, Labour & Employment), Benchmark Litigation Asia Pacific (Litigation Star), and Legal 500 Asia Pacific (Leading Individual). Named among India’s Top 10 Influential Employment Lawyers by Business Today and Top 50 Under 50 HR Leaders by the Human Resource Association of India. Leads the firm’s thought leadership in employment law through industry bodies including IBA, CII, ASSOCHAM, and IGCCI.

• Indian law does not recognise “Employer of Record” as a protected legal category. Authorities look past the contract to the operational reality, and if the foreign company exercises “pervasive control” over the employee, the EOR arrangement can be deemed a sham.
• Permanent establishment risk is the most underestimated exposure. If EOR-employed staff generate revenue or conclude contracts on behalf of the foreign entity, tax authorities can attribute profits to India and trigger corporate tax obligations.
• India’s consolidation of 29 central labour laws into 4 labour codes has modernised the regulatory environment, but state-level variations in leave, benefits, and Shops and Establishments compliance mean a “one-size-fits-all” national policy from your EOR provider is a red flag.
• The line between “technical guidance” and “administrative control” determines whether your EOR arrangement holds. Offer letters, leave approvals, performance reviews, and terminations should all flow through the EOR’s systems, not the foreign parent’s.
• Sub-contracting by the EOR to a local third-party is a structural red flag. If your provider outsources operations to local third parties rather than using its own Indian entity, accountability gaps can leave the foreign company exposed to unpaid social security contributions.

India’s labour landscape has changed materially in recent years. Global Capability Centers (GCCs) are expanding beyond traditional IT into R&D, pharmaceuticals, and core business functions. Remote work has decentralised the talent map. And the long-anticipated consolidation of India’s labour codes is reshaping the regulatory environment. We asked Anshul how these shifts are changing the calculus for foreign companies hiring in India.

“India is transitioning from a cost-efficient hub to a strategic value center as GCCs are now expanding beyond IT sector and moving into other sectors like R&D, and pharmaceuticals. These centers now function as global innovation hubs, where foreign companies integrate Indian talent into their core leadership and intellectual property pipelines. This shift means the workforce is now viewed as a strategic asset rather than back-office resources.

Further, even remote work has decentralized the hiring landscape, allowing foreign firms to access high-calibre talent in all parts of the country requiring a physical presence. Many companies utilize the employer on record model to engage this talent rapidly, bypassing the need for immediate entity formation. This flexibility enables a ‘talent-first’ strategy, where companies can scale diverse teams across the country with minimal local infrastructure.

Separately, the consolidation of 29 central labour laws into 4 labour codes has modernized the regulatory environment through a digital-first approach to registrations and reporting. By replacing fragmented, manual processes with centralized online portals, the government has significantly lowered the administrative barrier for foreign companies. The government has also pivoted from a prosecution-heavy framework to a facilitation-based model that prioritizes the ‘ease of doing business’. Under this new regime, employers are often granted an opportunity to rectify minor non-compliances before facing penalties or litigation.”

Anshul Prakash, Partner, Khaitan & Co

EOR has become the default entry point for foreign companies hiring in India without a local entity. We asked Anshul what’s actually driving that adoption from the perspective of a firm that advises multinationals on the legal structuring of these engagements.

“The primary driver for the EOR model in India is the significant reduction in administrative friction associated with entering a new jurisdiction. Establishing a full legal presence requires navigating a multi-layered regulatory environment, including specialized corporate registrations, and the maintenance of physical infrastructure. By utilizing an EOR, foreign companies can bypass these preliminary hurdles, effectively treating the model to test market viability without the long-term commitments of a traditional setup.

Further, the model offers unparalleled speed-to-market, allowing multinational companies to onboard talent and commence local operations in a fraction of the time required for entity formation. This agility is crucial in high-growth sectors where the competition for talent is intense and delays in hiring can impact global project timelines.

Further, the EOR model shifts the responsibility of local compliances such as management of local payroll taxes and social security contributions to a specialized third party. By delegating these administrative responsibilities, foreign companies can focus their internal resources on strategic growth and core business objectives, while ensuring that the local workforce remains compliant with evolving standards.

Anshul Prakash, Partner, Khaitan & Co

One of the most common assumptions foreign companies make is that an EOR contract insulates them from Indian employment liability. We asked Anshul what the most persistent misconception is and why it matters.

The most persistent misconception is that an EOR provides a total ‘legal shield’ between the foreign parent and the local workforce. Indian law does not recognize ‘employer of record’ as a protected legal category, meaning authorities often look past the contract to the actual operational relationship. If a foreign company exercises ‘pervasive control’, i.e., handling daily supervision, shift hours, and performance reviews, the EOR may be deemed a mere ‘sham’. In such cases, the foreign entity may be declared as the direct beneficiary, making them directly liable for social security dues and other employee related obligations.

Beyond this, there is a significant permanent establishment risk. If individuals engaged through an EOR generate revenue or negotiate and conclude contracts on behalf of the foreign entity, tax authorities may argue the company has a ‘business presence’ in India. This exposure can trigger tax obligations on the foreign company’s profits attributable to its Indian operations. This risk is frequently overlooked by companies that treat the EOR as a purely administrative tool without considering the tax implications of the employees’ specific roles.

Indian courts and tax tribunals consistently prioritize the operational reality over contractual labels. If the day-to-day functions suggest that the foreign company is the de facto employer, the EOR agreement offers limited protection against regulatory reclassification. To mitigate this, companies must maintain a clear distinction between providing technical guidance and exercising administrative control.

Anshul Prakash, Partner, Khaitan & Co

We asked Anshul for anonymised examples of EOR arrangements in India that created unexpected compliance exposure. He shared two distinct failure patterns.

A common failure occurs when an EOR setup inadvertently creates a ‘permanent establishment’ for the foreign company. In one case, a foreign firm hired senior sales staff through an EOR but allowed them to negotiate and sign contracts on the parent company’s behalf. Tax authorities ruled that this created an undeclared business connection in India. As a result, a portion of the foreign company’s global revenue was taxed in India, which cost far more than the savings of using an EOR.

Separately, operational mistakes also create risks. For example, a foreign company faced a wrongful termination claim where the employee sued both the EOR and the foreign parent. It turned out that the foreign managers, not the EOR, had directly managed the performance reviews and set the termination terms. Because the EOR was just a ‘payroll conduit’ and didn’t handle the HR process, authorities ruled the foreign company was the actual employer and forced them to appear in court, despite having no legal office in India.

The root cause of these issues is almost always a lack of clear boundaries. While the contracts might look good on paper, Indian law focuses on the ‘substance’ of how the team is managed day-to-day. If the foreign entity exercises too much direct control over hiring, firing, or revenue-generating activities, they lose the legal protection the EOR is supposed to provide.

Anshul Prakash, Partner, Khaitan & Co

We asked Anshul what structural or legal red flags companies should watch for when selecting an EOR provider for India.

“A major red flag arises when an EOR sub-contracts operations to local third parties instead of using its own Indian entity, creating significant gaps in accountability. If a local partner fails to remit mandatory social security contributions, the legal and financial liability may flow back to the foreign company. This multi-layered structure often obscures compliance, making it difficult for the foreign entity to verify that all statutory obligations are being met.

To mitigate this risk, it is essential to confirm that the EOR holds its own state-specific registrations and licenses, under the applicable labour laws. Further, companies should demand entity-specific payment receipts to ensure a clear and direct compliance trail.”

Anshul Prakash, Partner, Khaitan & Co

Beyond the basic compliance requirements, we asked Anshul what distinguishes a genuinely strong EOR provider in India from one that simply processes payroll.

“A sophisticated EOR provider moves beyond basic payroll to act as a local regulatory lookout. While an adequate provider may only provide monthly invoices, a high-quality partner offers transparent compliance dashboards with sufficient evidence and entity-specific payment records.

Beyond processing payments, a top-tier provider manages the practical realities of a distributed workforce, including the complexities of managing employees across different states. This is because leave entitlements and encashment rules vary based on state-level statutes, hence, a good provider tailors these policies by location rather than applying a generic national policy.

Finally, the best providers prioritize the employee experience to ensure retention among remote staff, preventing them from feeling disconnected from the foreign parent company. This involves sophisticated background verification processes and clear settlement procedures that are in adherence with the applicable legal timelines. Companies should evaluate a provider based on their internal audit frequency and their ability to integrate the foreign parent’s culture into local compliance frameworks.”

Anshul Prakash, Partner, Khaitan & Co

We asked Anshul how he sees the EOR model in India evolving and what regulatory or market trends companies should prepare for.

“The Indian market is increasingly adopting a strategic transition model where the EOR serves as an effective bridge toward long-term growth. As the government digitizes compliance through unified portals, this transparency helps formalise the sector and provides a clear roadmap for international expansion.

EORs are now evolving into sophisticated partners that empower foreign companies to scale efficiently, offering a seamless path to establishing a full local subsidiary once a team reaches its optimal size. The implementation of the labour codes represents a modernizing step for the Indian workforce, offering clearer definitions and expanded social security benefits.

As the sector matures, the potential for dedicated regulatory frameworks or licensing will only add further credibility and security to the model, making India an even more attractive destination for global talent. By viewing the EOR as a strategic entity management partner, companies can successfully integrate into the Indian ecosystem, turning a temporary setup into a foundation for long-term success.”

Anshul Prakash, Partner, Khaitan & Co

We asked Anshul for the single most important thing a founder or HR director should know before signing their first EOR contract for India.

“Ultimately, my primary recommendation is to treat an EOR engagement with the same level of professional diligence as any major vendor partnership. It is highly advisable to seek independent legal counsel before signing any agreement, as standard contracts are typically drafted to prioritize the provider’s protection. These documents often include broad clauses that shift significant liability to the client while remaining vague about the provider’s specific compliance duties.

In addition to legal oversight, it is essential to maintain a clear operational boundary in your day-to-day management. Specifically, you should ensure that all formal administrative actions, such as issuing offer letters, approving leave, and conducting performance reviews, are processed through the EOR’s internal systems. Furthermore, it is important to avoid assigning titles that might suggest these individuals are corporate officers of the foreign parent company.

By ensuring that the EOR remains responsible for administrative management while you focus on technical direction, you significantly strengthen your position against potential liabilities in India.”

Anshul Prakash, Partner, Khaitan & Co

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About Employsome Expert Spotlight: This series features independent legal commentary from employment lawyers who advise foreign companies in key EOR markets. Experts are not compensated and editorial control remains with Employsome. The views expressed are those of the individual lawyer and do not constitute legal advice. For country-specific legal guidance, consult qualified local counsel.

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