‘Can a Foreign Company Put an Indian Employee on Payroll Without an Indian Subsidiary???’

For a foreign company, hiring an employee in India can start with a simple business decision: “We found the right person; let’s make an offer.”

The complexity begins when the company asks a more practical question:

“Can we legally employ someone in India without creating an Indian subsidiary?”

The good news is that a foreign company does not necessarily have to establish its own Indian subsidiary before hiring. An Employer of Record (EOR) can provide a local employment structure, allowing the company to hire while the EOR handles the legal employment and payroll responsibilities. Current 2026 guidance from multiple India-focused providers and recent reporting reflects this model as a common route for early-stage international hiring.

Can a Foreign Company Directly Put Someone on Indian Payroll?

Not in the same way as an Indian employer with a registered local entity.

A foreign company without an Indian legal presence generally cannot simply create its own Indian payroll, deduct TDS, make statutory contributions, and issue local employment documentation as though it were an Indian employer.

This is where the distinction between direct employment and EOR employment becomes important.

With an EOR:

• The EOR becomes the legal employer.
• The employee receives an India-compliant employment contract.
• Payroll is processed locally.
• Applicable statutory deductions and contributions are managed.
• The foreign company directs the employee’s day-to-day work.
• The foreign company pays the EOR for the employment costs and services.

In simple terms, the company manages the employee’s work, while the EOR manages the employment infrastructure.

What Happens to the Employee’s Salary?

The employee can be placed on Indian payroll through the EOR.

The EOR typically calculates salary, applicable deductions, employer contributions, and other payroll components before paying the employee in India.

Depending on the employee’s circumstances, the payroll process may involve:

• TDS.
• EPF.
• ESI, where applicable.
• Professional Tax, where applicable.
• Gratuity obligations.
• Statutory benefits.
• Payslips and year-end tax documentation.

The exact obligations depend on the employee’s compensation, location, eligibility, and applicable regulations.

EOR vs Indian Subsidiary: What Should Foreign Companies Choose?

For one employee, setting up an Indian subsidiary can feel like building an entire office around a single desk.

An EOR can allow the company to test its India hiring strategy before taking on the cost and administration of its own entity.

This can be useful when:

• The company is hiring its first employee in India.
• India is still a new market.
• The company wants to test local talent before scaling.
• Only a small team is initially required.
• The business wants to avoid immediate entity-management responsibilities.

Recent 2026 sources continue to describe EOR as a practical route for foreign companies making early India hires without establishing their own entity.

What About Hiring the Employee as a Contractor?

This is where companies need to be careful.

A contractor arrangement can be appropriate when the individual genuinely operates as an independent service provider.

But simply calling a full-time employee a “contractor” does not necessarily make the relationship one.

If the person works exclusively for the company, follows its working arrangements, receives regular compensation, and operates like an employee, the actual relationship should be assessed carefully.

The cost of getting classification wrong can extend beyond payroll adjustments and may create tax, employment, and compliance issues.

Does an EOR Eliminate Every Tax Risk?

No.

An EOR can solve the local employment and payroll structure, but it does not automatically eliminate every tax consideration for the foreign company.

The employee’s role and activities can still matter when assessing potential permanent establishment (PE) or other corporate-tax exposure.

For example, companies should carefully evaluate employees involved in activities such as sales, contract negotiation, or business development.

The EOR arrangement should therefore be reviewed alongside appropriate Indian tax and legal advice rather than treated as a universal solution to every cross-border tax question.

How Does the Process Work?

For a foreign company hiring its first Indian employee, the process can look like this:

• Select the employee and agree on compensation.
• Choose an appropriate EOR.
• Sign the commercial agreement with the EOR.
• Provide employee and role information.
• EOR prepares the local employment documentation.
• Employee completes onboarding and statutory requirements.
• EOR adds the employee to Indian payroll.
• Employee receives salary and applicable employment benefits.

The timeline varies by provider and documentation, but some India-focused EORs currently advertise onboarding within a few days.

When Should a Company Consider Its Own Indian Entity?

An EOR does not have to be a permanent arrangement.

As the India workforce grows, the economics and operational requirements can change.

A company may eventually benefit from establishing its own entity when it has:

• A larger local workforce.
• Long-term India operations.
• Significant local business activity.
• Dedicated management in India.
• Local customers or commercial operations.
• A need for greater control over its Indian infrastructure.

The important point is that the first employee does not have to determine the final structure of the entire India operation.

The Practical Answer

So, can a foreign company put an Indian employee on payroll without an Indian subsidiary?

Yes, but generally not by directly operating its own Indian payroll without an appropriate local employment structure.

For companies without an Indian entity, an EOR can provide that structure by becoming the legal employer and managing payroll, statutory obligations, and employment administration while the foreign company retains operational control of the employee’s work.

That makes the EOR model particularly useful for companies that want to answer “Can we hire in India?” before committing to “Should we build an Indian entity?”