EOR vs Indian Subsidiary: ‘Which Is Better for Your First 10 Employees?’

Hiring your first employees in India can look straightforward. Then practical questions emerge about incorporation, hiring speed, payroll and compliance.

For a foreign business hiring its first 10 people, the choice often comes down to using an Employer of Record (EOR) or establishing an Indian subsidiary.

The right answer depends on hiring speed, long-term plans and the infrastructure the company wants in India.

The decision matters even more now that India’s four Labour Codes have been in force since 21 November 2025, creating a more consolidated employment framework.

EOR: A Faster Way to Start

An EOR allows a foreign company to employ workers in India without immediately establishing its own Indian entity. The EOR handles the local employment relationship, while the client generally manages the employee’s daily responsibilities and performance.

An EOR can typically support:

• Employment contracts and onboarding
• Payroll processing
• Statutory deductions and contributions
• Leave and employee records
• Local employment compliance
• Employee offboarding

A US technology company hiring five engineers may not want to spend months building corporate infrastructure before employees begin working.

An EOR can provide a bridge between “We want Indian talent” and “We are ready to operate an Indian entity.”

Indian Subsidiary: Building Your Own Presence

An Indian subsidiary creates a separate legal entity through which the foreign parent can conduct its Indian operations.

It offers direct control, allowing the subsidiary to employ workers, enter contracts and develop a local operation.

But incorporation is only the beginning.

A subsidiary brings ongoing responsibilities involving corporate filings, accounting, taxation, payroll, employment compliance, banking, governance and foreign-investment reporting.

That makes a subsidiary more suitable when India is part of the company’s long-term operating strategy rather than a short-term experiment.

The First 10 Employees: What Should You Compare?

Headcount alone should not determine the answer. Consider these factors:

Speed to hire: An EOR generally offers a simpler starting route because the foreign company does not first need to establish its own Indian entity.

Control: A subsidiary provides direct control over the local employing entity and business infrastructure. An EOR provides convenience through an employment partner.

Cost structure: An EOR usually involves recurring fees per employee. A subsidiary involves incorporation and continuing administrative costs. The better financial option depends on workforce size and expected operating period.

Compliance responsibility: With an EOR, many employment administration responsibilities are handled locally. With a subsidiary, the foreign parent ultimately owns responsibility for the Indian operation.

Long-term plans: If the business expects to reach 50, 100 or more employees, open an office or build substantial Indian operations, establishing an entity may make strategic sense.

A Simple Decision Framework

Choose an EOR when:

• You need to hire quickly.
• You are testing the Indian market.
• Your initial team is small.
• You want to minimise administrative setup.
• You are uncertain about long-term headcount.

Consider a subsidiary when:

• India is a long-term strategic market.
• You expect substantial workforce growth.
• You need direct control over the local entity.
• You plan to establish offices or local operations.
• You expect commercial activity in India.

The Hybrid Approach

The choice does not have to be permanent. A foreign company can begin with an EOR and later transition to its own subsidiary when scale and strategy justify it.

However, any transition should be planned carefully. Employment transfers, payroll continuity, employee communication, benefits and statutory records all need attention.

What About the New Labour Code Environment?

India’s four Labour Codes consolidate central labour legislation around wages, industrial relations, social security, and occupational safety and working conditions. For foreign employers, the lesson is simple: choosing a workforce model does not eliminate the need for local compliance.

Whether employees sit in a subsidiary or are employed through an EOR, companies should ensure that employment terms, payroll and applicable statutory obligations are managed.

So, Which Is Better for the First 10?

For many foreign companies hiring their first 10 employees, an EOR can be the practical starting point because it reduces setup friction and lets the business focus on hiring and managing talent.

But if those first 10 employees are the beginning of a much larger Indian operation, a subsidiary may offer stronger long-term foundations.

The real question isn’t which model costs less—it’s what kind of Indian workforce we want to build over the next two years.

Start with the model that matches the business you have today, but make the decision with the business you expect to build tomorrow in mind.