An Employer of Record (EOR) legally employs your team in India on your behalf, so you can hire within weeks without an entity. A subsidiary gives you direct control, a local contracting and banking vehicle and a base for long-term growth. Many US companies start with an EOR to test the market and convert to a subsidiary once the team or investment grows.
← Back to the complete guide: How to Set Up a Subsidiary in India from the USA
Key facts
| EOR | The provider is the legal employer; you direct the work; you pay employee cost plus a service fee |
|---|---|
| Subsidiary | Your own Indian company; you are the employer; incorporation typically takes 4 to 6 weeks from complete documents |
| Contracting with Indian customers | Possible through a subsidiary; not through an EOR |
| Compliance | EOR handles payroll and employment filings; a subsidiary carries full company, tax and payroll compliance |
| Tax presence in India | An EOR does not by itself remove permanent establishment risk for the US company |
| Typical path | Start with an EOR, convert to a subsidiary as the team and investment grow |
EOR and subsidiary side by side
| Employer of Record | Wholly owned subsidiary | |
|---|---|---|
| Time to first hire | Weeks | After incorporation (4 to 6 weeks from complete documents), the bank account and payroll registrations |
| Legal employer | The EOR | Your Indian company |
| Payroll and statutory filings | Handled by the EOR | Handled by the company, usually with an adviser |
| Customer contracts, assets and IP in India | Not held by the EOR for you | Held by the subsidiary |
| Control over HR policy | Shared with the EOR's standard terms | Full |
| Setup effort | Low | Incorporation, FEMA reporting and ongoing company compliance |
| Best for | A small team, a trial period, speed | A larger team, long-term operations, direct contracting |
How an EOR works
- You choose the candidate and agree the role and pay.
- The EOR issues an Indian employment contract and becomes the employer on record.
- The EOR runs payroll, deducts Withholding Tax on salary, pays provident fund and other statutory dues and files the returns.
- You manage the employee's day-to-day work and pay the EOR the employee cost plus a service fee.
When an EOR is the right choice
- You want to start hiring within weeks, before an entity exists.
- You are testing the market with a handful of hires.
- You do not yet need to sign customer contracts or hold assets in India.
- You want to defer incorporation until the business case is clear.
When a subsidiary is the better choice
- You plan a larger team or a development center.
- You need to invoice Indian customers, hold assets or own IP locally.
- You want direct control over employment terms, benefits and culture.
- The service fee on a growing headcount makes your own entity cheaper to run.
There is no fixed headcount at which a subsidiary wins. It depends on salaries, growth plans and how much compliance you want to carry. We can compare the two options for your plan.
Moving from an EOR to your own subsidiary
- Incorporate the subsidiary and complete the registrations for provident fund, ESI and professional tax.
- Agree the transfer with each employee, including offer letters on equivalent terms.
- Carry over service history so that benefits such as gratuity are protected.
- Handle notice periods, provident fund transfers and final settlements with the EOR.
- Switch payroll to the subsidiary on a clean month-start date.
Plan the timing so there is no gap in employment. A good EOR contract states the conversion terms and any fee at the start.
What this means for a US parent
- An EOR is a way to employ people, not a way to avoid a taxable presence. If staff in India negotiate or conclude contracts for the US company, or work from a fixed place for it, the US company can be treated as having a permanent establishment. See tax treaty and PE risk.
- Make sure your EOR agreement covers IP assignment to your company, confidentiality, data protection and what happens on conversion.
Mistakes to avoid
- Staying on an EOR long after the team has grown, paying fees that exceed the cost of your own entity.
- Treating EOR staff as contractors of the US company, which blurs who the employer is.
- Letting EOR staff sign customer contracts without a permanent establishment review.
- Not agreeing IP assignment and conversion terms in the EOR contract.
See also: Expats on an EOR: social security for US expats in India.
How AU Corporate handles this
We provide Employer of Record and HR services and can convert your EOR team into your own subsidiary.
Related services: HR and payroll · India business setup
Official sources
Rules on this page can be verified at the primary sources: Ministry of Corporate Affairs, Reserve Bank of India, Income Tax Department and the GST portal.
Frequently asked questions
How quickly can a US company hire through an EOR?
Usually within weeks, because no company needs to be incorporated first. The timing depends on the EOR's onboarding and the candidate's notice period with their current employer.
Can an EOR team be converted into a subsidiary?
Yes. Employees agree to move to the new company, service history is carried over and payroll is switched on an agreed date. Planning the transfer avoids gaps in employment and benefits.
Does an EOR remove tax risk for the US company?
An Employer of Record does not remove tax risk for the US company. An EOR handles employment compliance, but a permanent establishment can still arise if staff in India conclude contracts or act as the company's fixed place of business.
Is an EOR cheaper than a subsidiary?
An EOR is usually cheaper than a subsidiary for a small team and a short period. As headcount grows, an own subsidiary can be cheaper, so both should be compared against the hiring plan.
What is an Employer of Record and how does it work?
An EOR is the legal employer of your India team. It issues the employment contracts, runs payroll, pays statutory dues and handles compliance, while you direct the day-to-day work. You pay a service fee on top of the employee cost.
Can EOR employees move into the subsidiary later?
EOR employees can move into the subsidiary later with planning. Employees must agree to the transfer, their service history and benefits such as gratuity and provident fund should carry over, and contracts and notice periods need to be handled, with timing planned so that there is no gap in employment.
Can a liaison office earn revenue?
A liaison office cannot earn revenue. It can only represent the parent and coordinate with Indian parties, cannot undertake commercial activity or earn income, and its costs are met by remittances from abroad.
Can a branch office be converted into a subsidiary later?
A business can be moved into a new Indian subsidiary, usually by transferring the activity and assets to the new company. The tax, FEMA and contract consequences should be planned in advance.
Related guides
Hiring and Payroll in India for US Companies: Contracts, PF, ESI and Gratuity
How US companies hire in India: employment contracts, provident fund, ESI, gratuity, professional tax, payroll steps and India's labour codes.
Read the guide →Incorporation Process for a US-Owned Indian Subsidiary, Step by Step
The eight steps to incorporate a wholly owned subsidiary in India from the USA: forms, order of steps, typical 4 to 6 week timeline and first 90 days.
Read the guide →Subsidiary vs. Branch vs. Liaison Office vs. LLP: Which Is Right for a US Company in India?
Compare the four ways a US company can enter India: wholly owned subsidiary, branch office, liaison office and LLP. Activities, approvals, tax and control.
Read the guide →The India-US Tax Treaty and Permanent Establishment Risk for US Companies
How the India-US tax treaty applies to payments to your US parent: Withholding Tax rates, Tax Residency Certificate, Form 41 and permanent establishment risk.
Read the guide →Social Security for US Expats in India: Is There a US-India Totalization Agreement?
Is there a US-India social security agreement? What applies to a US expat in India: provident fund, US FICA, double coverage and planning.
Read the guide →Sources
Last updated 14 October 2026. General information only, not legal or tax advice. Indian rules change often; confirm current requirements before acting.