TL;DR, Hiring in India
- Fully-loaded employer cost: ~13–15% on top of gross (excl. gratuity)
- PF (Provident Fund) is the largest line: 12% of basic salary up to ₹15,000
- Gratuity of 15 days' salary per year of service vests at 5 years
- 13th-month bonus is not mandatory but expected at 8.33–20% under Payment of Bonus Act
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Statutory employer costs in India
In India, employers add roughly 13–15% to gross salary in mandatory contributions: 12% Provident Fund (capped at ₹15,000 basic monthly), 3.25% ESI for employees earning under ₹21,000/month, 0.5% EDLI insurance, and state professional tax (₹200/month max). Mandatory gratuity of 15 days' salary per year of service vests after 5 years of continuous employment.
| Contribution | Employer rate | Notes |
|---|---|---|
| Provident Fund (PF), employer | 12% | On basic salary capped at ₹15,000/mo; many employers contribute on full basic |
| Employee State Insurance (ESI) | 3.25% | Only for employees earning ≤ ₹21,000/mo |
| EDLI (employees' deposit-linked insurance) | 0.5% | On PF wages capped at ₹15,000 |
| Professional tax (state) | ₹200/mo max | Varies by state, Maharashtra, Karnataka, West Bengal levy it; Delhi, Haryana do not |
| Labour welfare fund | ₹10–75/mo | State-specific, employer + employee shares |
Mandatory employee benefits
Beyond statutory contributions, India law requires the following benefits the employer must fund.
- Gratuity
- 15 days' last-drawn salary × years of service, vesting after 5 years. Capped at ₹20 lakh tax-free.
- Leave entitlement
- Minimum 12 earned leaves + 12 casual/sick leaves per year (state-specific; Karnataka Shops & Establishments Act is the common reference).
- Maternity leave
- 26 weeks fully paid (Maternity Benefit Act, 2017) for employers with 10+ staff.
- Bonus (Payment of Bonus Act)
- 8.33% minimum, 20% maximum of annual basic + DA, for employees earning ≤ ₹21,000/mo.
Termination, notice and severance
Probation
Customary 3–6 months; not statutorily defined but enforceable if in the contract.
Notice period
30–90 days, set by the employment contract (most companies use 60 or 90 days). Industrial Disputes Act applies to 'workmen', 1 month notice + 15 days' salary per year of service for layoffs.
Severance
For non-workmen (managers, executives): contractual only, typically notice pay. For workmen with 1+ years: 15 days' average pay per completed year of service under the Industrial Disputes Act.
Common compliance pitfalls
- PF is calculated on 'basic salary,' which most employers set at ~40–50% of CTC. A high-basic structure inflates PF cost; a low-basic one risks compliance challenge.
- Gratuity accrues from day 1 but vests at 5 years. Under Ind AS 19 you must accrue gratuity provisions on the balance sheet even before vesting.
- Equity grants to Indian employees require RBI/FEMA reporting. Most EORs don't handle this, your hire's RSU vesting is your problem, not the EOR's.
- State-specific Shops & Establishments Act registration matters. Karnataka vs Maharashtra vs Tamil Nadu have meaningfully different leave, working hours, and overtime rules.
Frequently asked questions
EOR platform fees for India range from $199–$699 per employee per month. On top, employer-side contributions (EPF 12% + EDLI 0.5% + EPF admin 0.5% + ESI 3.25% for wages ≤ ₹21k) add roughly 13–15% to gross salary, plus accrued gratuity (~4.8% of basic salary).
Provident Fund (PF) is mandatory for employees earning basic salary up to ₹15,000/month if the employer has 20+ staff. Above ₹15,000 basic, PF is optional but most employers contribute on either the ₹15,000 cap or the full basic salary as a retention benefit.
Gratuity is a lump-sum benefit of 15 days' last-drawn salary per completed year of service, paid on exit (resignation, retirement, or death). It vests after 5 years of continuous employment with the same employer. Maximum tax-free gratuity is ₹20 lakh.
Yes, via an EOR or a Liaison Office. EOR is faster (5–10 days vs 3–6 months for a subsidiary) and avoids permanent establishment risk for short-term hires. For a long-term India team of 20+ engineers, your own private limited company (Pvt Ltd) is usually cheaper.
Equity is paid by the parent (foreign) company, not the EOR. Indian employees must declare RSU/ESOP grants under FEMA and file Form ESOP-2 on vesting. Tax is due on the spread at vesting (perquisite) and at sale (capital gains). Most EORs do not handle this, coordinate with an India tax advisor.
Sources
Statutory rates and rules verified against the following authorities. We update this page when rates change.