Hiring from India at a startup: employer of record, contractors, your own entity, and how to set pay

Your best candidate lives in India and you have no legal entity there. You have three ways to employ them, and the right one depends on how many people you'll have in the country and how long they'll stay. (The same logic applies anywhere; the specifics below are India's.)

Option 1: contractor

They invoice you monthly; you pay it; they handle their own tax. Setup takes an afternoon. Right for genuine project work, short engagements, and people who run their own business with other clients.

Wrong — and increasingly risky — for a full-time person who works your hours, uses your tools, reports to your manager and has no other clients. Most jurisdictions call that person an employee regardless of the contract, and the consequences land on the company: back taxes, social contributions, penalties, and in some countries (Germany, the Netherlands, the UK under IR35, Brazil, Spain) enforcement is active. A misclassified contractor is also a diligence finding at your next fundraise or acquisition.

Rule of thumb: contractor for under six months or under 60% of a full-time load. Beyond that, one of the options below. Note for India: a full-time contractor invoicing you from India is common, but they lose provident fund, gratuity and statutory leave, and candidates increasingly know it — offering an EOR contract instead is a hiring advantage, not just a compliance one.

Option 2: employer of record (EOR)

A provider — Deel, Remote, Oyster, Papaya Global, Rippling, Multiplier, among others — has entities in dozens of countries. They employ your hire on a compliant local contract and lease them to you. You pay salary plus a fee, typically a few hundred dollars per person per month. Setup takes days. Your hire gets statutory benefits, pension contributions, leave, and proper termination protection.

This is the default for startups with one to five people in India — every major provider has an Indian entity and the monthly fee is a small fraction of the salary. Things to get right:

• Equity. Your option grant must be to the person, not to the EOR entity, and your plan must permit grants to non-employees or to EOR employees; check with counsel before granting.
• IP assignment. The EOR contract should assign work product to you, not to the provider. Read that clause.
• Termination. Local law governs notice and severance, not your home country's norms. Budget for it.
• Provider risk. Ask what happens to your employees if the provider fails or you stop paying it.

Option 3: your own entity

Incorporate a local subsidiary, register for payroll and tax, hire directly. In India that means a private limited company, PF and ESI registration, and an accountant — a few months of setup and ongoing compliance; it makes sense at roughly five or more people, or when you want the GCC-style engineering hub that many US and European startups eventually build in Bengaluru or Hyderabad. Many startups open an entity in a second hub (a US Delaware corporation for a European startup, a UK or Indian subsidiary for a US one) and use an EOR everywhere else.

Setting pay across countries

Decide the model before the first international offer, because you cannot easily change it later without someone being upset.

• One rate everywhere is simple, fair-feeling and expensive; it makes you uncompetitive in your own headquarters market if the rate is set low, and overpays elsewhere if set high.
• Bands by region — say three or four tiers — is what most funded startups do. Publish the tiers internally.
• Local market rate is cheapest and hardest to administer; it also creates resentment when two people doing the same job compare notes, which they will.

Whichever you choose, state which currency you pay in and how you handle exchange-rate movement. Paying in rupees through the EOR is simplest for the employee. For calibration: senior engineers in India at Western-funded startups currently see roughly ₹50 L–₹1.5 Cr on India bands; quote a range in your posting and the board shows it with a rupee equivalent.

Time zones and how you actually work

Hiring across more than about four hours of offset forces you to be an asynchronous company: decisions in documents, recorded demos, written proposals, and meetings as the exception. If your team runs on standups and Slack replies within minutes, hire within a band of overlap first and go wider only when the written habits are real. Tell candidates the core hours in the posting — it saves both sides.

What to put in the posting

Which countries you can employ in (or "anywhere we can use an EOR"), whether the contract will be employment or contractor, the currency and range, core hours in a named time zone, and who buys the laptop. Postings that leave these out attract hundreds of applicants you can't use and lose the ones you could.

The costly mistakes, in order of frequency

1. Long-term contractors who are employees in substance.
2. Equity granted in a way the local tax system punishes, or not granted at all to international staff.
3. Terminating on home-country notice in a country that requires months.
4. Pay bands decided per negotiation rather than per policy.
5. Data-protection paperwork (GDPR transfers, in particular) left until a customer asks.

None of these is hard to avoid at hire number one. All of them are hard to fix at hire number thirty.