Quick answer

UK companies can hire in India through four main routes:

1. Employer of Record / EOR — fastest route where a local provider employs the worker and handles Indian payroll and employment compliance.
2. PEO / payroll outsourcing — useful once you already have an Indian entity or legal employer and need payroll/admin support.
3. Independent contractors — flexible, but risky if the person works like an employee.
4. Own Indian entity — best for long-term scale, commercial presence, local contracting or building a larger team.

For most UK SMEs testing India with 1–10 hires, an EOR is usually the cleanest short-term option. For a permanent India operation, a private limited company or LLP is usually more sustainable.

Why UK companies hire in India

India is attractive for UK companies because of:

• large English-speaking talent pools;
• strong software, finance, operations, analytics and customer-support capability;
• time-zone overlap with the UK;
• competitive employment cost compared with the UK;
• ability to scale teams across major hubs such as Bengaluru, Hyderabad, Pune, Mumbai, Delhi NCR, Chennai and Ahmedabad.

But India is not a “just pay someone monthly” market. Payroll, labour law, tax withholding, social security, state registrations and permanent establishment risk all need planning.

Route 1: India Employer of Record / EOR

An Employer of Record is a local company that legally employs your India-based worker and makes them available to your UK business under a service agreement.

The EOR normally handles:

• Indian employment contract;
• monthly salary processing;
• income-tax withholding;
• provident fund and applicable social security;
• payslips;
• leave records;
• statutory filings;
• onboarding and termination administration.

When EOR works best

Use an India EOR when:

• you are hiring your first 1–10 people in India;
• you want to start quickly without incorporating;
• the role is operational, technical or support-focused;
• you are testing the India market;
• you do not need the employee to sign local customer contracts or represent you commercially.

EOR limitations

EOR is not a magic shield. You still need to manage:

• permanent establishment risk if the India person negotiates or concludes contracts for the UK company;
• IP ownership and confidentiality;
• data protection;
• supervision and working arrangements;
• commercial substance if the Indian team becomes core to revenue generation.

If the worker acts like a local branch, the UK company may still create India tax exposure even if payroll is handled by an EOR.

Route 2: India PEO or payroll outsourcing

A PEO is often used loosely in India. In practice, it may mean:

• payroll outsourcing;
• HR administration support;
• staffing-company employment;
• co-employment-style support;
• compliance management for an Indian entity.

Unlike some other jurisdictions, “PEO” is not a single statutory category in India. The legal structure matters.

When PEO works best

Use PEO/payroll outsourcing when:

• you already have an Indian company, LLP, branch or other employer;
• you want someone to run payroll and filings;
• you need HR compliance but not legal employment;
• you are growing beyond the EOR phase.

Route 3: Hiring Indian independent contractors

Contractors can work for UK companies, but the arrangement must be genuine.

A safer contractor arrangement usually has:

• project-based scope;
• freedom over method and timing;
• ability to serve other clients;
• no employee-style benefits;
• invoice-based payment;
• contractor bearing some business risk;
• clear IP assignment;
• confidentiality and data terms;
• tax/GST documentation where applicable.

Red flags for contractor misclassification

Risk increases where the person:

• works full-time only for the UK company;
• reports to a manager like an employee;
• has fixed hours and leave approval;
• uses company email, tools and hierarchy;
• is paid a fixed monthly “salary”;
• cannot subcontract or work for others;
• is integrated into the team as permanent staff;
• performs core business functions indefinitely.

If challenged, Indian authorities and courts generally look at substance over labels.

Route 4: Setting up your own Indian entity

For longer-term hiring, local sales, local contracting or bigger teams, a UK company may set up an Indian presence.

Common options include:

Private limited company

Best for most operating businesses.

Pros:

• recognised structure;
• limited liability;
• can employ directly;
• can contract with Indian customers;
• clearer long-term compliance framework.

Cons:

• incorporation and annual compliance;
• statutory audit and tax filings;
• transfer pricing if transacting with UK parent;
• board, secretarial and accounting obligations.

LLP

Useful for certain professional or services structures, but not always ideal for venture-backed or subsidiary-style operations.

Branch office / liaison office / project office

These require careful FEMA/RBI analysis. A liaison office is limited in activity and cannot generally undertake commercial operations. Branch/project offices are more regulated and purpose-specific.

UK HQ considerations before hiring in India

UK companies should check:

1. UK payroll and tax

HMRC guidance says UK employers generally continue to consider PAYE obligations for employees working abroad, depending on facts and duration. Employees working overseas may need forms or tax-code adjustments, and local tax authorities may also require withholding. Source: https://www.gov.uk/guidance/paying-employees-working-abroad

2. National Insurance

India is not listed in HMRC’s common social security agreement list in the same way as countries such as the US, Canada or Japan. UK NIC treatment depends on posting status and facts.

3. UK employment status / IR35 thinking

Even when hiring overseas contractors, UK businesses should still document employment status analysis. HMRC’s CEST tool is UK-focused, but the control/substitution/mutuality framework is useful as a governance check. Source: https://www.gov.uk/guidance/check-employment-status-for-tax

4. Permanent establishment risk in India

The UK–India tax treaty defines permanent establishment broadly. It can include an office, place of management, branch, sales outlet, service PE, or dependent agent PE.

Under Article 5 of the UK–India treaty, a PE can arise where:

• there is a fixed place of business in India;
• services are furnished in India through employees or personnel for more than specified treaty thresholds;
• a person in India habitually negotiates and enters into contracts;
• a person habitually secures orders wholly or almost wholly for the foreign enterprise.

Article 7 then allows India to tax profits attributable to the PE. Source: https://www.gov.uk/government/publications/india-tax-treaties

5. Transfer pricing

If a UK parent has an Indian subsidiary providing services, intercompany pricing should be documented. India has detailed transfer-pricing rules, and service entities normally need appropriate benchmarking.

6. IP and data protection

Employment and contractor agreements should clearly cover:

• IP assignment;
• moral rights/waivers where relevant;
• confidentiality;
• source-code ownership;
• customer-data processing;
• device/security standards;
• post-termination access revocation.

India’s Digital Personal Data Protection Act framework should be considered for personal data handling. Source: https://www.meity.gov.in/data-protection-framework

India payroll basics

India payroll normally involves:

• gross salary structuring;
• income-tax withholding / TDS;
• employee and employer provident fund where applicable;
• employee state insurance where applicable;
• professional tax in certain states;
• labour welfare fund in certain states;
• payslips;
• leave records;
• annual tax forms;
• year-end reconciliation.

Provident Fund / EPF

Employees’ Provident Fund is India’s key retirement/social security scheme. Applicability depends on establishment coverage, employee count, wage thresholds and voluntary coverage rules. Source: https://www.epfindia.gov.in/

Employee State Insurance / ESI

ESI is a social security and health insurance scheme for covered employees, subject to wage and establishment thresholds. Source: https://www.esic.gov.in/

Income tax withholding

Salaries paid to employees in India generally require employer tax withholding and payroll reporting. Source: https://www.incometax.gov.in/

India employment compliance checklist

Indian employment compliance is a mix of central laws, state-specific rules and sector-specific requirements.

A UK company hiring in India should check:

Employment contract

Include:

• designation and role;
• salary structure;
• work location or remote-work terms;
• probation;
• working hours;
• leave;
• confidentiality;
• IP assignment;
• termination;
• notice period;
• restrictive covenants, drafted carefully;
• dispute jurisdiction and governing law.

Working hours and overtime

Rules vary by state and establishment type. Shops and Establishments Acts are typically state-level.

Leave and holidays

Leave entitlement, public holidays and records vary by state.

Maternity benefit

India provides maternity protections under the Maternity Benefit Act and related rules. Employers should check eligibility, leave duration, nursing breaks, crèche requirements and non-discrimination duties.

Gratuity

Gratuity can apply after qualifying service under the Payment of Gratuity Act, subject to coverage and eligibility.

POSH compliance

The Sexual Harassment of Women at Workplace law requires covered employers to implement anti-harassment mechanisms, including an Internal Committee where thresholds are met. Source: https://wcd.nic.in/sites/default/files/Handbook%20on%20Sexual%20Harassment%20of%20Women%20at%20Workplace.pdf

Shops and Establishments registration

Most office-based employers need state registration under the applicable Shops and Establishments law.

Labour Codes

India has consolidated central labour laws into four Labour Codes covering wages, industrial relations, social security and occupational safety/working conditions. Implementation and state rules should be checked before launch. Source: https://labour.gov.in/labour-codes

Permanent establishment risk: practical examples

Lower-risk India hire

A software engineer in India:

• works remotely;
• reports to UK product team;
• does not meet customers;
• does not negotiate contracts;
• does not sign or conclude deals;
• has no India office held out as UK company office.

Risk is lower, though not zero.

Higher-risk India hire

A country manager in India:

• meets prospects;
• negotiates pricing;
• secures orders;
• represents the UK company locally;
• uses a coworking office as the India base;
• has authority to close deals.

This can create dependent agent PE or fixed-place PE risk.

Service PE risk

Under the UK–India treaty, furnishing services in India through employees or other personnel beyond treaty thresholds can create PE risk. This matters for UK companies sending staff to India or building India delivery teams that serve Indian customers or group entities.

Common UK-to-India hiring mistakes

1. Calling someone a contractor when they work like an employee.
2. Ignoring Indian payroll because payment is made from the UK.
3. Letting India-based staff negotiate customer contracts.
4. Using EOR as a permanent structure for a large local business.
5. Not assigning IP properly.
6. Using UK employment templates without Indian localisation.
7. Forgetting state-level Shops and Establishments rules.
8. Missing PF, ESI, professional tax or labour welfare registrations.
9. Not checking transfer pricing once an Indian subsidiary exists.
10. Treating India as one compliance regime instead of central + state law.

Decision framework

Recommended launch plan for UK SMEs

Phase 1: Validate

• Define role and reporting lines.
• Decide employee vs contractor.
• Check PE risk.
• Choose EOR if no entity.
• Localise contract and IP clauses.

Phase 2: Hire

• Set salary structure.
• Confirm PF/ESI/professional tax position.
• Complete onboarding documents.
• Set security and data access controls.
• Document management authority limits.

Phase 3: Scale

• Review after 3–6 hires.
• Assess India entity trigger.
• Prepare transfer-pricing model.
• Build HR handbook.
• Implement state-specific registrations.
• Move from EOR to subsidiary payroll if needed.

FAQs

Can a UK company employ someone directly in India?

Practically, direct employment without an Indian payroll setup can create tax, payroll and compliance issues. Most UK companies use an EOR, contractor model or Indian entity.

Is an EOR legal in India?

EOR-style arrangements are commonly used, but the exact legal structure matters. The provider should be the actual employer on paper and in payroll substance, and the UK company should still manage PE, IP, confidentiality and supervision risks.

Is PEO the same as EOR in India?

Not necessarily. EOR usually means the provider is the legal employer. PEO often means payroll/HR outsourcing for an existing employer. In India, these terms are used inconsistently, so review the contract carefully.

Can I hire Indian workers as contractors?

Yes, but only where the arrangement is genuinely independent. Full-time, exclusive, manager-controlled contractors are higher risk.

Does hiring one employee in India create permanent establishment?

Not automatically. But PE risk rises if the person has a fixed place of business, negotiates or concludes contracts, habitually secures orders, or performs services in India beyond treaty thresholds.

Do Indian employees need PF and ESI?

It depends on establishment coverage, wage levels and applicable thresholds. EPF and ESI should be checked during payroll setup.

When should a UK company set up an Indian entity?

Consider an Indian entity when you have a long-term team, local revenue, local customer contracts, management presence, or more than a small test team.

Which Indian entity is best for UK companies?

For most operating subsidiaries, a private limited company is the standard choice. LLPs, branches and liaison offices can work in specific cases but need tax/FEMA review.

Sources

• UK–India tax treaties, GOV.UK: https://www.gov.uk/government/publications/india-tax-treaties
• 1993 UK–India Double Taxation Convention PDF: https://assets.publishing.service.gov.uk/media/5a750f1940f0b6397f35d57c/india-dtc_-_in_force.pdf
• HMRC employees working abroad: https://www.gov.uk/guidance/paying-employees-working-abroad
• HMRC Check Employment Status for Tax: https://www.gov.uk/guidance/check-employment-status-for-tax
• India Ministry of Labour — Labour Codes: https://labour.gov.in/labour-codes
• EPFO: https://www.epfindia.gov.in/
• ESIC: https://www.esic.gov.in/
• Income Tax Department India: https://www.incometax.gov.in/
• MCA company incorporation / SPICe+ services: https://www.mca.gov.in/
• RBI foreign company office / FEMA guidance: https://www.rbi.org.in/
• POSH Handbook, Ministry of Women & Child Development: https://wcd.nic.in/sites/default/files/Handbook%20on%20Sexual%20Harassment%20of%20Women%20at%20Workplace.pdf
• Digital Personal Data Protection framework, MeitY: https://www.meity.gov.in/data-protection-framework