How Does a US Company Move From EOR to an India Subsidiary?

"We've outgrown our EOR, but every time we ask about setting up our own India entity, we get a different timeline and a different number from every consultant we talk to."

That's close to a direct quote from more than one US company we've worked with, and it's usually said somewhere around the point where a growing India team stops feeling like a simple payroll line item. The EOR solved the original problem, getting someone legally employed in India without a US company having to register anything locally, but it starts creating a new set of problems once the team crosses a certain size: the per-employee fee stops looking small, the EOR's HR support stays generic no matter how specific your actual team's needs get, and nobody on your side can tell you with confidence what happens to years of accrued gratuity if you move everyone over badly.

Quick answer: A US company moves its India team from EOR to an India subsidiary by incorporating a Private Limited company under the Companies Act, 2013, registering it for the relevant statutory schemes (EPF, ESI, Professional Tax, Shops and Establishments), and then transferring employment from the EOR to the new entity through a structured transfer that preserves continuity of service for gratuity and leave, rather than a termination and rehire. The incorporation itself typically takes 6 to 10 weeks given government processing times, and the full transition, including statutory registrations and payroll cutover, usually runs 8 to 10 weeks end to end, in parallel with normal operations.

Why a US Company Eventually Outgrows Its India EOR

Most US companies start in India with an EOR for good reason. It's the fastest legal way to employ someone in India without registering a local entity, and for a first few hires, an EOR's fee, commonly somewhere between 8 and 15 percent of gross payroll, is cheaper than building and running your own India compliance function from scratch.

The math flips as headcount grows. Once a US company's India team crosses somewhere around 18 to 25 employees, that same percentage-of-payroll fee structure usually costs more per year than running a Private Limited entity directly, including a dedicated local HR hire. That crossover point, not a date on a calendar, is the real signal that it's time to look at moving from EOR to an India subsidiary.

A few other signs tend to show up around the same time:

• The EOR's HR support is still purely transactional (payroll runs, leave approvals), with no one who can advise on India-specific people issues as the team matures and starts needing real performance management, not just processing

• Nobody on the US side can say with confidence whether the POSH Act Internal Committee requirement has actually been met, since this obligation triggers once headcount reaches 10 and has no equivalent in US employment law, so it's easy to miss entirely while an EOR handles payroll correctly

• The company wants to offer equity or a longer-term career path to India hires, which an EOR arrangement complicates since the employee is legally employed by a third party, not by the US company itself

• Finance keeps asking why the India payroll line item keeps growing faster than headcount, without anyone being able to explain how much of that is the EOR's percentage fee versus actual compensation growth

What Actually Changes When a US Company Moves From EOR to an India Subsidiary

Right now, the EOR is the legal employer on paper under India's Shops and Establishments Act, and it handles statutory contributions under the Employees' Provident Funds Act, 1952 and the Employees' State Insurance Act, 1948 on the US company's behalf. The moment the US company incorporates its own entity, usually as a Private Limited company under the Companies Act, 2013, structured in line with FEMA and RBI foreign investment rules, that entity becomes the legal employer directly, and every one of those obligations transfers from the EOR to the US company's own subsidiary.

That shift touches more than paperwork:

• Employment contracts move from the EOR's name to the subsidiary's name, through a structured transfer agreement, not a resignation and rehire, since the latter breaks continuity of service

• Statutory registrations (EPF, ESI, Professional Tax, Shops and Establishments) have to exist under the new entity before payroll can legally run through it, which is why incorporation timing and registration timing have to be sequenced correctly

• Gratuity continuity under the Payment of Gratuity Act, 1972 depends on continuous service being preserved across the move, which only happens with a properly documented transfer, and gratuity becomes payable once an employee crosses five years of continuous service

• Benefits and insurance need to be re-enrolled under the new entity rather than assumed to carry over automatically, since the policies are typically written against the legal employer, not the individual

• The US side's HR and payroll teams, often based in the US or managing India as one region among several, need to understand what's now different about running India payroll and compliance directly, rather than through an EOR's abstraction layer that previously absorbed most of this complexity

EOR vs India Subsidiary: What Actually Changes for a US Company

	Employer of Record (EOR)	Own India Subsidiary
Legal employer	The EOR entity	The US company's own Private Limited entity
Setup time	Days, no incorporation needed	6 to 10 weeks for incorporation, given government and bank processing
Cost structure	Percentage of gross payroll, typically 8 to 15 percent	Entity running costs plus direct compliance, usually cheaper past roughly 18 to 25 employees
Control over HR policy	Limited, largely standardized by the EOR	Full control, built around the company's own needs
Equity and long-term incentive plans	Complicated, since the EOR is the legal employer	Straightforward, since the employee is directly employed by the US company's subsidiary
Statutory compliance ownership	Sits with the EOR	Sits directly with the US company's subsidiary, including POSH, EPF, ESI, and gratuity
Tax and transfer pricing exposure	Minimal, since there's no separate India legal entity	Introduces transfer pricing documentation requirements between the US parent and the India subsidiary

How Long Does It Actually Take for a US Company to Move From EOR to an India Subsidiary?

This is the question that gets the least consistent answers, so here's what's actually true.

The incorporation itself has a real external floor. Setting up a Private Limited company under the Companies Act, 2013, DIN and DSC issuance, SPICe+ filing, PAN and TAN allotment, GST registration, and opening a corporate bank account, realistically takes 6 to 10 weeks. This part depends on the Ministry of Corporate Affairs and the bank, not on which HR partner is running the project, so no provider can responsibly promise to cut this to a week or two.

What can genuinely move faster is the planning and the cutover. A readiness audit, checking current headcount, contract terms, and where EPF or gratuity continuity gaps already exist, can be done in about 2 weeks when it's the first thing a provider does, rather than something squeezed in after incorporation is already underway. Running the EOR and the new entity's payroll in parallel for a cycle or two, instead of sequentially, also meaningfully shortens the calendar time between the entity existing on paper and the team being fully transitioned with no payroll gap.

Put together, most US companies should plan for 8 to 10 weeks end to end for a clean transition, with the incorporation timeline as the floor and the surrounding project management determining whether the weeks on either side of it are used well or wasted.

What Goes Wrong When a US Company Moves From EOR to an India Subsidiary

The most expensive mistake is processing the move as a termination and rehire instead of a structured transfer. If full and final settlement is filed at the point of moving, it signals that employment ended, which breaks continuity for the five-year gratuity threshold under the Payment of Gratuity Act, 1972 and can trigger unnecessary tax and compliance complications on both the employee and employer side. A signed service transfer letter, agreed between the EOR and the new entity with the employee's acknowledgment, keeps the clock running from the original joining date instead.

A second common failure point is legal language carried over from a different market without being re-checked against Indian law. US employment agreements often include non-compete clauses that are not enforceable the same way under Indian contract law, and teams that copy-paste contract templates from a US or EOR precedent sometimes find this out only when it matters, during an exit or a dispute rather than during drafting.

A third is assuming the EOR was already handling obligations that, legally, sit with whoever manages the workplace, not with a payroll processor. POSH Act compliance is the clearest example. An EOR can process payroll correctly for years while nobody has constituted an Internal Committee, because that obligation attaches to the employer managing day-to-day operations, which shifts to the new subsidiary at the point of transition and doesn't automatically carry over from whatever the EOR was or wasn't doing.

Tax and Transfer Pricing Considerations for a US Company's India Subsidiary

Incorporating an India subsidiary changes more than employment law exposure. Once the US parent and its India subsidiary are separate legal entities, any transaction between them, management fees, cost allocations, intercompany services, or how revenue and costs are split, becomes an international transaction for Indian tax purposes and needs to be priced at arm's length under Section 92 of the Income Tax Act, 1961, with supporting transfer pricing documentation maintained and, above certain thresholds, an accountant's report filed.

This is also the point where a US company should get clarity from its own cross-border tax advisor on Permanent Establishment exposure. A properly structured, genuinely independent India subsidiary conducting its own business is generally treated differently for tax purposes than an arrangement where India-based staff are seen as acting as agents of the US parent, but exactly how this applies depends on the specific structure, the nature of the work performed in India, and the India-US tax treaty, none of which this article can responsibly reduce to a single rule of thumb.

Anjusmriti Global is not a tax law firm and doesn't advise on this directly, but any US company planning this transition should bring in its own tax counsel early, alongside the HR and compliance workstream, rather than treating tax structuring as an afterthought once the entity is already incorporated.

A Real Example of a US Company Moving From EOR to an India Subsidiary

One recent engagement involved a US-headquartered professional services firm with a 19-person accounting and finance team in Bengaluru, hired entirely through an EOR arrangement. The company had an India-based Managing Director involved in getting the new entity set up, but no dedicated HR leadership on the ground, with day-to-day HR coordination handled remotely by a South Africa-based HR generalist and a US-based payroll and benefits team.

As the company's own registered India entity came together, incorporation, PAN, TAN, and registered address were handled on the US side directly with the company's own legal counsel. The statutory registrations, EPFO, ESIC, Professional Tax, Labour Welfare Fund, and Shops and Establishments, had stalled, since the consultants originally engaged for that scope hadn't progressed them. Separately, the company's existing employee handbook was being drafted by an external HR consultant whose engagement ultimately wasn't continued.

Anjusmriti Global took over the statutory registrations that were behind schedule, managed the PF and UAN transfer from the outgoing EOR's code, drafted employment agreements and offer letters for all 19 employees under the new entity, and drafted the POSH policy for the new entity. The Internal Committee's external member has since been finalized, with internal committee members being the next step. Anjusmriti also took over development of the full employee handbook from scratch once the original consultant arrangement didn't go forward. The work ran in parallel with the company's own benefits broker selection and payroll system implementation, rather than waiting for those to finish first.

That's a realistic shape for this kind of engagement: several workstreams running at once, inherited gaps that only surface once someone actually audits the paperwork, and a transition that succeeds or fails on documentation discipline rather than on any single dramatic step.

What a US Company Should Check Before Starting the Move From EOR to an India Subsidiary

• Has anyone actually audited current contracts, registrations, and gratuity-eligible tenure, or is the starting point assumed rather than verified, since inherited gaps are the norm rather than the exception on a team that's been running on an EOR for a while

• Is the transfer being structured as a continuity-preserving transfer, with a signed service transfer letter, rather than a termination and rehire that could trigger a gratuity dispute later

• Does whoever is running the transition know the specific thresholds that apply at your headcount, such as the 10-employee POSH trigger and the 20-employee EPF trigger, rather than speaking in generalities about Indian compliance

• Will payroll run in parallel across both the EOR and the new entity for at least one cycle, to catch discrepancies before they reach an employee's paycheck rather than after

• Is there a named owner on the India side for the Internal Committee and other obligations that don't automatically transfer with a payroll system, since these are exactly the items that fall through the cracks between two providers

• Has the company's own tax counsel reviewed the transfer pricing and Permanent Establishment implications of the new structure, since this sits outside what an HR or compliance partner can advise on directly

Frequently Asked Questions From US Companies Moving From EOR to an India Subsidiary

• When Should a US Company Move From EOR to an India Subsidiary?

Most companies find the EOR fee structure starts costing more than running their own entity somewhere around 18 to 25 employees in India. Below that, EOR fees are usually still the cheaper option; above it, incorporation and direct compliance usually cost less per year.

• Does a US Company Moving From EOR to an India Subsidiary Lose Employee Tenure?

Not if the transfer is handled correctly. Continuity of service for gratuity and leave encashment depends on the move being documented as a structured transfer with a service transfer letter, not processed as a resignation and new hire. Handled as a termination instead, tenure and gratuity accrual can be lost or disputed.

• Can a US Company Run EOR and Its New India Subsidiary Payroll at the Same Time?

Yes, and it's usually the safer approach. Running both payroll systems in parallel for a cycle or two before fully cutting over to the new entity lets discrepancies get caught and corrected before they reach an employee's paycheck.

• Does Moving From EOR to an India Subsidiary Change POSH Act Obligations?

Yes. POSH Act, 2013 compliance, including the Internal Committee, attaches to whoever manages the workplace day to day, not to the EOR as payroll processor. Once the subsidiary becomes the employer of record, it needs its own constituted Internal Committee, even if the EOR never had this gap flagged.

• Does an India Subsidiary Create Transfer Pricing Obligations for a US Company?

Yes. Once the US parent and the India subsidiary are separate legal entities, transactions between them need to be priced at arm's length under Section 92 of the Income Tax Act, 1961, with supporting documentation maintained. This is a genuine compliance obligation and worth planning for with tax counsel before the entity goes live, not after.

• How Long Does Incorporation Take Before a US Company Can Transition Its India Team?

Incorporating a Private Limited company under the Companies Act, 2013, including DIN and DSC issuance, SPICe+ filing, PAN and TAN allotment, GST registration, and a corporate bank account, typically takes 6 to 10 weeks. This depends on government and banking timelines rather than on the HR or legal partner managing the project.

Talk to Us About Moving From EOR to an India Subsidiary

If your US company's India team is approaching the point where an EOR stops making financial or operational sense, the most useful next step is a short scoping conversation rather than guessing at a generic timeline. We'll walk through your actual headcount, existing contracts, and compliance status, and tell you plainly whether now is the right time to move.

Learn more about our EOR to Entity Transition service, or talk to us directly about your specific transition.