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How to Run Payroll in India Without Opening a Bank Account
- Saransh Garg
- Mar 3
- 10 min read
Updated: 1 day ago
A foreign company can legally pay Indian employees without ever opening a bank account in India, but only through one route: an Employer of Record (EOR). Every other path, from a wholly owned subsidiary to a branch office, requires RBI approval, a local current account, and a setup window measured in months before the first payslip goes out. We have run payroll this way for clients in the US, UK, and Netherlands who needed an engineer onboarded in three weeks, not three months, and the fastest of those onboardings went from signed offer to first salary credit in eleven working days.
Can You Run Payroll in India Without Opening a Bank Account?
Yes, but only if a registered Indian entity sits between your company and the employee. Indian salary payments must move through an INR denominated current account held by a company registered in India. A US or UK parent company wiring money straight into an employee's HDFC or ICICI savings account is not compliant payroll. It is an unregistered inward remittance that neither the bank nor the Reserve Bank of India will treat as salary for tax or provident fund purposes. An EOR lets you sidestep the account requirement without sidestepping the compliance behind it.
Why HR Teams Get Stuck Trying to Pay Employees in India
Most HR teams hit this wall the same way. A hiring manager finds a strong candidate in Bengaluru or Pune, finance asks how the company will pay them, and someone discovers a foreign entity cannot open a corporate account in India without a registered local presence.
To open a current account, an Indian bank needs one of three things on file: a Liaison Office registration, a Branch Office registration, or incorporation of a Wholly Owned Subsidiary (WOS), each filed with the RBI under the Foreign Exchange Management Act (FEMA), 1999.
A Liaison Office cannot run payroll for billable work, since it exists only for representative functions. A Branch Office or a WOS can, but RBI approval for a Branch Office routinely takes eight to twelve weeks, and a WOS needs Ministry of Corporate Affairs incorporation, a PAN, a TAN, and its own current account, typically twelve to sixteen weeks end to end before a single salary can legally go out.
A Netherlands based fintech client came to us after budgeting six weeks to onboard four data engineers in Pune, on the assumption a quick local account was possible without entity registration. It is not. Indian banks will not open a corporate current account for a foreign company with no registered Indian presence, regardless of the paperwork offered. That is the gap an EOR model closes: an existing, compliant entity and bank account sit between your company and the employee, with none of the incorporation timeline attached.
Contract Hiring vs Full Time Hiring in India
Before choosing how to run payroll in India without opening a bank account, separate two decisions that often get merged into one: how you employ someone, and how you pay them.
Contract hiring suits short, defined work: a three month build, a specialist consulting engagement, or a role you are testing before committing to headcount. A contractor invoices for services and is taxed under Section 194J, not as salary. The catch is that Indian authorities and the EPFO look closely at how a contract role actually functions. Fixed hours, a single client, and ongoing supervision look like employment regardless of the contract label, and that mismatch creates retroactive PF and TDS liability once audited.
Full time hiring through an EOR avoids that ambiguity. The employee is on payroll, TDS is deducted under Section 192, and PF and ESI are filed correctly from day one. Most companies that start with a contract engagement convert the person to full time employment within the first year, once the working relationship proves out, and an EOR turns that conversion into a paperwork exercise rather than a legal restructuring.
The mistake we see most often is assuming the same "am I really the employer" ambiguity that exists in some European markets also exists in India. It does not, in practice. Indian authorities weigh control and exclusivity, and a full time, single client arrangement paid from abroad without local registration is treated as disguised employment the moment it is audited. An EOR removes this exposure because the EOR, not your foreign entity, is the legal employer on record in the PF, ESI, and TDS filings.
Wholly Owned Subsidiary vs Branch Office vs Employer of Record (EOR)
Here is the comparison we walk every HR manager through on the first call.
Factor | Wholly Owned Subsidiary | Branch Office | Employer of Record |
Requires your own Indian bank account | Yes | Yes | No |
RBI or MCA approval needed | Yes, incorporation plus RBI intimation | Yes, RBI approval mandatory | No |
Typical setup time | 12 to 16 weeks | 8 to 12 weeks | 5 to 10 working days |
Compliance burden | ROC filings, statutory audit, board resolutions | Annual RBI reporting, restricted scope | Minimal, sits inside an existing entity |
Who owns PF, ESI, TDS filings | Your India entity | Your India entity | The EOR |
Best for | 15+ headcount, long term presence | Narrow representative or project scope | 1 to 50 headcount, fast start |
Exit cost if plans change | High, formal winding up | Moderate, RBI closure filing | Low, 30 to 60 day notice |
The biggest miscalculation finance teams make is comparing only the monthly EOR fee against "free" subsidiary payroll, without pricing in the twelve to sixteen weeks of salary a subsidiary track hire simply cannot start earning during incorporation.
The Law Behind Payroll Without a Local Account
The statute that decides whether you can run payroll in India without opening a bank account is the Foreign Exchange Management Act (FEMA), 1999, administered by the RBI. FEMA governs how foreign entities transact in India, and it is why a direct wire into an employee's personal account does not count as compliant salary disbursement. There is no registered Indian payer of record behind the transaction.
Once salary routes through an EOR's Indian entity, three more statutes apply: the Employees' Provident Funds Act, 1952, which sets a 12 percent employer and 12 percent employee contribution on basic pay once an establishment crosses 20 employees; the Employees' State Insurance Act, 1948, which applies to employees earning up to ₹21,000 per month gross; and Section 192 of the Income Tax Act, 1961, which requires TDS deduction at source on every salary payment.
India's employment law framework has also changed at the foundation level. Four new labour codes, covering wages, industrial relations, social security, and occupational safety, replaced 29 legacy laws and reshaped how employers calculate statutory contributions and structure compensation. An EOR tracks these changes as part of its own compliance operation, which is one more reason companies increasingly treat EOR as the default first move rather than a fallback plan.
What It Costs to Run Payroll Without a Local Bank Account
Using a mid to senior software engineering role as a reference point, here is what we typically see in gross CTC per annum:
Mid level, 3 to 5 years: ₹12,00,000 to ₹18,00,000
Senior, 6 to 9 years: ₹20,00,000 to ₹30,00,000
Lead or Architect, 10+ years: ₹32,00,000 to ₹48,00,000
Employer side statutory contributions typically add 12 percent for PF on eligible basic pay, and where applicable, roughly 3.25 percent for ESI on gross pay under ₹21,000 a month, though most mid to senior tech hires exceed the ESI wage ceiling.
An EOR management fee generally runs 8 to 15 percent of monthly payroll cost, in place of the far larger one time cost of incorporation. Legal fees, ROC filings, and statutory audit typically run ₹3 to 6 lakh in year one for a subsidiary, before any salary is even paid. Most clients reinvest the difference, the incorporation cost they did not spend plus the setup time they did not lose, into a second or third hire the same quarter.
How Hiring Patterns Are Shifting Right Now
Hiring through an EOR has moved from a workaround to a default first step for companies entering India. AI powered payroll platforms now handle much of the routine compliance checking, TDS calculation, and PF filing that used to need a dedicated in country payroll analyst, making EOR onboarding faster and lower risk than it once was. Cloud based HR systems mean an EOR can plug an Indian hire into a company's existing global HRIS without custom integration work. And with the new labour codes still settling into state level rules, many finance teams would rather let a specialist entity absorb that regulatory churn than track it in house for a handful of employees.
Bengaluru, Pune, and Hyderabad remain the talent pools most comfortable with this model, largely because of their density of global capability centres and offshore product teams, where contract and EOR routed roles are already common. What candidates do not automatically understand is what being employed by an EOR while working for a named client means for taxes, PF continuity, and gratuity eligibility if they later move to a direct role, and that is worth closing in every offer conversation rather than assuming it.
A Real Onboarding Example
Our EOR onboarding at AnjuSmriti Global runs on a fixed timeline once an offer is accepted. Day one and two cover the employment contract and PF or ESI paperwork. Day three to five cover background verification and the employee's bank account setup, if needed. Day six to eight finalize statutory registrations under our entity. Day nine to eleven configure the first payroll cycle and client invoicing. We consistently land at nine to eleven working days from signed offer to first salary run.
A mid sized UK headquartered SaaS company, roughly 80 employees globally, came to us needing a senior engineering lead in Hyderabad within three weeks, with an internal mandate that the company would not register an Indian entity under any circumstances. We had the offer signed within nine days of the initial call.
What almost went wrong: their finance team, used to UK PAYE cycles, initially priced the offer without accounting for the employer's PF contribution as a separate line, underpricing the true monthly cost by roughly 12 percent. We caught it during the payroll cost breakdown two days before the offer went out and restructured the CTC split so employer contributions were budgeted correctly from day one. The hire has now been active for fourteen months with zero compliance escalations.
When to Move From an EOR to Your Own Entity
Companies typically start with an EOR to hire fast, then incorporate a subsidiary once headcount justifies the overhead, usually somewhere between 10 and 25 employees. Until that point, full time hiring through an EOR gives an employee the same payslip, TDS treatment under Section 192, and PF continuity via their Universal Account Number as a direct hire would get, without your company carrying any of the filing responsibility. When the transition does happen, it typically takes two to three weeks once the new entity's PF and ESI codes are live, and most companies negotiate a service continuity clause so time under the EOR still counts toward gratuity eligibility.
If your board has ruled out entity registration but your hiring plan has not slowed down, an EOR is very likely the fastest compliant way to get there. Treat it as a sequencing decision, not a permanent one: start with an EOR to hit the hiring timeline, and let incorporation catch up later only if headcount ever justifies it.
Ready to see what this looks like for your specific headcount plan? Talk to our team.
Interesting Reads:
FAQs
1.Can a foreign company legally pay an Indian employee by wiring salary directly to their personal bank account?
No, not in a way that holds up under FEMA or Indian tax scrutiny. A direct international wire into a personal account has no registered Indian employer behind it, meaning no entity filing TDS under Section 192, no PF or ESI enrollment, and no payslip that counts as legal proof of employment for the worker's visa, loan, or tax filings. Indian banks routinely flag unexplained recurring foreign remittances into personal accounts, and the employee bears the compliance risk too.
2.Does an EOR need its own RBI approval to run payroll for a foreign client?
No. The EOR already holds its RBI compliant entity registration, PAN, TAN, and PF or ESI establishment codes, since it operates as a domestic Indian employer for hundreds of employees across multiple clients. Your company never needs its own RBI filing because you are not the legal employer on record, the EOR is. This removes the eight to sixteen week approval timeline a Branch Office or Wholly Owned Subsidiary would otherwise require.
3.How does Provident Fund work for an employee hired through an EOR instead of a subsidiary?
The employee is enrolled under the EOR's PF establishment code rather than your company's, with the standard 12 percent employer and 12 percent employee contribution on eligible basic pay. If the employee later moves to a direct role with your company once you have incorporated, their PF account transfers using their Universal Account Number, which stays with them for life regardless of employer changes. There is no loss of continuity, only a change in which employer code tracks it.
4.What happens to gratuity eligibility for an employee on an EOR contract?
Gratuity typically vests after five years of continuous service with the same employer. If an employee stays under the EOR for the full tenure, the EOR is the liable employer for gratuity. If they later convert to your direct payroll, most companies negotiate a service continuity clause into the transition agreement so EOR tenure counts toward the five year threshold, though this has to be written in explicitly and does not happen automatically under Indian law.
5.Is an EOR employed worker a full employee for Indian tax purposes, or a contractor?
A full employee. The EOR deducts TDS under Section 192 for salary income rather than Section 194J for professional fees, which matters for the employee's own tax filing and eligibility for standard deductions available only to salaried individuals. This is one of the clearest signals to Indian tax authorities that the arrangement is genuine employment rather than a disguised contractor relationship, protecting both the employee and the hiring company from misclassification risk.
6.Can we switch from an EOR to our own Indian entity later without disrupting the employee's continuity?
Yes, and it is a common path. Companies often start with an EOR to hire fast, then incorporate a subsidiary once headcount justifies the overhead, typically between 10 and 25 employees. The transition requires a fresh employment contract with the new entity, transfer of the PF Universal Account Number, and a clean final settlement covering leave encashment and gratuity if applicable, usually within two to three weeks.
7.What is the actual monthly cost difference between EOR payroll and running our own subsidiary's payroll?
An EOR management fee generally runs 8 to 15 percent of monthly payroll cost, inclusive of statutory compliance, payslip generation, and filings. A self managed subsidiary avoids that ongoing fee but carries its own fixed costs, including a payroll vendor or in house payroll hire, statutory audit fees, and ROC filing costs, that rarely make sense below roughly 15 to 20 employees. Below that headcount, EOR is almost always cheaper once incorporation cost and lost setup time salary are factored in.
8.If we hire in bulk, say 10 to 15 engineers at once, does the EOR route still make sense?
At that volume, we usually recommend running the first cohort through an EOR to hit your hiring timeline, while incorporation runs in parallel in the background, since RBI and MCA processes take roughly the same twelve to sixteen weeks whether you are hiring one person or fifteen. Once the entity is live, the cohort transitions over in a single batch rather than one at a time, which keeps PF, ESI, and TDS filings clean and avoids staggered transition overhead.
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