What Should US Companies Use Instead of PEO in India?

Co employment, the legal foundation every US PEO relationship is built on, has no equivalent status under Indian law. There is no statute that lets two companies jointly share employer liability for the same worker the way IRS and DOL rules allow a domestic PEO to operate. So when a founder asks what US companies use instead of PEO in India, the real answer is not a different vendor category, it is a different legal structure altogether. We have walked more than 60 US companies through this exact question, and the ones who tried to copy a PEO style contract onto an Indian hire almost always had to unwind it within a year.

Why a US Style PEO Does Not Work Under Indian Employment Law

A US PEO shares employer obligations with the client company under its own EIN. India's employment framework runs on a different logic entirely, built around the Contract Labour (Regulation and Abolition) Act 1970, state specific Shops and Establishments Acts, and the four new Labour Codes that are now well into rollout across most states. None of these recognize a joint or shared employer. One party is always the sole, legally liable employer of record.

This is not a paperwork detail. One Bengaluru based GCC subsidiary of a US fintech signed a contract drafted by US counsel that assumed shared liability, and when a termination dispute came up, Indian courts would not enforce that assumption at all. The client company ended up named as co defendant despite believing its vendor carried full liability on its own. As GCC formation across Bengaluru and Hyderabad keeps accelerating, this exact mistake keeps repeating, mostly because US legal teams are shopping for a category of vendor that simply does not exist locally.

What US Companies Use Instead of PEO in India

Under Indian law there are three lawful ways to engage a worker, and understanding the difference between contract hiring and full time hiring is the first decision every US company has to make before picking a structure.

Employer of Record (EOR):

An Indian EOR entity becomes the sole legal employer, handling Provident Fund contributions, Employee State Insurance where applicable, gratuity accrual, and TDS filings, while day to day output goes entirely to your US team. This is the closest functional match to a PEO, though legally it is a single employer structure rather than shared liability.

Contract staffing:

A licensed staffing agency supplies workers under a principal employer and contractor relationship. This is the natural fit for contract hiring, meaning scoped, time bound work such as a platform migration or a six month product build, where you do not want ongoing headcount commitment.

Full time hiring through your own entity:

 Once you register a Wholly Owned Subsidiary, you become the direct employer for full time hiring, taking on the full weight of Indian labour law yourself. This route gives complete operational control but usually needs eight to twelve weeks to set up and carries ongoing statutory obligations most small engineering teams are not ready to own on day one.

The most common mistake we see is a company signing an EOR agreement but continuing to call it a PEO internally, which then clashes with a US benefits stack that assumes shared liability and at will flexibility, neither of which India's system provides.

EOR vs Contract Staffing vs Entity Setup: Which One Fits Your Team

Here is the comparison most clients ask us to walk through before choosing a structure.

Factor	EOR	Contract Staffing	Own Entity (Full Time)
Legal employer	EOR entity	Staffing agency	You
Setup time	One to two weeks	One to two weeks	Eight to twelve weeks
Best for	1 to 50 hires, no entity yet	Scoped, project based work	50 plus hires, long term presence
Compliance owner	EOR	Staffing agency	Your subsidiary
Typical fee	10 to 18 percent of CTC	12 to 20 percent of billed rate	Not applicable
Termination liability	EOR	Staffing agency	You, in full

For most companies weighing what to use instead of PEO in India, EOR is the practical default until headcount justifies an entity. The tipping point we see most often sits around 25 to 30 hires, where entity setup costs start paying for themselves within about two years compared with ongoing EOR fees.

Where India's Tech Talent Actually Sits, and What Is Changing Right Now

Bengaluru still has the deepest bench for cloud, platform, and DevOps work, and Hyderabad has pulled ahead specifically for SAP, enterprise data, and cloud infrastructure roles. Pune and Chennai run 10 to 15 percent cheaper for comparable seniority in full stack and QA automation, and Delhi NCR, where our own recruiting desk sits, stays strong for fintech and product engineering.

What has changed lately is the pace of AI adoption inside the hiring process itself. Recruiters are now using AI assisted screening to cut early stage shortlisting time, and Indian engineers increasingly walk into interviews already comfortable pairing with AI coding assistants day to day, which shifts what "senior" competence looks like compared with a few years ago.

At AnjuSmriti Global, we have adjusted our technical vetting specifically around this, testing whether a candidate can reason through a production incident and judge AI generated code rather than just produce working output on a take home test. GCC formation is also accelerating faster than most US founders expect, which is pushing more companies toward full time hiring earlier than they originally planned.

What This Actually Costs

The most common answer to what US companies use instead of PEO in India comes down to cost math as much as legal structure, so real numbers for a mid size engineering team matter more than vague percentages. since vague percentage claims rarely help anyone budget properly.

A mid level engineer with three to five years of experience typically runs 14 to 20 lakh rupees annually, roughly 16,800 to 24,000 dollars. A senior engineer with six to nine years runs 28 to 38 lakh, roughly 33,600 to 45,600 dollars. A lead or architect with ten plus years runs 45 to 65 lakh, roughly 54,000 to 78,000 dollars.

On top of base pay, budget for employer EPF contribution at 12 percent of basic wages, gratuity accrual around 4.8 percent annually, and an EOR or staffing fee on top of that. For a team of five senior engineers, total India cost including statutory contributions and fees typically lands between 220,000 and 260,000 dollars a year, against 750,000 dollars or more for a comparable US based team at the same seniority. Most clients reinvest that gap into an additional India hire within the first year rather than treating it purely as savings.

Our Process and a Real Client Scenario

Our standard AnjuSmriti Global timeline runs a compliance audit in week one, structure selection between EOR, contract staffing, or entity in week two, and candidate sourcing plus technical vetting running in parallel through weeks three and four.

A Series B US healthtech company, around 80 employees with no India presence, had signed a vendor contract using PEO language for a team of six engineers hired informally through a freelance platform. When we audited it, none of the six had EPF contributions being made, a statutory requirement once monthly wages cross the applicable threshold. We moved all six onto a formal EOR structure within three weeks and backdated the contributions to avoid penalty escalation.

One engineer's original contract had no IP assignment clause at all, which we caught during the audit, a gap that could have created a real ownership dispute over core product code later. Eighteen months on, that team has grown to eleven engineers, and the client's total India engineering cost sits at roughly 38 percent of an equivalent US based team, fully loaded.

Conclusion

The four Labour Codes are steadily tightening compliance expectations for every EOR and staffing provider operating in India, and providers without proper registration are getting squeezed out faster than before. GCC growth is normalizing India as a multi year engineering base rather than a stopgap, which is why more companies are now planning entity setup earlier in their timeline instead of treating EOR as a permanent arrangement. For any founder still weighing what US companies use instead of PEO in India, the short version holds steady, use EOR to move fast, use contract staffing for scoped project work, and start planning entity setup once you cross roughly 25 to 30 hires.

If you are ready to move on this, start the conversation with our team here.

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Interesting Reads:

When Should You Hire Full-Time in India: Direct or EOR?

How Should You Scale an India Engineering Pod: Contractors or EOR?

What PE Risk Do US Companies Face Using an EOR in India?

FAQs

1.Is an Indian EOR the same as a US PEO?

Not legally. A US PEO shares liability with the client company under co employment law, a category India does not recognize. An Indian EOR is instead the sole legal employer, carrying full statutory responsibility for EPF, ESI, and gratuity on its own. This usually reduces your direct legal exposure, though it also means the EOR, not your US company, is named in any employment dispute that comes up.

2.Can a US company terminate an India based employee at will?

No. India has no at will doctrine, so a US style same day termination will not hold up if challenged. Notice periods are set by the applicable Shops and Establishments Act, typically 30 to 90 days depending on tenure and state, plus gratuity once the employee has crossed five years of service. An EOR manages this whole process on your behalf under the correct legal basis, which removes most of the risk from your side.

3.How does IP ownership work when engineers sit on an EOR's payroll?

IP assignment needs a tripartite agreement between the engineer, the EOR, and your US company, not just a standard employment clause. Indian law follows work made for hire logic similar to the US, but only when the assignment language is explicit and consistent across the full contract chain. Skipping this step is one of the most common gaps we find during a compliance audit, so it is worth reviewing carefully before anyone signs.

4.Is contract hiring or full time hiring better for a first India engagement?

It depends on scope more than preference. Contract hiring suits a defined project, like a platform migration or a short build, where you do not want ongoing headcount commitment once the work wraps up. Full time hiring through an EOR, or eventually your own entity, suits an ongoing engineering function you expect to keep growing for years rather than months. Many clients start with contract hiring and convert strong performers later.

5.How fast can we get an India engineer producing real work?

Through an EOR, most clients see their first engineer generating real output within three to four weeks total, roughly one week for compliance and contract setup, then two to three weeks of sourcing and technical vetting running alongside it. Entity setup adds another eight to twelve weeks before hiring can even begin, which is why most companies start with EOR and move to a full entity once headcount justifies it.

6.Do EOR employed engineers get the same statutory benefits as directly hired staff?

Yes, and this is not optional regardless of vendor structure. EPF contributions, gratuity accrual after five years, and ESI where applicable apply identically whether the worker is EOR employed, contract staffed, or hired directly through your own entity. Any provider offering to skip these to lower your cost is creating compliance exposure you will eventually have to pay for, usually with penalties attached once it surfaces.

7.Can we start with an EOR and convert to our own entity later?

Yes, and it is common enough that most contracts build the transition in from the start rather than treating it as an afterthought. The move involves reissuing offer letters under the new entity, transferring EPF and gratuity records, and a short handover period of two to three weeks, during which the team keeps working without any disruption to their day to day output.

8.Which Indian cities should we prioritize for a long term engineering base?

Bengaluru for cloud, platform, and DevOps depth, Hyderabad for SAP and enterprise data roles, Pune and Chennai for full stack and QA work at a noticeably lower cost, and Delhi NCR for fintech and product engineering talent. Companies planning a genuine multi year presence usually end up splitting their hiring between Bengaluru and Hyderabad specifically, since senior and lead level depth is strongest in those two cities.