What It Actually Costs to Employ Someone in India
Salary is the smaller question. A breakdown of statutory employer contributions, the costs that only appear later, and how an Employer of Record fee compares with running your own entity.
- Statutory contributions add roughly 13% to 18% at junior and mid salaries, and less at senior ones.
- Provident fund is usually calculated on a Rs 15,000 wage ceiling, which caps the largest component.
- Gratuity is a real monthly cost from day one even though it is paid after five years.
- Below about twenty to thirty people, an EOR fee is cheaper than running your own company.
The four statutory employer costs
India does not have a single payroll tax. An employer owes several separate contributions, and each has its own base, threshold, and filing. The headline percentages mislead unless you know which part of the salary they apply to.
- Provident fund: 12% of basic pay, commonly applied on the statutory wage ceiling of Rs 15,000, so about Rs 1,800 a month, plus small administrative charges.
- State insurance: 3.25% of gross, but only where gross pay is Rs 21,000 a month or below, which excludes most engineering salaries.
- Gratuity: about 4.81% of basic, accrued monthly as a liability and paid after five years of continuous service.
- Professional tax: set by each state, typically Rs 200 a month, and capped at Rs 2,500 a year by constitutional limit.
Why one percentage is the wrong answer
Providers usually quote a single figure, often "13 to 18 percent on top of salary". That is fair at junior and mid salaries. It is wrong at senior ones, because provident fund stops growing once the wage ceiling is reached while the salary keeps going.
A senior engineer on a high package can carry a statutory load below 5% of gross, and a junior hire close to 18%. Budget from the actual salary bands you intend to hire, not from an average someone published.
The costs that appear later
The contributions above are visible from month one. Three others are not, and they are the ones that surprise first-time employers in India.
- Notice periods of 30 to 90 days are normal and contractual, so an exit is rarely immediate.
- Dismissal is more prescriptive than in the US: cause, documentation, and notice matter, and shortcuts create liability.
- Equipment, reimbursements, and insurance are expected for professional roles even where no statute compels them.
EOR fee against your own entity
An Employer of Record charges a flat fee per employee per month, and India specialists generally sit between $99 and $399 while global platforms charge $499 to $699 for the same hire. Your own subsidiary replaces that fee with fixed costs: incorporation, accounting, audit, filings, and the management attention all of it consumes.
The crossover usually sits somewhere past twenty to thirty people. Below it, per-person fees are the cheaper and faster answer. Above it, your own company wins, and the fee you were paying becomes the budget for running it.
Frequently asked questions
How much do employer contributions add to salary in India?+
Roughly 13% to 18% at junior and mid salaries. At senior salaries the share is lower, often below 5%, because provident fund is calculated on a Rs 15,000 wage ceiling while the salary is not capped.
Is gratuity a cost from the first month?+
Yes. It is only paid out after five years of continuous service, but it accrues from day one at about 4.81% of basic pay and should be provisioned monthly rather than discovered later.
When is an Indian entity cheaper than an Employer of Record?+
Usually past twenty to thirty people. Below that, the per-person fee is smaller than the cost and management load of incorporation, accounting, audit, and the compliance calendar.
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