If you’re a European founder looking to hire developers in India, you’ll quickly run into three options: work with independent contractors, use an Employer of Record service, or set up your own Indian legal entity. Each one gets you to the same outcome — people working on your product — but the cost, risk, and overhead are very different.
Here’s a plain-English breakdown of all three, and a framework to figure out which one fits your situation.
The Quick Comparison
| Factor | Contractor | EOR | Own Entity |
|---|---|---|---|
| Speed to hire | 1–2 weeks | 1–2 weeks | 3–6 months |
| Setup cost | Low | Low | High |
| Monthly overhead | Low | Medium | High |
| Compliance risk | Medium–High | Low | Low (if managed) |
| Control over team | Medium | High | Full |
| Scales past 5 people | Risky | Expensive | Yes |
Contractor: Fast and Flexible — Until It Isn’t
Hiring someone as an independent contractor is the default first move for most startups. You sign a services agreement, agree on a rate, and transfer payment monthly. The contractor invoices you and handles their own taxes in India.
It works well for genuinely independent, project-based work. Where it breaks down is when the person starts functioning like an employee — fixed hours, long-term integration into your team, work done under direct supervision. At that point, both Indian and European regulations can reclassify the relationship regardless of what the contract says.
Contractors also don’t receive benefits like Provident Fund contributions, gratuity, or statutory leave — which matters when you’re competing for experienced talent in a market where good developers have options.
Best for: Early hires, project-based engagements, genuinely independent specialists.
Employer of Record: Clean Compliance, at a Price
An EOR is a third-party company that employs your developer in India on your behalf. You manage the work day-to-day; the EOR handles the employment contract, payroll processing, tax withholding (TDS), Provident Fund contributions, and all local statutory requirements.
This is the fastest path to compliant, salaried employment without setting up your own entity. Onboarding typically takes one to two weeks, and you don’t need any local legal infrastructure.
The cost is the catch. EOR fees typically run €300–€700 per employee per month on top of salary. For one or two people, that’s manageable. For five or more, you’ll quickly do the maths and start thinking about Option 3.
Best for: Teams of one to four people, founders who want full compliance without entity overhead, situations where speed matters.
Own Entity: Full Control, Real Overhead
Setting up a Private Limited Company in India gives you a legal employer of your own — your payroll, your employment contracts, your HR policies. Once established, it’s the most cost-efficient structure at scale and gives you the most flexibility over how you hire and compensate your team.
The trade-offs are significant. Registration takes two to four months. You’ll need a local director, a registered address, annual statutory filings, a GST registration, and ongoing accounting support. The administrative burden is real and ongoing.
Most founders wait until they have five or more people before this makes economic sense. If India is clearly a long-term part of your structure, it’s worth starting the process early — the setup timeline means you don’t want to need it urgently.
Best for: Teams of five or more, long-term India presence, startups that have validated the model and are scaling a permanent team.
The Decision Framework
A few questions to get you to the right answer quickly:
- How many people are you hiring? One or two: contractor or EOR. Five or more: start planning an entity now.
- How long will they work with you? Short-term project: contractor. Ongoing team member: EOR or entity.
- How hands-on will you be managing them? High oversight and daily direction points toward employment, not contractor.
- What’s your budget tolerance for overhead? Tight budget and early stage: start with contractors, move to EOR as you grow. Funded and prioritising clean compliance: go EOR from day one.
The Most Common Mistakes
Founders typically go wrong in one of three ways: treating long-term embedded team members as contractors to avoid overhead, choosing EOR for a team that’s already large enough to justify an entity, or starting the entity setup too late and facing a gap period where compliance is messy.
None of these are catastrophic, but all of them are avoidable with a bit of planning upfront.
Not sure which model fits your stage? Talk to us — we help European startups set up their India team structure from the start, so you’re not fixing it later.