You cannot put someone living in India on your UK payroll. That is the wall most UK businesses hit about ten minutes after deciding they want to hire there. Here is what the alternatives actually involve.

Why your UK payroll will not work

PAYE is a UK system for UK employment. Your Indian hire owes income tax in India, is entitled to Indian statutory benefits, and needs an employment contract that works under Indian law. Running them through your UK payroll would leave them taxed in the wrong country and without any of the protections they are legally owed.

So there are three real options.

Option one: set up an Indian entity

You incorporate a subsidiary in India. That means registration, at least one resident director, tax registrations, a local bank account, and enrolment in the statutory schemes — provident fund, employee state insurance, and professional tax, which varies by state.

Then it is ongoing: monthly filings, annual accounts, statutory audit, and someone competent enough to keep it all current.

This is the right answer if you plan to build a team of twenty or thirty people in India. It is an absurd amount of machinery to employ two.

Option two: pay them as a contractor

Fast, cheap, and fine when the work is genuinely independent. It stops being fine when the arrangement drifts into full-time hours under your direction, which is what usually happens.

India’s labour authorities look at the substance of a working relationship rather than the label on it. If a “contractor” is really an employee, the unpaid contributions and penalties land on the business that engaged them. And in the meantime the person has no provident fund, no medical cover and no notice period — which is why they leave when something more stable appears.

Option three: an Employer of Record

An EOR is a company already established in India that employs your hire on your behalf. They hold the contract; you direct the work.

In practice:

  • Your hire signs a compliant Indian employment contract
  • Provident fund and insurance are registered and filed; gratuity accrues from day one
  • Payroll runs in rupees on the local schedule, with income tax deducted at source
  • You receive one invoice, in pounds
  • You never register anything in India

You can make an offer this week rather than next quarter, and you can stop again without unwinding a subsidiary.

What it typically includes

  • A compliant employment contract under Indian labour law, in English and the local language
  • Statutory contributions — provident fund, insurance or medical cover, gratuity accrual
  • Payroll in rupees, with proper payslips and TDS deducted at source
  • Statutory paid leave and public holidays, with room to offer more
  • Local HR support for your hire, in their time zone

What an EOR does not do for you

This matters, and it is where providers oversell.

Data protection stays yours. If your hire handles personal data of UK or EU individuals, you remain the data controller under UK GDPR and you need appropriate safeguards for transferring that data to India. This is manageable and extremely common — but it is your obligation, and an EOR does not absorb it. Raise it with whoever advises you before the first day.

Management stays yours. An EOR handles employment, not performance. If the person is not working out, that is a conversation you have to have.

Permanent establishment risk depends on the role. For a standard back-office hire it is not usually a concern. If the person is concluding contracts on your behalf, take advice from your own tax adviser.

Common mistakes

  • Assuming statutory benefits are optional. Provident fund and gratuity are legal requirements past certain thresholds, not perks to negotiate away.
  • Ignoring state-level variation. Labour rules differ meaningfully between Indian states; a contract compliant in Karnataka is not automatically compliant in Maharashtra.
  • Under-budgeting the onboarding. The employment side can be sorted in days. Getting someone genuinely productive in your business takes a few weeks of your attention, and skipping that is the most common reason these hires fail.

How long it takes

Employment setup through an EOR is typically days once you have chosen someone. The longer part is finding the right person — realistically two weeks to shortlist and interview — plus whatever notice they owe a current employer, commonly one to three months for professional roles in India.

Plan for four to eight weeks from first conversation to first day, and be pleased if it is faster.

Curious what a specific role would cost? Work out your saving → or read how the process works.