What Does It Actually Cost to Hire an Employee in India? (2026 Guide + Calculator)
The salary number you see on a candidate's resume is not what hiring them actually costs. A developer asking for ₹15 lakh a year will cost you closer to ₹17-18 lakh once Provident Fund, gratuity, and other statutory add-ons are factored in — and if you're hiring through an EOR instead of your own entity, add a monthly service fee on top of that. This guide breaks down the real, all-in cost of hiring in India in 2026, with a calculator so you can plug in your own numbers.
The quick formula
For a direct hire through your own Indian entity, the standard back-of-envelope formula is:
In practice, most employers budget an additional 15-25% on top of gross salary to arrive at true employer cost, before adding any optional benefits like private health insurance or a performance bonus.
Cost calculator
This calculator gives a directional estimate for planning purposes, not a payroll-grade figure. Actual statutory contributions depend on wage ceilings, state-specific professional tax slabs, and your exact salary structure — confirm exact numbers with a payroll advisor before budgeting a hiring plan.
What each cost component actually means
| Component | Rate | Applies when |
|---|---|---|
| Employees' Provident Fund (EPF) | 12% of basic pay (employer share) | Almost all employers with 20+ staff; many voluntarily enroll below that too |
| Employee State Insurance (ESI) | ~3.25% of gross wages (employer share) | Companies with 10+ employees (20 in some states), only for employees below the ESI wage ceiling |
| Gratuity | ~4.81% of basic pay, accrued monthly | Paid out only after 5+ years of continuous service, but should be budgeted from month one |
| Professional Tax | State-specific, usually a small fixed monthly amount | Varies by state; not all states levy it |
| Statutory Bonus | 8.33%-20% of eligible wages | Applies to employees below a wage threshold, under the Payment of Bonus Act |
None of these are optional line items you can skip to save money — they're legal obligations, and getting them wrong creates compliance exposure down the line, not just a bigger bill.
EOR fees vs running your own entity
If you don't yet have an Indian entity, an Employer of Record (EOR) becomes the legal employer on paper while your new hire works for you day-to-day. EOR pricing across the market ranges from roughly $99 to $699 per employee per month depending on the provider. Business Setup's own EOR service is priced at $150 per employee per month — this is on top of the salary and statutory contributions above, not instead of them.
Setting up your own entity instead is a one-time cost of $2,500 to get incorporated and operational, with ongoing compliance of $9,000 a year — and at Business Setup, that annual figure is all-inclusive of ROC filings, tax returns, accounting, and resident director services, regardless of headcount. That fixed cost is why EOR tends to be the cheaper path below roughly 5-6 employees, while your own entity becomes more economical once you're scaling past that.
A worked example
Say you're hiring a mid-level software engineer at ₹1,20,000/month gross (roughly $1,450 USD), with basic pay set at 50% of gross (₹60,000):
| Item | Monthly (₹) |
|---|---|
| Gross salary | 1,20,000 |
| EPF (12% of ₹60,000 basic) | 7,200 |
| ESI (not applicable — above wage ceiling) | 0 |
| Gratuity accrual (4.81% of ₹60,000 basic) | 2,886 |
| Total monthly employer cost (own entity) | ≈1,30,086 |
If you hired this same employee via Business Setup's EOR service at $150/month (~₹12,500 at current rates), your total monthly cost would be roughly ₹1,42,600 — cheaper than the amortized cost of running your own entity for a single hire, but the calculation flips once you're hiring a team of 5-6 or more.
Frequently Asked Questions
What is the real cost of hiring an employee in India, beyond salary?
On top of gross salary, employers typically pay an additional 15-25%: Provident Fund at 12% of basic pay, ESI at 3.25% of gross pay (only if the employee earns below the ESI wage ceiling and the company has 10+ employees), and gratuity accrual of roughly 4.81% of basic pay per month. Add professional tax where applicable and any private health insurance the company chooses to offer.
Can a foreign company hire an employee in India without setting up a local entity?
Yes, through an Employer of Record (EOR). The EOR is the legal employer on paper, running payroll and statutory compliance, while the employee works for your team day-to-day. This avoids the time and cost of incorporating an entity, but comes with an ongoing per-employee monthly fee.
How much do EOR services cost in India?
EOR fees vary across the market, typically ranging from about $99 to $699 per employee per month depending on the provider. Business Setup's own EOR service is priced at $150 per employee per month. This fee is separate from the employee's salary and statutory contributions.
At what team size does it make more sense to set up my own entity instead of using an EOR?
Based on Business Setup's own pricing ($150/month per employee for EOR versus $2,500 one-time plus $9,000/year all-inclusive for your own entity), the break-even point lands around 5-6 employees. Below that headcount, EOR is typically cheaper; above it, your own entity becomes more cost-effective.
What is gratuity and do I have to pay it?
Gratuity is a lump-sum payment required under Indian law for employees who complete 5 or more years of continuous service, calculated as roughly 15 days of salary for every year worked. Even though it is only paid out later, prudent employers accrue it monthly (around 4.81% of basic pay) so it doesn't become a surprise liability.
Does every company have to pay ESI (Employee State Insurance)?
ESI applies to companies with 10 or more employees (20 in some states) where the employee's monthly wage falls below the prescribed ESI ceiling. Employees earning above that ceiling are not covered by ESI, and the employer contribution where applicable is around 3.25% of gross wages.
Not sure whether EOR or your own entity makes sense for your India plans?
We help foreign companies choose the right structure and get hiring in India — whether that's an EOR arrangement or a fully compliant subsidiary.
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