- The closed monthly cycle: you fund payroll in USD; an Employer of Record calculates gross-to-net, deducts and deposits EPF, ESI, professional tax, and TDS, files the returns, and pays your India developers in INR.
- One legal employer, not co-employment: the EOR is the single legal employer of your India developers, which is how a US software agency runs compliant payroll and usually avoids a permanent establishment.
- Statutory deductions: EPF is 12% plus 12% up to a Rs 15,000/mo (about $158) ceiling; ESI is 0.75% plus 3.25% up to Rs 21,000/mo (about $220); professional tax is state-set and capped at Rs 2,500/year (about $26).
- USD invoices and a clean FIRC trail: you bill clients in USD while payroll runs in INR, and the EOR gives you the foreign inward remittance documentation your finance and diligence teams need.
- EOR vs your own entity: an EOR onboards a developer in 24 to 48 hours from $99/employee/month; your own India entity usually pays off only at large, stable headcount.
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If you run a US software agency that hires its own developers in India, this guide is for you. It covers how the monthly payroll cycle works through an Employer of Record, what you deduct, when you file, and how to keep your USD-to-INR money trail clean for client and investor diligence. If instead you place candidates with end clients, that is a different model, and our recruitment agency payroll guide for India covers it.
This is the agency-specific view of a broader subject. For the full statutory landscape behind everything below, see our guide to payroll compliance in India.
How does India payroll work for a US software agency?
India payroll for a US software agency runs as a closed monthly cycle through an Employer of Record. You fund it, and the EOR calculates gross-to-net, deducts and deposits every statutory contribution, files the returns, and pays your developers in INR while you bill your clients in USD.
We built Wisemonk around this model for agencies that wanted an India development team without an India entity to run. You keep directing the engineering work, and the employment machinery sits with the EOR.
Each month runs through the same fixed steps:
- You fund the payroll: you transfer the month's salaries and contributions to the EOR, in USD.
- The EOR calculates gross-to-net: it computes each developer's gross pay, deductions, and net salary.
- Statutory contributions are deposited: EPF, ESI, professional tax, and TDS go to the correct authorities on time.
- Returns are filed: the EOR files the monthly and quarterly statutory returns on your behalf.
- Developers are paid in INR: net salary lands in each developer's Indian bank account on the agreed date.
The cycle repeats every month, and you receive one consolidated invoice instead of a stack of Indian filings to track.
Who is the legal employer when a US agency hires developers in India?
When a US agency hires developers in India through an EOR, the EOR is the single legal employer of record for those developers. India recognizes one legal employer per worker, so this is not co-employment. Because the EOR employs them, your US company usually avoids creating a permanent establishment in India.
An Employer of Record in India holds the employment contract, is named on the payroll, and carries every statutory obligation for your developers. You retain full control of what they build and how they work day to day.
This structure is well established under Indian law, and running it correctly is what keeps it clean. If you want the legal basis in detail, see our explainer on whether an EOR is legal in India.
The permanent-establishment point matters most to your finance team. Because the EOR, not your US company, employs and pays the developers in India, you reduce the risk that Indian tax authorities treat you as having a taxable presence there, which we cover in our guide to permanent establishment risk in India.
What statutory deductions apply to a developer's India salary?
A developer's India salary carries five main statutory items: provident fund (EPF), employee state insurance (ESI), professional tax, salary TDS, and gratuity. EPF and ESI are contributed by both sides, professional tax and gratuity sit with the employer, and TDS is withheld from the developer's pay. Rates are below.
| Item | Employee share | Employer share | Wage base or ceiling |
|---|---|---|---|
| Provident fund (EPF) | 12% | 12% | Wage ceiling Rs 15,000/mo (about $158) |
| Employee state insurance (ESI) | 0.75% | 3.25% | Wages up to Rs 21,000/mo (about $220) |
| Professional tax | Per state slab | Not applicable | Capped at Rs 2,500/year (about $26); several states levy none |
| Salary TDS | Withheld per income slab | Not applicable | Under Section 392, Income-tax Act 2025 |
| Gratuity | Not applicable | Employer funded | 15 days' wages per completed year; cap Rs 20 lakh (about $21,000) |
The provident fund is India's retirement contribution, roughly the equivalent of a 401(k). Both the developer and employer contribute 12%, calculated up to a wage ceiling of Rs 15,000 per month (about $158), as explained in our glossary entry on the Employees' Provident Fund (EPF).
ESI is a state health-insurance scheme funded 0.75% by the employee and 3.25% by the employer, and it applies to developers earning up to Rs 21,000 per month (about $220); our page on Employee State Insurance walks through eligibility. Many senior developers earn above that ceiling and fall outside ESI.
Professional tax is a state-level levy, so it varies by where the developer works and several states charge none at all. The Constitution caps it at Rs 2,500 per year (about $26), which our explainer on professional tax sets out state by state.
Salary TDS is income tax withheld from each paycheck under Section 392 of the Income-tax Act 2025 (effective April 1, 2026), which replaced the old Section 192; our guide to tax deducted at source (TDS) explains how the monthly deduction is set.
Gratuity is not a payroll percentage but an employer-funded benefit worth 15 days' wages per completed year, payable after five years of service, so it is provisioned rather than deducted. How you split gross pay across these heads is set in the salary structure you agree with each developer.
What are the monthly payroll deadlines and the final-settlement rule?
India payroll runs on fixed monthly deadlines. Salary TDS is deposited by the 7th of the following month, EPF by the 15th, and ESI within 15 days of month-end. When a developer leaves, full and final settlement is due within two working days under Section 17(2) of the Code on Wages.
The monthly and exit deadlines a US agency's payroll has to hit are:
- Salary TDS: deposited by the 7th of the following month, and March salaries by April 30.
- EPF: deposited by the 15th of the following month.
- ESI: deposited within 15 days of the end of the month.
- Full and final settlement: paid within two working days of a developer's last working day, under Section 17(2) of the Code on Wages.
Missing these is where agencies get hurt, because late EPF deposits attract damages of 1% per month plus 12% per year interest, and the calendar never pauses. Our month-by-month India payroll deadlines calendar lays out every due date for the year.
The two-working-day settlement rule catches teams off guard most often, since developer attrition is high and a departing engineer's dues cannot wait. Our guide to full and final settlement in India covers what goes into that final payout.
How does the USD-invoice and FIRC flow work for an agency?
You bill your clients in USD, but your developers are paid in INR. The EOR receives your funding as a foreign inward remittance, converts it, runs INR payroll, and hands you the bank documentation, including the FIRC, so your forex trail is clean and matched to each month's payroll.
A FIRC, or Foreign Inward Remittance Certificate, is a bank-issued document confirming that money sent from abroad has arrived in India. It is not a tax rate or a statutory charge; it is proof of the inbound transfer, and it is exactly what auditors and investors look for when they trace how your USD revenue became compliant INR salaries.
For a software agency, this flow is the difference between a defensible money trail and a messy one. When you fund payroll through the EOR, each USD transfer maps to a specific month of INR salaries and contributions, and the remittance paperwork lines up with the payslips and filings. Our guide to managing India payroll without an entity shows how that steady-state flow runs month after month.
Should a US software agency use an EOR or set up its own India entity?
For most US software agencies, an EOR wins until you have a large, stable India team. An EOR gives you a legal employer, full compliance, and a developer onboarded in 24 to 48 hours, with no entity to incorporate. Your own entity pays off only at sustained scale, once fixed costs spread across enough developers.
| Factor | EOR | Your own India entity |
|---|---|---|
| Time to first developer | 24 to 48 hours | Weeks to months to incorporate and register |
| Upfront cost | From $99/employee/month | Incorporation, capital, and setup fees |
| Compliance load | Carried by the EOR | Your team owns every filing, audit, and registration |
| Legal employer | The EOR | Your Indian subsidiary |
| PE risk for the US parent | Contained | Managed directly, with higher exposure |
| Best fit | Small to mid-size India teams | Large, stable, long-term headcount |
The break-even is a headcount and time-horizon question, not a pure price one. We break down where the line sits in our comparison of EOR versus setting up an entity in India.
The running-cost side, so you can model the monthly number against a subsidiary's fixed overhead, is covered in our guide to the cost of an EOR in India.
If you do decide to build your own entity later, the payroll setup work is substantial, and our guide to setting up payroll for a startup in India walks through the registrations involved. Most agencies start on an EOR and revisit the entity question only once the India team is large and permanent.
What documents and audit pack should a US software agency keep?
Keep a monthly audit pack so client and investor diligence never stalls. It should hold payslips, EPF, ESI, and TDS filing confirmations, FIRC and forex records, signed employment contracts, and the EOR's monthly compliance report. Together these prove your India developers are employed and paid compliantly.
A diligence-ready audit pack for your India developers holds:
- Monthly payslips: the gross-to-net breakdown for each developer, every month.
- Statutory filing confirmations: EPF, ESI, and TDS challans and returns showing contributions were deposited on time.
- FIRC and forex records: the remittance documentation matching your USD funding to each INR payroll run.
- Employment contracts: the signed EOR employment agreement for every developer.
- The monthly compliance report: a single summary of what was calculated, deducted, deposited, and filed.
This is precisely what a Series A data room or a client vendor-security review asks for, and having it ready turns a week of scrambling into a folder you can share. Our guide to the deeper PF, ESI, gratuity, and TDS mechanics for US teams in India explains what each filing proves.
How do US software agencies avoid misclassification and compliance gaps in India?
The common trap is classifying your India developers as contractors to save on contributions. If they work full-time under your direction, that is likely misclassification, and it exposes you to back contributions, penalties, and permanent-establishment risk. Employ your own developers through an EOR instead of labeling them contractors.
The cost saving is an illusion, because the liability lands later and larger. When a misclassified developer is reclassified as an employee, the unpaid EPF, ESI, and tax come due with penalties, and our guide to employee misclassification penalties in India sets out the exposure.
There is one legitimate case where contractor engagement is the right model: if your agency places candidates with end clients rather than employing its own developers, that is a genuinely different structure covered by our recruitment agency payroll guide linked above. This page assumes you employ your own developers.
How does Wisemonk run India payroll for US software agencies?
We run India payroll for US software agencies end to end. As your developers' single legal employer of record, we calculate and deposit every statutory contribution, file the returns, pay your team in INR, and give you the USD-invoice and FIRC trail your finance and diligence teams need.
Why Wisemonk for US software agencies
Wisemonk is an India-native Employer of Record. We help global companies hire, pay, and manage talent in India without setting up a local entity.
We work with 300+ global clients and manage 2,000+ employees across India, with $20M+ in payroll processed and a 4.8/5 rating on G2. That experience is built for exactly the agency use case: a US software company that wants an India development team and a clean compliance record, not an India subsidiary to administer. Our dedicated hub for software agencies goes deeper on the model.
Here is what we handle for a US software agency hiring developers in India:
- EOR as your single legal employer: we employ your developers on record, so there is one legal employer and no co-employment ambiguity.
- End-to-end statutory payroll: we calculate, deduct, deposit, and file EPF, ESI, professional tax, and TDS on schedule.
- USD invoicing and a clean FIRC trail: you fund and are invoiced in USD, and we give you the foreign inward remittance documentation to match.
- Developer onboarding in 24 to 48 hours: we get a new engineer employed and payroll-ready fast, from $99/employee/month.
- Agent of Record for contractor developers: where you do engage genuine contractors, our Agent of Record service keeps those payments compliant too.
We provide EOR services in India, and we are expanding rapidly into the US and UK markets.
Run India payroll for your software agency with Wisemonk
We employ, pay, and keep your India developers compliant, so your team can keep shipping.
Frequently asked questions
Can a US software agency run India payroll without setting up an entity?
Yes. A US software agency can hire and pay developers in India through an Employer of Record, with no local entity. The EOR is the legal employer, runs statutory payroll in INR, and files every return, while you keep managing the developers day to day.
Is the US agency or the EOR the legal employer of the developers?
The EOR is the single legal employer of record for your India developers. India recognizes one legal employer per worker, so this is not co-employment. You direct the developers' daily work, and the EOR carries the employment contract, payroll, and statutory compliance.
How are developers paid in INR when we invoice clients in USD?
You fund payroll in USD, and the EOR receives it as a foreign inward remittance. It converts the money to INR, runs payroll, and deposits each developer's net salary to their Indian bank account, giving you bank documentation that matches every monthly cycle.
What is a FIRC and why does our agency need it?
A FIRC, or Foreign Inward Remittance Certificate, is a bank-issued document confirming money you sent from abroad arrived in India. For a US agency, it evidences that your USD funding backed INR payroll, which client and investor diligence often asks to see.
When should a US software agency switch from an EOR to its own India entity?
Consider your own India entity only when you have a large, stable developer team for the long term. Until then, an EOR is usually more cost-effective, since it spares you incorporation, capital, ongoing filings, and the compliance staff a subsidiary needs to run legally.
What happens if we classify our India developers as contractors?
If your India developers work full-time under your direction but are paid as contractors, that is likely misclassification. It can trigger back contributions, penalties, and permanent-establishment exposure for your US company. Employing them through an EOR removes that risk while keeping costs predictable.
How does Wisemonk help US software agencies run India payroll?
Wisemonk is an India-native Employer of Record. We employ your India developers, run end-to-end statutory payroll in INR, and hand you a USD invoice plus the FIRC trail. We onboard developers in 24 to 48 hours, with EOR pricing from $99 per employee per month.
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