Comparison of India EOR and other contracting methods (outsourcing, dispatch, subsidiary establishment)
Increasing numbers of Japanese companies are considering leveraging talented individuals from India. However, the types of contracts vary widely, including "EOR," "outsourcing," "temporary dispatch," and "establishing local subsidiaries," leaving many companies unsure of which to choose. This article compares India EOR and other contract types, clearly summarizing the advantages and disadvantages of each.
Contents
Overview and characteristics of contract types
Unlike common methods for hiring overseas talent such as "establishing a local corporation," "outsourcing," or "dispatch contracts," EOR takes full responsibility for payroll, taxes, and social insurance processing, significantly reducing the complexity of compliance with local regulations for companies.
Contract Type | Overview | Typical Industries and Uses |
|---|---|---|
EOR (Employer of Record) | An overseas EOR provider becomes the employer, and the company only provides business instructions. EOR acts on behalf of the company for payroll, social insurance, and other labor management. | Companies that prioritize outsourcing of HR and labor management |
Outsourcing | A contract aimed at deliverables or project completion. There is no employment relationship, and transactions are mainly based on delivery. | Industries with clear deliverables such as software development, design production, and consulting |
Dispatch | The dispatch company becomes the employer, and the receiving company gives business instructions. Strict regulations apply in Japan under the Worker Dispatch Law. | Wide range including domestic office work, manufacturing sites, and IT development. |
Establishing a Local Corporation | The company establishes a corporation in India and directly hires and manages local talent. This is suited for large-scale and long-term expansion. | Large and medium-sized enterprises when they fully develop the Indian market, etc. |
Comparison of cost structure and initial preparation
EOR
Initial Cost: Relatively low as it does not require the establishment of a corporation. There is often a setup fee and monthly service charges to the EOR provider at the time of implementation.
Operating Cost: Only salaries and social insurance advances (EOR covers these → invoices to the company) and service fees. When employing a large number of people, the total service fees may become high.
Point: Suitable for utilizing Indian talent on a small scale and short-term basis. Can start quickly, but costs tend to rise relatively as the number of employees increases.
Subcontracting
Initial Cost: Basically, just the cost of creating a contract and estimating the project.
Operating Cost: Often paid based on deliverables, but additional costs may arise if changes to requirements occur.
Point: Because it is based on predetermined projects or deliverables, it is not suitable for continuous use of human resources or daily detailed instructions. There is also a risk of "disguised contracting" if direct instructions are given.
Dispatch
Initial Cost: When accepting as a dispatch destination, procedures in accordance with domestic labor dispatch laws, such as signing a contract, are required. It becomes more complicated for overseas dispatches.
Operating Cost: Dispatch fees include a margin for the dispatch company, so total costs can become significant over a long period.
Point: Focuses on compliance with dispatch laws in Japan. When dispatching overseas talent in Japan, aspects such as residency qualifications become challenging and are not easily applicable for utilizing remote Indian talent.
Establishment of a Local Corporation
Initial Cost: Around hundreds of thousands to millions of yen for corporate registration fees, fees for lawyers and accountants, and capital.
Operating Cost: Significant fixed costs such as annual audits, tax filings, office rent, and placement of HR and labor management personnel.
Point: While the cost per person decreases with the number of hires, it is necessary to thoroughly manage operational burdens and governance. Suitable for companies considering large-scale deployments in the long term.
Comparison of labor and risk management
・EOR
The legal employer is the EOR provider, responsible for payroll, labor law compliance, and social insurance procedures.
There is an advantage of not needing to understand India-specific complex regulations, which minimizes compliance risks.
However, for tasks that EOR does not handle (such as visa acquisition support), separate consultation is necessary.
・Outsourcing
Since it is a contract based on delivery, there is essentially no employment risk. However, if continuous direction and orders are given, it may be judged as “disguised contracting,” posing a risk of being illegal.
Compliance is managed by the contractor company, but if issues arise with quality or progress, negotiations based on contracts are required as there is no employment relationship.
・Dispatch
The employer is the dispatch company, and the business gives direct instructions to the workers.
In Japan, the Labor Dispatch Law has detailed rules, including many regulations on period limitations and scope of work. Overseas dispatch is even more complicated and not very common.
・Establishment of Local Corporation
Since your company becomes the employer, compliance with labor laws and social insurance is essential. The risks are significant without hiring specialized staff or consultants.
Be aware that the management tasks related to operation of the local corporation, such as handling issues during troubles and constructing HR systems, will increase.
What kind of companies do you recommend?
• I want to test going overseas：
Companies interested in the Indian market, but want to start with a small number of people for development and research.
• I want to secure excellent IT engineers：
Startups and small to medium-sized enterprises that want to utilize highly skilled talent unique to India early on.
• I lack resources to establish a local corporation：
In cases where establishing a corporation all at once is a high hurdle due to costs and know-how.
• I have concerns about labor management：
When there are no staff familiar with Indian labor laws and tax matters in the company.
Summary
India EOR is a new scheme that allows companies to employ and utilize Indian talent without having a local corporation. The legal employer will be the EOR provider, freeing Japanese companies from cumbersome labor management and compliance requirements. For companies aiming to secure excellent engineers and expedite overseas expansion, it is a viable option with low barriers to entry and reduced risks.
最新情報を保つ