- Indian courts decide who the employer is on the facts, starting with who controls the work.
- Contract labour rules under the OSH Code apply at 50 or more contract workers, up from 20.
- A principal employer must pay wages that a contractor fails to pay.
- If a contractor skips statutory bonus for contract labour, the principal employer pays the minimum bonus.
On this page
How does Indian law decide who the employer is?
By looking at control first. The label in your contract comes second.
The Supreme Court set the starting point in Dharangadhara Chemical Works v State of Saurashtra in 1956. The test, it said, “is the existence of a right of control in respect of the manner in which the work is to be done”. Later courts added payroll, supervision, the power to dismiss and integration into the business. No single factor wins.
That is why co-employment in India is about allocation. Two parties can share the work relationship. Only one should hold the statutory registrations, and both should know which duties they carry.
In a true PEO model, your Indian entity is the employer and the provider operates. In an employer of record model, the provider’s entity is the sole employer and you direct the work under a services agreement.
Where does co-employment risk show up for foreign companies?
Mostly in manpower contracts and in loose habits with EOR staff.
| Scenario | What can go wrong | Who pays first |
|---|---|---|
| Agency staff on your Indian premises | Contractor defaults on wages | You, as principal employer |
| Contract workers in your core activity | Barred under section 57 of the OSH Code, with limited exceptions | You |
| Contractors run like full-time staff | Employee misclassification claims for PF and gratuity | You |
| EOR staff managed day to day by you | Low risk if paperwork stays clean | The EOR, for statutory dues |
The principal employer duties come from the OSH Code central rules, summarised by EY. They bite hardest in staff augmentation deals run through small agencies.
The common mistake with EOR teams is mixed signals. You issue appraisal letters on your own letterhead, add people to your global HR system as employees and approve their exits by email. Each act blurs who the employer is. Keep employment documents on the EOR’s paper. Our article on whether an employer of record is legal in India explains the contract chain.
How does Remunance keep co-employment lines clear for your India team?
Remunance Services Pvt Ltd is the sole legal employer, so appointment letters, the POSH policy and annual filing, leave administration and exits all run on our entity. You keep direction of the work. Remunance joined Hightekers Group in June 2026 and continues under its own brand. To see how employer of record services would split duties for your roles, map your liability split with us.
What else do people ask about co-employment?
Is co-employment legal in India?
Yes. No law bars two organisations from sharing a work relationship. The legal question is which party carries each statutory duty and whether the paperwork matches the reality.
What is the difference between co-employment and an EOR?
An EOR is a single-employer model. The provider employs, and you direct the work. Co-employment usually describes a shared model on your own entity.
Who pays if a manpower contractor does not pay wages?
You do, as the principal employer, under the OSH Code rules. Check contractor payroll registers every month rather than discovering the gap at an inspection.
Planning a hire in India?
Our founding team has run payroll and hiring in India for 22+ years, first as Remunance Systems, which was later acquired by ADP.