In the US, EOR (Employer of Record) and PEO (Professional Employer Organization) are legally distinct concepts. In India, the distinction is fuzzier — most vendors use the terms interchangeably and the underlying legal structure is similar. But the difference does matter for liability allocation, IP ownership and statutory exposure.
The distinction in concept
- EOR — the EOR is the sole legal employer. Engineer's only employment relationship is with the EOR. Client (you) has no employment relationship with the engineer at all.
- PEO — co-employment relationship. Engineer is technically employed by both the PEO and the client. PEO handles administrative employment; client retains day-to-day control. Common in US for tax / benefit reasons.
Why it matters less in India
Indian labour law doesn't formally recognise 'co-employment' as a separate legal construct. The Indian operator is the legal employer for statutory purposes (PF, ESI, PT, TDS); the foreign client is a service buyer under a B2B contract. So in practice, every Indian arrangement looks like an EOR — even if the vendor calls themselves a PEO.
What does vary across vendors is how the contract allocates: IP ownership, exit / portability of the employee, liability for compliance failures, and what happens if the vendor relationship ends.
Contract reviewed by FastLegal counsel
FastLegal's MSA template assigns IP cleanly to the foreign client, makes employee migration to your own subsidiary frictionless, and covers liability for any compliance failures we cause. We're happy to walk your in-house counsel through every clause before you sign.
What to check in the MSA — regardless of EOR / PEO label
- IP assignment — explicit assignment of all engineer-created IP to your foreign company, plus moral rights waiver to the extent permitted.
- Employee portability — clean process to migrate the engineer to your own subsidiary when you set one up. No penalty, no notice cost.
- Compliance liability — vendor is responsible for any PF / ESI / PT / TDS shortfalls or notices arising from their administration.
- Exit clause — 60-day notice without penalty.
- Confidentiality — engineer's NDA flows through to your foreign company (you're the beneficiary).
- Termination of employment — you have the right to direct termination decisions; the vendor executes.
Marketing language vs. substantive difference
- Some vendors call themselves 'PEO' to signal hands-on partnership and broad service scope.
- Some call themselves 'EOR' to signal clean compliance separation and global standardisation.
- The underlying legal structure in India is the same in both cases.
- Focus on the contract terms, not the label.
Frequently asked questions
Does India have any formal PEO licensing regime?+
No — India doesn't have a separate PEO certification. Indian EOR / PEO vendors are regular companies under their own statutory registrations.
Does the EOR / PEO distinction change tax treatment for our foreign parent?+
No — both are billed as services. Foreign parent expenses the fee; no difference in deductibility or revenue recognition.
Should we prefer a vendor that calls itself 'PEO' over 'EOR' (or vice versa)?+
Neither. Choose on actual scope, dedicated consultant, compliance audit history, and contract terms. The label is marketing.
Can we have both PEO for some hires and own subsidiary for others?+
Yes — common transitional pattern. Senior hires on PEO / EOR while subsidiary is being set up; junior hires direct to subsidiary.
Stop reading circulars. Start running clean payroll.
Every FastLegal plan ships with a dedicated payroll consultant — a real human who runs your PF, ESI, PT, TDS and Form 16 issuance, configured to your salary structure, your state, and your hiring plan. You sign off. We do the rest.