Open-Source Operations

The EOR Compliance Playbook

We believe in absolute transparency. Below is our exact operational blueprint for onboarding talent in India, managing statutory compliance, and resolving complex cross-border legal scenarios.

Part 1: The Onboarding Blueprint

From candidate selection to Day 1, here is how we ensure strict adherence to Madhya Pradesh labor laws, central statutory mandates, and international cross-border compliance.

1

Phase 1: Client Contracting & Financial Setup (The B2B Leg)

Before issuing employment offers, the legal framework between Codezilla Teams and the foreign client must be locked in to protect both parties from tax and Permanent Establishment (PE) risks.

1. Client Verification (KYB)

  • Action: Collect the foreign client’s corporate registration documents to satisfy anti-money laundering (AML) norms.
  • SOP: Verify the legal existence of the foreign entity and authorized signatories before drafting agreements.

2. Master Service Agreement (MSA) Execution

  • Principal-to-Principal: The MSA explicitly states the EOR is the substantive, independent legal employer, mitigating the risk of being classified as an "intermediary" (triggering 18% domestic GST).
  • Two-Hop IP Assignment (Hop 2): An irrevocable, present-tense clause where the EOR assigns all Intellectual Property (IP) generated by the employees directly to the foreign client.
  • PE Insulation: Explicitly restrict the hired employees from having executive contract-signing authority on behalf of the foreign client.

3. Invoicing and Security Deposit

  • Action: Issue the proforma invoice for the refundable security deposit (typically one month of gross salaries).
  • SOP: Ensure the incoming remittance utilizes correct RBI Purpose Codes: P1401 for employee compensation and P1006 for the EOR management fee.
2

Phase 2: Employee Contracting & Documentation (The B2C Leg)

1. Structuring the Employment Contract

  • Working Hours: Cap standard hours at 10 hours/day and 48 hours/week per the Madhya Pradesh Shops and Establishments Act, 1958.
  • Leave Entitlements: Integrate MP statutory leaves (e.g., 14 days casual leave, privilege leave accrual).
  • Bonus Calculations: Structure the salary to account for the Payment of Bonus Act, 1965 (8.33% statutory minimum against the ₹7,000 calculation ceiling for applicable salaries).
  • Two-Hop IP Assignment (Hop 1): Present-tense assignment clause transferring all IP (including Generative AI outputs) from the employee to the EOR, including a waiver of moral rights.

2. Digital Personal Data Protection Act (DPDPA) Compliance

  • Action: Issue an Employee Privacy Notice alongside the offer letter.
  • SOP: While payroll processing falls under "Legitimate Use", explicit documented consent is obtained for third-party background checks, productivity monitoring, or biometric data collection.
3

Phase 3: Statutory Onboarding & KYC

1. Document Collection Portal

Category Required Items Purpose
Identity & Taxation Aadhaar Card, PAN Card Mandatory for Income Tax (TDS) and EPF/ESI linking.
Financial Canceled Cheque or Bank Statement For setting up direct deposit salary routing.
Professional Relieving Letter, Experience Certificates To verify employment history and calculate gratuity continuity.
Educational Highest Degree Certificates For client background verification purposes.

2. Government Portal Registrations

  • Provident Fund (EPF): Generate or transfer the Universal Account Number (UAN) for new hires.
  • State Insurance (ESI): Enroll employees earning a gross monthly salary of ₹21,000 or less into the ESI scheme.
  • Professional Tax (PT): Add employees to the Madhya Pradesh PT roster and map to the correct tax slab (e.g., ₹208/month deduction).
4

Phase 4: IT Asset Procurement & Logistics

Hardware provisioning is handled locally by the EOR to avoid cross-border customs delays for the foreign client.

1. Procurement & Custodianship

  • Action: Purchase the exact hardware specifications from authorized domestic vendors in India.
  • SOP: The invoice is generated in the EOR's name (the EOR is the custodian of the asset), and the capital cost is cross-charged to the foreign client transparently.

2. Security and Dispatch

  • Action: Install Mobile Device Management (MDM) software on laptops.
  • SOP: MDM allows automated, remote data wipes if an employee is terminated or a laptop is lost. Laptops are dispatched via insured courier to remote addresses.
5

Phase 5: Payroll Activation & Day 1

1. Payroll Hub Integration

  • Action: Enter the employees' exact Total Cost to Company (CTC) breakdowns into payroll software.
  • SOP: Automate TDS withholding, EPF (12% employer + 12% employee), MP Professional Tax, and Gratuity accruals (4.81% of basic salary).

2. Day 1 Handover

  • Action: The EOR HR team conducts a brief compliance onboarding (leave policies, tax declarations, timesheets).
  • SOP: Following the briefing, employees are officially handed over to the foreign client's project managers via the functional reporting line to begin daily work.

Part 2: Ongoing Operations & Compliance SOPs

Once employees are active, our back-office runs on a strict, cyclical schedule to ensure 100% compliance with Indian tax authorities.

The Monthly Payroll Cycle

  • 1st–3rd: Collect approved timesheets & expense reimbursement requests.
  • 7th: Deposit TDS to Income Tax Department. Disburse net salaries to employees (Payment of Wages Act).
  • 11th & 20th: File GSTR-1 and GSTR-3B (Export of services under LUT).
  • 15th: Deposit EPF (24%) and ESI (4%) and file ECR on EPFO portal.
  • State-Specific: Remit deducted Professional Tax to MP commercial tax department.

Cross-Border Invoicing (FEMA)

  • Bifurcation: Invoices strictly separate (A) Salary Reimbursement and (B) EOR Management Fee.
  • LUT Declaration: Invoices state: "Supply meant for export under LUT without payment of IGST".
  • RBI Purpose Codes: P1401 for compensation, P1006 for management consultancy.
  • FIRC Generation: We obtain a Foreign Inward Remittance Certificate (FIRC) for every transaction to defend GST audits.

Part 3: Edge-Case Scenarios & Workflows

In a tripartite arrangement (EOR, Client, Employee), friction is inevitable. Because we hold the legal liability, we buffer you from Indian labor courts and tax authorities. Here is how we resolve complex structural problems.

Labor Law

The Client Demands Immediate Termination

The Scenario & Risk

The client is unhappy with an employee and requests an immediate firing. While "at-will" employment exists in the US, an immediate, un-documented termination of a confirmed employee in Madhya Pradesh violates the Shops and Establishments Act, risking a wrongful termination lawsuit.

The Resolution Workflow

  1. Intercept & Educate: We inform the client that Indian law requires due process.
  2. Notice Period: We execute termination per the contract-providing 30 days of working notice or paying 30 days of basic wages in lieu of notice.
  3. Asset Retrieval (IT SOP): We instantly trigger MDM software to lock the laptop and wipe proprietary data, then initiate reverse-courier logistics.
  4. Full & Final (F&F) Settlement: We calculate all pending dues (salary, privilege leave encashment, statutory bonus) and settle within 2 working days to avoid litigation.
Taxation

FIRC Rejection & GST Intermediary Notice

The Scenario & Risk

The GST Department audits the EOR and issues a "REG-03" notice, claiming we are merely an "intermediary" (payroll agent) and demanding 18% IGST on all historical invoices sent to the foreign client.

The Resolution Workflow

  1. Deploy the MSA: We respond using the "Principal-to-Principal" clause in our Master Service Agreement to prove we are the substantive employer taking legal risk, not a commission agent.
  2. Submit Evidentiary Trail: We provide employment contracts (proving labor liability) and FIRCs (proving foreign exchange realization).
  3. Legal Precedent: We cite exceptions to the Northern Operating Systems (NOS) Supreme Court ruling, proving an independent export of service.
Financial Liability

Unused Leave Accumulation Liability

The Scenario & Risk

A tech employee does not take their earned privilege leave for two years. Under the MP Shops Act, unused privilege leave accumulates up to 90 days. If the contract is terminated, the client is suddenly hit with a massive invoice to encash 90 days of leave, causing budget friction.

The Resolution Workflow

  1. Quarterly Audits: We run quarterly leave balance reports.
  2. Mandatory Time Off (MTO): If an employee approaches 60 days of leave, we enforce an EOR-mandated "cool-down" period, coordinating with the client's manager to force time off and bleed down financial liability.
  3. Client Budgeting: Our monthly invoice includes a transparent line-item tracking accrued leave liability so the client is never surprised.
Intellectual Property

Generative AI and IP Contamination

The Scenario & Risk

A software developer uses unauthorized GenAI tools to write code. The client conducts an audit and realizes the Intellectual Property (IP) might be contaminated. The client blames the EOR for failing to secure the IP chain of title.

The Resolution Workflow

  1. Proactive Defense: We ensure the employment contract (Hop 1) explicitly governs the use of GenAI and broadens the definition of "covered work".
  2. Reactive Defense: We issue a formal show-cause notice to the employee for violating the IT policy.
  3. Indemnification Enforcement: If necessary, we trigger disciplinary clauses to terminate the employee for cause (breach of IP), shielding the EOR and client from further contamination.

Ready to work with genuine local experts?

Stop guessing about Indian compliance. Let our Indore-based legal and HR teams secure your expansion.

Book a Compliance Consultation