Hiring your first employees is a milestone — but it also makes you responsible for payroll: paying people correctly, on time, and with the right deductions. Done well, it's routine. Done wrong, it leads to unhappy staff and compliance penalties. Here's the plain-language version for first-time Indian employers.
What "payroll" actually means
Payroll is more than transferring a salary. Each month you calculate an employee's gross pay, subtract the right deductions, and pay the net (take-home) amount — while setting aside and depositing the deducted amounts with the government.
The parts of a salary
A typical salary is split into components, which matter for both tax and statutory contributions:
- Basic salary — the core, and the base for PF calculations
- HRA (House Rent Allowance) — partially tax-exempt for employees who pay rent
- Allowances — conveyance, special allowance, etc.
- Deductions — PF, ESI, professional tax and TDS (explained below)
The four statutory deductions to know
These are the contributions and taxes you may need to deduct and deposit:
- Provident Fund (EPF): Mandatory once you have 20+ employees. Employee and employer each contribute 12% of basic + DA. Deposit by the 15th of the next month.
- ESI (Employees' State Insurance): Applies at 10+ employees (20 in some states) for staff earning up to ₹21,000/month. Employee pays 0.75%, employer 3.25%. Provides medical and cash benefits.
- Professional Tax (PT): A small state-level tax (states like Maharashtra, Karnataka, West Bengal levy it; others don't). Deducted monthly and paid to the state.
- TDS (Tax Deducted at Source): Income tax deducted from salary if the employee's annual income is taxable, based on their income-tax slab. Deposit by the 7th of the next month.
Rates and thresholds are revised from time to time — confirm current figures before you run payroll, or let us handle it.
What a compliant payslip must show
Every employee should get a monthly payslip clearly listing: gross pay, each component (basic, HRA, allowances), every deduction (PF, ESI, PT, TDS), and the final net pay. Employees rely on payslips for loans, rent agreements, visas and tax filing — and clear payslips build trust.
Your monthly payroll calendar
Compliance is mostly about hitting dates. As a rule of thumb: TDS by the 7th, PF and ESI by the 15th of the following month, plus periodic returns (quarterly TDS returns, monthly/annual PF & ESI filings). Missing these means interest and penalties, so a fixed schedule is essential.
Common first-timer mistakes
The errors we see most: not registering for PF/ESI once the employee count crosses the threshold, getting the basic-pay split wrong (which affects PF), forgetting professional tax in applicable states, depositing TDS late, and not issuing proper payslips. Each is avoidable with a simple monthly process.
Do it yourself or outsource?
For a handful of employees, payroll is manageable — but as you grow, the filings multiply. Many small businesses outsource it rather than hire an accountant. She Assist runs your monthly payroll end-to-end — processing, payslips and every PF/ESI/PT/TDS filing — so your team is paid right and you stay fully compliant, hassle-free.