Hiring your first employees is exciting — and it instantly makes you responsible for payroll and compliance. The good news: if you set it up cleanly from day one, it stays simple as you grow. Here's how an Indian startup should set up payroll, step by step.
1. Decide your salary structure
Split each salary into basic, HRA and allowances. Basic pay is the base for PF and gratuity; HRA gives renting employees a tax benefit. A consistent structure from the start saves painful corrections later.
2. Know which registrations apply
You don't need everything on day one — obligations scale with headcount:
- PF (EPF): mandatory at 20 employees (voluntary below)
- ESI: mandatory at 10 employees (20 in some states) for wages up to ₹21,000/month
- Professional Tax: depends on your state
- TDS on salary: applies whenever an employee's income is taxable
See our PF & ESI registration guide for the process when you reach those thresholds.
3. Sort out founder pay
How founders pay themselves depends on structure. In a private limited company, founder-directors usually draw a salary or director's remuneration (with TDS); in an LLP, partners draw remuneration per the LLP agreement. Setting this up correctly keeps it tax-deductible and clean for investors. Not sure which structure you're in? See our business setup service.
4. Build your monthly payroll calendar
Compliance is mostly about dates: TDS by the 7th, PF and ESI by the 15th, payslips every month, and periodic returns. Use our payroll compliance checklist as your monthly to-do list.
5. Decide: in-house or outsource?
With a tiny team you can run payroll yourself, but the filings multiply fast. Most startups outsource payroll from the first hire — it's cheaper than an accountant and removes compliance risk, so founders stay focused on building.
Thresholds and rates change periodically — confirm current figures, or let a payroll partner track them for you.
Frequently asked questions
Does a startup need to register for PF and ESI?
Only once you cross the thresholds: PF at 20 employees and ESI at 10 (20 in some states) for staff earning up to ₹21,000/month. Below that it's voluntary — but still run payslips and deduct TDS where applicable.
How should a startup structure salaries?
Split each salary into basic, HRA and allowances. Basic drives PF and gratuity; HRA gives a tax benefit to renting employees. A clean structure from day one avoids messy corrections.
How do startup founders pay themselves?
It depends on structure. In a private limited company, founder-directors typically draw a salary/director's remuneration with TDS; in an LLP, partners draw remuneration per the LLP agreement. Set it up correctly so it's deductible and compliant.
When should a startup outsource payroll?
Most startups outsource as soon as hiring begins — even a few employees create PF/ESI/TDS obligations and monthly filings. It costs far less than an in-house accountant and removes risk.
What's the first payroll step for a new startup?
Decide your salary structure and confirm which registrations apply based on headcount and wages. Then set a fixed monthly payroll calendar — or hand the whole process to a payroll partner.