What is the payroll cycle in India?

Most Indian companies run a monthly payroll cycle, paying salary once a month, usually between the last day of the month and the seventh of the next month. The cycle has three stages: collecting inputs like attendance and leave, calculating pay and deductions, and paying out and filing returns. Fixing a cut-off date for attendance, for example the 25th, gives you time to process before pay day.

What are the statutory deductions in Indian payroll?

The main statutory deductions are Provident Fund (EPF), ESI where the wage is below the limit, professional tax where the state levies it, and TDS on salary. EPF is 12 percent of basic plus DA from the employee with a matching employer share, and ESI is about 0.75 percent from the employee. Each has its own deposit deadline and return.

What is an ECR in PF?

ECR stands for Electronic Challan cum Return. It is the monthly file you upload on the EPFO portal listing each employee's PF wages and contributions. After uploading the ECR you generate a challan and pay the PF dues, usually by the 15th of the following month. Filing the ECR late attracts interest and damages.

Can I run payroll for a small team without an accountant?

Yes, many owners run payroll for a small team themselves using payroll software that applies the statutory rates automatically. The software calculates PF, ESI, PT and TDS, generates payslips and prepares the return files. You still need to deposit the dues on time, so an accountant or a compliance service is useful once you cross about ten to twenty employees.

What happens if payroll compliance is filed late?

Late PF or ESI payment attracts interest and penal damages, and late TDS deposit attracts interest and a fee, plus possible disallowance of the expense. Professional tax also has state penalties. Beyond the money, repeated delays can trigger inspections. The safest approach is a fixed monthly calendar with the deposit dates marked.

Payroll Process in India: A Step-by-Step Guide for Small Business (2026)

Payroll is the monthly process of working out what each employee should be paid, deducting the right statutory amounts, paying the net salary and filing the returns that follow. Done well it is quiet and predictable. Done badly it produces angry staff, penalty notices and hours of rework. This guide breaks the Indian payroll process into clear steps a small business owner can follow.

Step 1: Gather attendance and inputs

Payroll starts with data, not calculation. Before you can compute anything you need, for the pay period:

Days present, days absent, and leave taken by each employee.
Any leave without pay, which reduces that month's salary.
New joiners and their pro-rata pay, and any exits with a final settlement.
Overtime, incentives, arrears or one-time payments.
Changes like a salary revision, a new bank account or a loan recovery.

Set a cut-off date, for example the 25th, so attendance is frozen and you have time to process. If your attendance sits in a register or a chat group, this is the step that eats the most time, which is why capturing it in one system helps.

Step 2: Compute gross salary

For each employee, add up the earnings for the period: basic, HRA, DA if any, special allowance, other allowances and any bonus or arrears. If an employee had leave without pay, pro-rate the salary for the actual paid days. The total is gross salary for the month. For a full breakdown of each earning line, see our salary slip format guide.

Step 3: Apply statutory deductions

Now subtract the statutory items from gross. The main ones are:

EPF: 12 percent of basic plus DA from the employee, with the employer contributing 12 percent too. Part of the employer share goes to the Employees' Pension Scheme and the rest to PF. PF applies once you cross the coverage threshold of twenty employees, though you can register voluntarily earlier.
ESI: for employees earning below the wage limit, the employee pays about 0.75 percent of gross and the employer about 3.25 percent. ESI applies to establishments with ten or more employees in most states.
Professional tax: a state tax, so the slab and even whether it applies depend on your state. The total in a year cannot exceed 2,500 rupees. Read our detailed professional tax guide.
TDS: income tax deducted on the employee's estimated annual salary, spread across twelve months. The regime the employee chooses affects the amount. See our TDS on salary guide.

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Step 4: Arrive at net pay

Net pay is simple once the pieces are ready: gross salary minus total deductions. This is the take-home amount that reaches the employee's account. Double check the arithmetic per employee, because a wrong net figure is the fastest way to lose staff trust.

Step 5: Disburse salaries

Pay the net salary into each employee's bank account, usually through a bank salary file or a bulk transfer. Keep the payment date consistent every month, because predictability is what staff value most. Save the bank confirmation as proof of payment.

Step 6: Issue payslips

Every employee should get a payslip for the month showing earnings, deductions and net pay. A PDF slip is fine. Issuing it the same day you pay closes the loop and reduces questions. Payroll software generates these automatically from the same numbers you just calculated.

Step 7: File compliance returns and challans

Deducting is only half the job. You must deposit the amounts and file the returns:

PF: upload the ECR (Electronic Challan cum Return) on the EPFO portal, generate the challan and pay, usually by the 15th of the next month.
ESI: file the ESI contribution and pay through the ESIC portal by the due date, generally the 15th.
Professional tax: pay and file as per your state's schedule, which may be monthly or annual.
TDS: deposit the deducted tax by the 7th of the next month, file the quarterly TDS return, and issue Form 16 after the year ends.

A monthly payroll calendar

The way to stay compliant is a fixed calendar. A simple version: freeze attendance by the 25th, process and pay salary by the 1st to 5th, deposit TDS by the 7th, and deposit PF and ESI by the 15th. Mark these dates once and payroll stops being a scramble.

Where software helps

Payroll is repetitive and rule-bound, which is where a tool earns its place. IndiaCRM's HR & Payroll module holds attendance, leave and salary structures together, applies the statutory rates, and produces payslips from the same data. That removes the copy-paste between spreadsheets that causes most payroll errors, and leaves you to check the output rather than build it from scratch.