How to set up payroll for a small Indian business (₹0 to first hire)

Your first 1-19 employees you can run payroll without EPF/ESI. At 10 you become eligible for ESI, at 20 EPF becomes mandatory. Here is the actual setup path.

Step 1: Decide salary structure

Standard split: Basic (40-50% of gross), HRA (40-50% of basic), Special Allowance (residual). Lower Basic = lower EPF contribution = higher in-hand. But also lower gratuity and lower bonus. For a ₹50,000 gross salary, typical: ₹20,000 basic + ₹10,000 HRA + ₹20,000 special.

Step 2: Register for TAN

TAN is mandatory before you can deduct TDS. Apply at tin-nsdl.com. ₹65 fee. Issued within 7 days. TDS on salary starts at ₹3 lakh annual income; below that no TDS.

Step 3: Register on EPFO if 20+ employees

epfindia.gov.in → Employer registration. Get establishment code. Add each employee's UAN (Universal Account Number). Monthly contribution: 12% employer (8.33% to EPS + 3.67% to EPF) + 12% employee, on basic up to ₹15,000 ceiling.

Step 4: Register on ESIC if 10+ employees (and salary < ₹21K)

esic.in → Employer registration. Get ESIC code. Add each employee. Monthly contribution: 3.25% employer + 0.75% employee on gross salary.

Step 5: Register for Professional Tax (state-specific)

Maharashtra ₹200/month above ₹10K. Karnataka ₹200/month above ₹15K. Apply on state Labour Department portal. Some states have no PT (Delhi, UP, Rajasthan).

Step 6: Run monthly payroll

Gross salary → minus EPF (12%) → minus ESI (0.75%) → minus PT → minus TDS = Net salary. Pay by 7th of next month. Deposit EPF + ESI by 15th. File quarterly TDS return Form 24Q.

Step 7: Issue Form 16 annually

Form 16 is the annual salary TDS certificate. Issue by 15 June following the FY. Salaries above ₹2.5 lakh + TDS deducted = mandatory. Without Form 16 employees can't file ITR easily.

Frequently asked questions