Payroll Maintenance

Payroll Maintenance: complete guide

Introduction

Payroll is much more than paying salaries on time. Every month, an employer has to calculate each employee's gross pay from attendance, leave, overtime and variable pay, apply the correct deductions for provident fund, Employees' State Insurance, professional tax, labour welfare fund and income tax, pay the net salary, issue payslips, and then deposit the deductions with different authorities by different due dates. On top of the monthly cycle sit quarterly TDS returns, annual Form 16, full and final settlements, gratuity, bonus and the records that labour inspectors, auditors and employees can ask for at any time.

Each of these steps is governed by law. Income tax on salaries must be deducted under the income tax law based on the employee's chosen tax regime and declared investments. Provident fund contributions follow the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 and its schemes, and ESI contributions follow the Employees' State Insurance Act, 1948. Professional tax and labour welfare fund are state levies with their own slabs and dates. Minimum wages, payment of wages, bonus and gratuity add further rules. The four labour codes, including the Code on Wages, 2019 and the Code on Social Security, 2020, consolidate many of these laws and change some definitions, most importantly the definition of wages, which affects how provident fund, gratuity and other benefits are calculated.

Small errors in payroll have a way of compounding. A wrong salary structure can lead to short deduction of provident fund for every employee every month. Late TDS deposit attracts interest and can lead to disallowance of the salary expense. Incorrect Form 16 creates mismatches in employees' own tax returns and leads to notices for them. Missing a professional tax payment can result in penalties from the state. For employees, payroll is also the most visible part of the employer relationship: a delayed or wrong salary credit damages trust quickly.

Our payroll maintenance service takes the monthly payroll process off your hands. Our team of payroll professionals and chartered accountants processes salaries from your attendance and input data, calculates all statutory deductions, prepares payslips and the bank payment file, files provident fund, ESI and professional tax returns and payments, deducts and deposits TDS, and maintains the registers. Labour and tax rules change frequently, and we check the current rates, limits and procedures each month.

Who Needs It

Payroll maintenance is useful for any employer, but especially for:

• Startups and small businesses without a dedicated HR or payroll team, where founders or accounts staff are handling payroll alongside other work.
• Growing companies that have crossed the thresholds for provident fund or ESI and now need to manage monthly contributions and returns.
• Businesses with employees in several states, where professional tax and labour welfare fund rules differ from state to state.
• Companies with variable pay, such as sales incentives, overtime, shift allowances and commissions, where calculations change every month.
• Firms that want confidentiality, where founders prefer that salary data is not handled by internal staff.
• Foreign companies with an Indian subsidiary or branch, which need local payroll processing and compliance.
• Professional firms, clinics, schools and NGOs that employ staff but do not want to invest in payroll systems and expertise.
• Businesses moving to the labour codes, which need salary structures reviewed so that the definition of wages and the related contributions are correctly applied.
• Employers who have faced notices for provident fund, ESI or TDS defaults and want to set up a clean process going forward.

Key Benefits

• Accurate and on-time salary processing. Salaries are calculated from your inputs, checked, and ready for payment by the agreed date each month.
• Statutory deductions handled correctly. Provident fund, ESI, professional tax, labour welfare fund and TDS are calculated according to current rates and limits.
• Timely deposits and returns. We file monthly provident fund and ESI returns, professional tax returns where required, and quarterly TDS returns within the due dates.
• Clear payslips for employees. Employees receive detailed payslips showing earnings, deductions and year-to-date figures.
• Correct tax on salaries. We apply the employee's chosen tax regime, collect investment declarations and proofs, and adjust TDS through the year so that there are no large surprises at year-end.
• Annual Form 16. We issue Form 16 to employees after the year closes, matched with the TDS returns filed.
• Full and final settlements. We compute final dues for exiting employees, including leave encashment, gratuity where applicable, notice period recovery and tax.
• Records ready for inspection. We maintain salary registers, attendance-linked records and challans, which help in labour inspections and audits.
• Confidentiality. Salary data is handled by our team with restricted access.
• Lower cost than in-house processing for many small and mid-sized employers, with access to specialist knowledge of tax and labour law.

Salary structure under the labour codes. The Code on Wages, 2019 defines wages to include basic pay, dearness allowance and retaining allowance, and provides that if the excluded allowances exceed half of the total remuneration, the excess is added back to wages. This affects the base on which provident fund, gratuity and other benefits are calculated. Many employers need to review salary structures that relied on a low basic pay and high allowances. We help you understand the impact and restructure where needed.

How the monthly cycle works in practice. By an agreed date each month, you share attendance, leave, new joiners, exits and variable pay. We process the payroll, send you a summary and the bank file for approval, and share payslips once salaries are paid. We then deposit or prepare challans for provident fund, ESI, professional tax and TDS, and file the returns within the due dates.

Eligibility and Legal Requirements

Any employer can use this service. Payroll is governed by a combination of central and state laws, including:

• Income tax on salaries. Employers must deduct tax at source from salaries under the income tax law, based on the estimated income of the employee for the year and their chosen regime. TDS must be deposited by the seventh of the following month, except for March, when the due date is the thirtieth of April. Quarterly TDS returns are filed in Form 24Q, and Form 16 is issued annually by the date notified.
• Provident fund. Establishments employing twenty or more persons, or covered voluntarily, must contribute to provident fund and pension for eligible employees. Contributions are generally twelve percent of wages from both employer and employee, subject to the wage ceiling and options in the scheme, and are deposited through the electronic challan cum return by the fifteenth of the following month.
• Employees' State Insurance. Covered establishments must pay contributions of employees earning within the wage ceiling, currently at 3.25 percent by the employer and 0.75 percent by the employee, by the fifteenth of the following month.
• Professional tax. States that levy professional tax require the employer to deduct it from salaries according to the state's slab and deposit it with the state, with returns at the frequency set by the state.
• Labour welfare fund. Several states require periodic contributions from employers and employees to the state labour welfare fund.
• Minimum wages and payment of wages. Wages must not be below the minimum notified for the employment and area, and must be paid within the time limits in the law, generally by the seventh or tenth of the following month depending on the size of the establishment and the applicable law.
• Bonus and gratuity. Eligible employees are entitled to statutory bonus and, on leaving after the qualifying period, to gratuity, subject to the conditions in the law and the labour codes.
• Registers and records. Employers must maintain wage registers, attendance records and other records in the format and for the period required.

The labour codes have been brought into force and are being implemented through central and state rules, which may change the timelines and formats above. We check the current rules each month.

Step-by-Step Guide

1. Onboarding. We collect company details, registrations under provident fund, ESI, professional tax and TAN, and the existing salary structures, policies and past payroll data.
2. Salary structure review. We review the salary components and check them against the wage definition and statutory limits, and flag any changes you may want to make.
3. Employee master setup. We set up each employee's details, including PAN, Aadhaar, bank account, universal account number, ESI number, tax regime and state of work.
4. Monthly inputs. Each month, you share attendance, leave, overtime, new joiners, exits, salary revisions, incentives and reimbursements by the agreed date.
5. Payroll processing. We calculate gross pay, statutory deductions, TDS and net pay for each employee.
6. Review and approval. We send you a payroll summary and variance report for review and approval before payment.
7. Bank file and payslips. We prepare the bank transfer file or payment list and issue payslips once salaries are paid.
8. Statutory payments and returns. We prepare challans for provident fund, ESI, professional tax and TDS, and file the returns within the due dates after you make the payments.
9. Quarterly and annual filings. We file quarterly TDS returns, process investment declarations and proofs, and issue Form 16 after the year ends.
10. Exits and reports. We process full and final settlements, and share monthly and annual reports such as the salary register, cost to company summary and statutory payment records.

Documents Checklist

Employer registrations and setup:

• PAN and TAN of the employer
• Provident fund establishment code and portal access, where registered
• ESI employer code and portal access, where registered
• Professional tax and labour welfare fund registrations for each state, where applicable
• Company payroll policies, leave policy and salary structures

For each employee:

• Offer letter or appointment letter with salary breakup
• PAN and Aadhaar
• Bank account details with IFSC
• Universal account number for provident fund and ESI number, if already allotted
• Date of joining, designation, department and work location
• Choice of tax regime and investment declaration for the year

Every month:

• Attendance and leave records
• Overtime, shift and incentive details
• New joiners with joining documents, and exits with last working day
• Salary revisions and arrears
• Reimbursement claims and approvals

During the year:

• Investment proofs for TDS under the old regime, such as rent receipts, insurance premium receipts and home loan certificates
• Previous employer income and TDS details for new joiners

For full and final settlements:

• Resignation or termination letter
• Leave balance, notice period served and any recoveries
• Details of gratuity eligibility and other dues

How Long It Takes

Payroll maintenance is a recurring service. A typical schedule looks like this:

• Onboarding and setup: one to two weeks, depending on the number of employees and the condition of past records.
• Monthly payroll processing: two to three working days after we receive complete inputs.
• Statutory returns and payments: prepared and filed within the due dates for each law, generally by the seventh for TDS and the fifteenth for provident fund and ESI.
• Quarterly TDS returns: filed by the due date after each quarter.
• Form 16: issued after the fourth quarter TDS return is processed, by the date notified.
• Full and final settlements: usually within a few working days of receiving exit details, subject to the timelines in your policy and the law.

To meet salary dates comfortably, we agree a cut-off date for monthly inputs. Late inputs, missing employee details and last-minute changes are the most common causes of delay.

Pricing

Our professional fee for Payroll Maintenance is ₹3,999/mo.

This covers, for a defined number of employees agreed at onboarding:

• Monthly salary processing and payroll summary
• Payslips for all employees
• Calculation of provident fund, ESI, professional tax, labour welfare fund and TDS
• Preparation of statutory challans and filing of monthly provident fund and ESI returns
• Quarterly TDS returns on salaries and annual Form 16
• Processing of investment declarations and proofs
• Full and final settlement calculations
• Salary register and monthly reports

Salaries, statutory contributions, taxes, interest and any penalties are payable by the employer at actual. Payroll for larger teams, multi-state professional tax registrations, new provident fund or ESI registrations, salary restructuring projects, labour code advisory and handling of inspections or notices are quoted separately.

Common Mistakes to Avoid

• Ignoring the wage definition. Keeping basic pay very low and allowances high can lead to short payment of provident fund and gratuity under the labour codes.
• Not collecting tax regime choices. If an employee does not declare a regime, the default regime applies. Failing to collect this early can lead to wrong TDS for the whole year.
• Late deposit of TDS. Delay attracts interest and can lead to disallowance of part of the salary expense in the employer's own tax computation.
• Missing provident fund or ESI for new joiners. Eligible employees must be enrolled from their date of joining. Delays lead to demands for arrears with interest and damages.
• Applying the wrong professional tax slab. Professional tax depends on the state where the employee works, not where the company is registered.
• Paying salaries late. Wages must be paid within the time allowed by law. Repeated delays can attract penalties and claims by employees.
• Mismatched Form 16. Form 16 must match the TDS return filed. Mismatches cause problems for employees when they file their own returns.
• Delaying full and final settlement. Final dues should be settled within the time allowed in the law and your policy, and gratuity paid within the time specified.
• Poor record keeping. Inspectors can ask for wage registers and attendance records. Missing records make it hard to defend the employer's position.

What Happens After

Once payroll is set up with us, the process runs every month. Beyond the regular cycle, our team can support you with:

• Year-end processes, such as investment proof verification, final TDS computation, Form 16 issue and reconciliation of salary costs with the books.
• Salary revisions and arrears calculations when increments are given.
• Bonus and gratuity calculations under the applicable law.
• Labour code implementation, including review of salary structures, policies and registers.
• Inspections and notices from provident fund, ESI, labour or tax authorities, with records and replies.
• New registrations when you cross thresholds or open offices in new states.
• Employee queries about payslips, deductions and tax.

Keep payroll records, registers and challans for the period required under each law, since inspections and assessments can cover earlier years.

FAQs

What does payroll maintenance include?

It includes monthly salary processing, payslips, statutory deductions and payments, monthly provident fund and ESI returns, quarterly TDS returns, Form 16, investment proof processing, full and final settlements and payroll reports.

Do you pay salaries to employees directly?

No. We prepare the bank file or payment list. You make the payment from your bank account after approving the payroll. Statutory payments are also made from your account.

How many employees does the monthly fee cover?

The fee covers a defined number of employees agreed at onboarding. Larger teams are quoted separately based on the number of employees and complexity.

Do you handle provident fund and ESI registration?

Registration is a separate service. Once registered, monthly returns and contributions are part of payroll maintenance.

How do you handle TDS on salaries?

We calculate TDS based on each employee's estimated annual income, chosen tax regime and declared investments, adjust it during the year as proofs come in, deposit it monthly and file quarterly returns.

What happens if an employee does not choose a tax regime?

The default regime under the income tax law applies. We collect regime choices at the start of the year or at joining to avoid this.

How do the labour codes affect payroll?

The labour codes introduce a uniform definition of wages, which affects provident fund, gratuity and other calculations. They also change some registration, return and payment timelines. We apply the rules in force each month.

Can you handle employees in different states?

Yes. We apply the professional tax and labour welfare fund rules of each state where employees work. Additional state registrations are quoted separately.

Do you issue Form 16 to employees?

Yes. We issue Form 16 after the fourth quarter TDS return is processed, by the date notified by the department.

How do you handle employees who leave?

We calculate final dues, including salary for days worked, leave encashment, notice period recovery, gratuity where eligible, and tax, and share the settlement statement.

Can you process reimbursements and incentives?

Yes. Reimbursements and variable pay are processed from the details you share, with the correct tax treatment for each component.

Is employee salary data kept confidential?

Yes. Salary data is handled only by the team members working on your payroll and is not shared with anyone else.

Can we switch to your service in the middle of the year?

Yes. We take over from the month you start, using year-to-date data from your earlier payroll so that TDS and statutory calculations continue correctly.

Do you represent us in provident fund or ESI inspections?

We help you prepare records and replies. Representation in inspections and proceedings is quoted separately.

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