How to Set Up Payroll for a Startup in India?

Ready to pay your first India hire, but not sure where payroll setup even begins?

Most startup founders assume payroll is just about paying salaries. It isn't. Setting up payroll for a startup in India means securing the right government registrations before you can legally process a single paycheck, structuring compensation in a way that is compliant from day one, and running statutory deductions across five separate authorities every month after that. India's payroll system works nothing like the US payroll.

This guide walks you through the exact steps to set up payroll for your India team, the mandatory registrations you need, how payroll calculations actually work, and what compliance looks like on an ongoing basis.

If you want the full picture of how Indian payroll works first, start with our payroll in India guide. If you are a global company, figuring out the payment mechanics specifically, how to pay employees in India covers the cross-border side in detail.

What is the step-by-step process to set up payroll for a startup in India?[toc=Steps to Setup Payroll in India]

Indian payroll looks straightforward until you try to run it. Underneath "pay salary, deduct taxes" are six compliance layers, each owned by a different government authority, each with its own deadlines and its own penalty for getting it wrong.

Here is how it actually works.

Step 1: Register for statutory compliance

Before you pay anyone, your company needs to be registered with the right authorities. Without these, you cannot legally deduct taxes, meet your obligations under Indian labor laws, or process a compliant payroll run.

• PAN and TAN - issued by the Income Tax Department; TAN is what allows you to deduct and deposit TDS from employee salaries
• Employee Provident Fund (EPF) registration - mandatory once you hit 20 employees, including contractors; register within one month of crossing the threshold or back-contributions apply retroactively
• Employee State Insurance (ESI) registration - mandatory once you have 10 or more eligible employees earning ₹21,000/month or below; covers health insurance and disability benefits
• Professional Tax - state-level; applies in Maharashtra, Karnataka, and West Bengal among others
• Labour Welfare Fund (LWF) - required in certain states; contribution amounts and due dates vary
• Shops and Establishments Act - state registration required before your first employment contract is signed; governs working hours, leave, and salary payment timelines under the Payment of Wages Act

If you are using an EOR, every one of these registrations is already in place. You skip this step entirely.

See how Wisemonk EOR handles statutory compliance for global companies hiring in India.

Step 2: Define the salary structure

India employees are hired on a CTC (Cost to Company) basis, the total employee compensation you spend per hire, not what they take home. Structure the salary components wrong and you create tax efficiency problems and compliance issues that surface months later.

After statutory deductions, the net salary typically lands at 70–80% of gross salary. How you structure basic salary also affects which income tax slabs apply and how much employees can reduce taxable income through declarations.

Read our full salary structure in India guide for a worked example at every CTC level, or use the India Salary Calculator to build the right structure before you send an offer.

Step 3: Collect essential employee details

You need specific documents from every employee before payroll goes live. Missing any of this essential employee data means withholding taxes will be calculated wrong from month one.

• PAN card, Aadhaar, and bank account details
• Tax regime declaration - old or new, determines how TDS is calculated all year
• Form 12BB - investment declarations if the employee is on the old regime
• Form 12B - previous employer salary and TDS details for mid-year joiners
• EPF nomination form

Treat all payroll data as sensitive employee data from day one, store it securely and limit access within your team.

Step 4: Choose the right payroll system

Your options depend on whether you have an India entity and how much managing payroll in-house your team can realistically handle.

Payroll software (Keka, greytHR, Zoho Payroll), the right payroll system for 10+ employees with an existing entity; automates TDS, EPF/ESI filings, and payslip generation, and integrates with most accounting systems. Excel is no longer compliant under the 2025 Labour Codes, which mandate digital payroll records.

Read more: 10 Best Payroll Software in India for 2026

Chartered Accountant - works for 5–10 employees; handles payroll processing manually, fine at small scale.

Employer of Record - best for outsourcing payroll entirely when you have no India entity; the EOR handles all registrations, deductions, filings, and records end-to-end. Payroll outsourcing at this level means zero internal compliance burden.

Not sure whether an EOR or your own entity makes more sense for your team size? Run the numbers with our EOR vs. Entity Calculator.

Step 5: Run monthly payroll

Each time you run payroll, the payroll cycle is the same, lock attendance, calculate gross salary, apply salary deductions, calculate net pay, generate payslips, then disbursing salaries to employee bank accounts.

Overtime pay must comply with Minimum Wages Act rates for the relevant state and employee category. Every employee must be paid accurately and on time, errors here are both a legal exposure and an employee satisfaction issue.

Use the Employee Cost Calculator to see the full employer cost before your first payroll run.

Step 6: Deposit statutory contributions

Payroll processing and depositing statutory contributions are two separate actions with two separate deadlines. Missing a deposit date triggers interest and penalties regardless of whether payroll was processed correctly.

Timely payments matter beyond compliance, employees can track their EPF credit online, and delays damage trust. Maintain accurate payroll records for every deposit. TDS delays attract 1.5% per month in interest plus ₹200 per day under Section 276B of the Income Tax Act.

For a full breakdown of every rate and penalty, see our payroll tax in India guide.

Step 7: File payroll returns

Depositing on time is not enough, Indian payroll regulations require separate return filings with separate authorities across four cycles.

• Monthly - EPF return filed on the EPFO portal with each deposit
• Quarterly - Form 24Q (TDS return) filed with the Income Tax Department; Q4 due by 31st May
• Half-yearly - ESI return filed with ESIC in May and November
• Annual - Form 16 issued to every employee by 15th June

The deposit and the filing are tracked independently. Depositing TDS while missing a Form 24Q return is still a penalty event, and the notice arrives long after the deadline.

For the full compliance calendar, see our India payroll deadlines 2026 guide.

What are the common payroll mistakes startups make in India?[toc=Payroll Mistakes in India]

From our experience helping 300+ global companies run India payroll, the same problems come up repeatedly, and most of them are avoidable.

• Delaying EPF registration past the 20-employee threshold - back-contributions apply retroactively from the date you crossed the limit, not from when you finally registered
• Setting basic salary below 50% of CTC - non-compliant under the 2025 Labor Codes and triggers recalculation of EPF, gratuity, and employee tax liability
• Misclassifying employees as contractors - employee classification errors carry back-tax liability and penalties; if someone works fixed hours under your direction, they are likely an employee under Indian law.
  Use our Employee Misclassification Check if you are unsure.
• Treating deposits and filings as the same task - depositing TDS on time but skipping Form 24Q is still a payroll compliance failure; both are tracked independently
• Using Excel for payroll beyond 5 employees - manual payroll calculation errors compound fast, and Excel records do not meet the digital record-keeping mandate under the 2025 Labor Codes
• Getting the tax regime declaration wrong - if you default all employees to the new regime without a declaration on file, employees who wanted the old regime will face a surprise tax shortfall at year-end and need to pay additional tax when filing

These mistakes typically surface during investor due diligence or an income tax assessment, rarely when they happen.

Set up India payroll with Wisemonk EOR[toc=Wisemonk EOR]

Wisemonk is a trusted Employer of Record in India, helping global companies hire, pay, and manage India employees without setting up a local entity. We handle every layer of payroll compliance, EPF, ESI, TDS, Professional Tax, statutory filings, and payslips, so your team gets paid accurately and on time, every month, with zero compliance burden on your side.

We offer three services depending on how your India team is structured:

• Employer Of Record (EOR) at $99/employee/month - we become the legal employer for your India hires; we handle employment contracts, salary processing, EPF, ESI, TDS, Professional Tax, statutory filings, and payslips end-to-end. No India entity needed.
• Managed Payroll at $49/month - for companies that already have an India entity and need payroll compliance handled without building an in-house team.
• Contractor Payments (Agent of Record) at $19/month - for companies paying India-based independent contractors; we manage compliant contracts, TDS deductions, and cross-border payments.

Every client gets a dedicated HR manager, not a ticket queue. They handle onboarding, monthly payroll, compliance queries, and employee issues directly. From our experience processing $20M+ in Indian payroll for 2,000+ employees across 300+ companies, we structure CTC for tax efficiency, keep every filing deadline, and get your first hire on payroll in 48 hours.

Talk to our India payroll experts today!

Wisemonk Client review/feedback:

“I love their payroll feature, which allows me to pay my workforce easily without any errors. In just a few seconds, I can see the invoices generated for all of the payouts”

- Mithun V.
Mid-Market
Read the full review on G2 →

“Wisemonk has successfully hired high-quality candidates, which has impressed the client. The team is responsive to the client's requests and changes via Slack. The team also collaborates through a hiring tracker in Google Sheets. Wisemonk communicates via email and virtual meetings.”

- Dan Sampson
VP of Engineering, Cobu
Read the full review on Clutch →