How to Pay Employees in India: Complete Payroll Guide for US Companies

Paying employees in India from the US is more involved than a wire transfer, and if you're a US founder or finance lead figuring this out for the first time, this guide is for you.

You need a compliant employment model, mandatory deductions for EPF and TDS calculated every month, and salaries disbursed in Indian Rupees, not USD, to stay within FEMA regulations.

This guide covers your three legal payment options, the exact deductions you owe every month, how to structure Indian salaries under the 2026 wage code, how to get USD into an Indian bank account compliantly, and what it actually costs to pay an Indian employee all-in.

What are the main ways to pay employees in India?[toc=Options to Pay Employees in India]

Indian law requires every salary to land in your employee's bank account in INR, by the 7th of each month. That's a hard rule under FEMA, no USD payments, no exceptions.

Here are the four ways US companies actually do it.

1. Employer of Record (EOR) - recommended

You send USD to the EOR. We convert it to INR, deduct EPF, ESI, TDS, and professional tax, and deposit net salary directly into your employee's account.

No India entity needed. No compliance work on your end. An India-specialist EOR like Wisemonk converts at under 0.6% FX markup, most US banks charge 3-5%.

2. Direct bank transfer via NEFT, RTGS, or IMPS - only if you have an India entity

These are India's domestic payment rails. NEFT settles in batches, RTGS is real-time for transfers above ₹2 lakh ($2,400), IMPS is instant 24/7.

All three require a funded Indian bank account, they move money inside India, not from the US.

3. Global payroll and fintech platforms

These convert your USD to INR at competitive rates and route it to employee accounts. Some issue virtual bank accounts (VBANs) that receive your USD and disburse INR locally, lower fees and faster than wire transfers.

They handle money movement, not statutory compliance. You still need a payroll partner for EPF, ESI, and TDS filings.

4. SWIFT wire transfer - slowest, most expensive

Your US bank wires USD to an Indian entity or payroll provider. They convert and pay via NEFT or RTGS. Takes 2-5 days, costs $25-$50 per wire plus a 3-5% FX markup.

It works, just the hardest way to do it.

What doesn't work: paying in USD directly violates FEMA. PayPal and Venmo create tax documentation gaps that can come back on both you and your employee.

What do FX costs actually add up to?

Most founders focus on the employee's salary and miss the FX conversion cost sitting on top of it.

That's over $12,000 saved annually on FX alone, for a team of just 10 people each earning $3,000/month.

From our experience helping 300+ global companies manage payroll in India, FX costs are what most founders only notice six months in. Getting the payment method right from day one keeps your budget clean.

Wisemonk EOR converts your USD, handles all statutory deductions, and disburses net salaries in INR directly to every employee's account. You send one invoice. Your team gets paid on time, every month. Talk to our India payroll experts today!

Once you know how the money moves, the next question is what gets deducted before it does. There are five statutory deductions every Indian employer must calculate every month, no exceptions.

What registrations are required to pay employees in India?[toc=Required Registrations]

If you're setting up your own entity, you need six registrations before you can legally run payroll in India.

Important for Foreign Employers: If you don't have a local legal entity, you cannot obtain these registrations. This is why most foreign businesses use an Employer of Record like Wisemonk, the EOR already has all registrations in place, so you skip this entire setup process and start paying employees in India within 48 hours.

Now that you understand the registration requirements, let's look at what mandatory deductions and contributions you'll handle in payroll.

What are the mandatory payroll deductions and contributions in India?[toc=Mandatory deductions]

Every Indian payroll has six statutory deductions. These are legal requirements, not optional line items.

Under the New Labour Code 2025-26 (implemented January 2026), basic salary plus dearness allowance must constitute at least 50% of CTC. This increases EPF and gratuity contributions, resulting in 3-5% lower monthly take-home pay but significantly higher retirement benefits for employees.

1. EPF is mandatory once you employ 20 or more people. Both sides contribute 12% of basic salary, subject to a wage ceiling of ₹15,000/month. Deposit deadline: 15th of every month.
2. ESI applies to employees earning below ₹21,000 gross per month, in establishments with 10 or more employees. Deposit deadline: 21st of every month.
3. Professional Tax is state-level. Maharashtra, Karnataka, Tamil Nadu, and West Bengal levy it. Delhi, Haryana, and Uttar Pradesh do not.
4. Income Tax (TDS) is deducted monthly and deposited by the 7th of the following month. Under the new tax regime for FY 2025-26, salaried employees get a ₹75,000 standard deduction, making income up to ₹12.75 lakh effectively tax-free.
5. Gratuity is not a monthly payment. You accrue roughly 4.81% of basic salary and pay it as a lump sum once an employee completes five years with you.
6. LWF applies in select states. Amounts are small, typically ₹6-₹36 per employee per half-year, but missing them during audits triggers penalties that are disproportionate to the amount owed.

Your total employer cost typically runs 12–15% above gross salary once EPF and gratuity are included.

Use our free free in-hand Salary Calculator to get the exact take-home breakdown for any CTC, or try our online salary calculator for Indian take-home pay to model different structures and tax regimes.

Want to understand exactly how each deduction is calculated, when they apply, and how they impact employee take-home pay? Read our comprehensive guide on how payroll deductions work in India.

Real example: What does it cost to pay one employee in India?

Most US employers want a simple number: what will this actually cost me each month? The answer depends on the role.

Here are verified salary benchmarks for the most common roles US companies hire in India, based on Glassdoor data as of early 2026.

USD figures use ₹91 = $1. Your actual cost will vary with the exchange rate at the time of payment.

Here's a verified cost breakdown for a mid-level developer at ₹15 LPA CTC, one of the most common salary brackets for India-based tech talent.

Your total employer cost is the CTC itself. Employer EPF and gratuity are already included in the ₹15 LPA figure. Add Wisemonk EOR at $99/month and your all-in cost comes to roughly $1,473/month for a fully compliant, mid-level Indian developer, and our detailed breakdown of the cost of Employer of Record (EOR) in India shows how this compares to setting up your own entity.

That's a fraction of what the same role costs in the US, and your employee still takes home over ₹1 lakh per month after all deductions.

Want the exact number for your team? Try our free Employee Cost Calculator.

What does a salary structure in India include?[toc=Salary Structure in India]

Indian salaries use a Cost-to-Company (CTC) model with specific components that affect taxes and take-home pay.

• Basic Salary: This is the fixed core of compensation. Basic salary plus dearness allowance must be at least 50% of total CTC under 2026 wage rules. All statutory contributions EPF, gratuity, and bonus are calculated based on basic salary. It's fully taxable.
• House Rent Allowance (HRA): HRA is provided to employees who pay rent. It's partially tax-exempt if employees submit rent receipts. The exemption amount depends on the city, actual rent paid, and basic salary.
• Dearness Allowance (DA): DA is mainly used in public sector jobs to offset inflation. It's fully taxable. When applicable, DA is included in EPF and gratuity calculations along with basic salary.
• Special Allowances: Flexible salary components like transport or meal allowances that bridge basic and total CTC, fully taxable unless documented as reimbursements.
• Bonuses and Incentives: Variable pay paid quarterly or annually, some are statutory requirements, all are taxable when paid.
• Reimbursements: Work expenses like travel, fuel, or medical costs can be reimbursed tax-free with proper bills and receipts. This increases employee take-home without raising your tax liability.

Structuring salary components correctly reduces your tax withholdings while maximizing employee take-home pay under Indian tax laws.

What is the step-by-step payroll process in India?[toc=Step-by-Step Payroll Process]

We've run payroll for hundreds of global companies in India, and here's how the monthly cycle works in practice:

Step 1: Collect employee information.

Before the first payroll run, gather each employee's PAN, Aadhaar, bank account details, EPF UAN, and signed tax declaration forms. You can't process statutory deductions without these.

Step 2: Calculate gross salary.

Add up basic salary, HRA, special allowances, and any performance bonuses. Basic salary plus dearness allowance must be at least 50% of total CTC under the 2026 wage rules.

Step 3: Calculate and deduct statutory contributions.

Subtract EPF (12% of basic), TDS based on the employee's income slab, ESI (0.75% if earnings are below ₹21,000/month), professional tax if applicable in your state, and LWF where required.

Step 4: Calculate net salary.

Gross salary minus all deductions equals the net salary your employee actually receives.

Step 5: Disburse salaries.

Transfer net salary to each employee's Indian bank account in INR via NEFT, RTGS, or IMPS. Deadline: 7th of the following month. Cash payments are legally restricted and should be avoided entirely.

Step 6: Issue payslips.

Send detailed payslips showing all earnings, deductions, and net pay to every employee. This is a legal requirement under Indian labor law, not optional, and our overview of paystubs in India and their legal components explains exactly what information must appear.

Step 7: Deposit statutory payments and file returns.

This is where most foreign employers get tripped up. Every statutory contribution has its own deadline and its own authority. Miss one and you're paying penalties that outsize the original amount.

Beyond monthly deposits, you also file quarterly TDS returns (due July 31, October 31, January 31, and April 30), monthly EPF Electronic Challan cum Returns, and half-yearly ESI returns.

From our experience running payroll for hundreds of global companies in India, the penalties for missing these deadlines are disproportionate. Late EPF deposits attract 12% annual interest plus 1% monthly damages. Late TDS filing costs ₹200 per day, with a minimum ₹10,000 penalty. Late ESI deposits add 12% annual interest on top. Repeated violations trigger labor department audits.

Wisemonk EOR automates every deposit and filing for our clients, so these deadlines are never a manual item on your finance team's calendar, and our comprehensive guide to hiring, paying, and managing employees in India walks through how this works end-to-end.

‍Want to understand the complete monthly payroll cycle with timelines and best practices? Read our detailed guide on India's payroll cycle for a deeper dive into each phase

What compliance rules affect payroll in India?[toc=Compliance Rules]

Beyond payroll mechanics, you must follow strict rules on currency payments and data protection.

FEMA Compliance (Foreign Exchange Rules)

• All payments to resident employees must be in Indian Rupees (INR), not foreign currency.
• You cannot pay from foreign currency accounts directly, even if contracts show USD, final payment must be INR.
• This applies whether you have a local entity or use a payroll service.

Data Protection Requirements

• India's Digital Personal Data Protection Act of 2023 requires strict security for payroll records and employee information.
• You need proper consent protocols and data protection measures, non-compliance carries heavy penalties.

Getting these compliance rules right protects you from legal issues and regulatory penalties down the road.

What are the mandatory statutory benefits and employer obligations in India?[toc=Statutory Benefits]

Indian labor law requires specific statutory benefits beyond monthly salary. These are legal obligations, not perks.

1. Gratuity. Under the November 2025 Labour Code reforms, gratuity eligibility now starts at just one year of service for all employees. Pay 15 days' wages for each completed year of service, payable at resignation, retirement, or termination. Budget for this from day one since the lump sum adds up fast for long-tenure employees.
2. Maternity Benefit. Provide 26 weeks of fully paid maternity leave for the first two children, and 12 weeks for subsequent children. If you employ 50 or more people, you're also required to arrange crèche facilities.
3. Statutory Bonus. The Payment of Bonus Act requires a minimum 8.33% annual bonus for all eligible employees in establishments with 20 or more staff. This is mandatory, not discretionary.
4. Leave Entitlements. Employees are entitled to 12-15 days of earned leave, 12 days of sick leave, and 10-20 public holidays annually depending on your state. Unused earned leave must be paid out when an employee exits.
5. Severance Pay. Pay 15 days' wages per completed year of service when terminating employees. For larger establishments, Indian government approval is required before executing layoffs.

For a complete breakdown of all mandatory and optional employee benefits in India, including health insurance, retirement plans, leave policies, and competitive perks that attract top talent, explore our detailed employee benefits guide.

With these statutory benefits and compliance obligations covered, the final step is actually paying your employees.

What are the minimum wage and overtime rules in India?[toc=India Minimum Wage & Overtime Rules]

When you pay employees in India, understanding minimum wage is critical, India doesn't have a single national rate, and each state sets its own under Indian labor laws.

State-Level Minimum Wage for Indian Employees

• Minimum wage varies by state, industry, and skill classification (unskilled, semi-skilled, skilled)
• What's compliant for Indian workers in Maharashtra may violate local laws in Karnataka for the same role
• Each state updates minimum wage rates annually, check your state labor department for current schedules
• Foreign employers violating minimum wage face penalties, back-payment of basic salary, and legal disputes

For detailed state-wise minimum wage rates in USD and how they impact your hiring budget, read our comprehensive India minimum wage guide.

Working Hours and Overtime Pay Under Indian labor laws

• The standard workweek is 48 hours for full time employees under Indian labor laws
• Indian employees working beyond 48 hours are legally entitled to overtime pay
• Overtime rate must be at least twice the regular hourly rate of the employee's basic salary
• Clearly document working hours and overtime terms in the employment contract or employment agreement

Need to understand overtime regulations in detail? Check out our complete guide to overtime laws in India and learn how to calculate overtime pay correctly to stay compliant.

Getting wages right protects you from compliance risks with local laws and builds trust with your employees in India, we help foreign businesses structure compliant wage policies across all states.

What are the common challenges foreign employers face with India payroll?[toc=India Payroll Challenges]

Managing payroll in India comes with unique challenges that trip up most foreign businesses, we've seen these issues repeatedly across hundreds of companies.

• Different Rules in Every State: Professional tax, minimum wages, and leave policies vary by state, so managing remote workers across multiple locations means tracking different compliance calendars for each.
  Use payroll software in India that handles multi-state compliance automatically.
• Constantly Changing Tax Regulations: Income tax slabs, EPF limits, and ESI thresholds change frequently, requiring payroll systems to be updated regularly to stay compliant with Indian labor laws. Partner with providers who monitor regulatory changes and update calculations automatically.
• Contractor Misclassification Risks: Treating full-time employees as independent contractors to avoid statutory benefits leads to heavy penalties and back-payment of EPF and ESI. Get professional classification assessments before engaging workers.
• Complex Record-Keeping Requirements: You must maintain detailed payroll records for 3-7 years, and missing documentation during audits equals non-compliance even if you paid correctly. Use cloud-based systems that automatically store and organize all payroll documentation.
• Managing Statutory Deadlines: Tracking the 7th for TDS, 15th for EPF, and 21st for ESI across multiple employees is challenging without automated payroll operations. Automate deposits and filings to ensure you never miss critical deadlines.
• Understanding Local Laws: Each state has different employment laws governing working hours, holidays, and termination rules that foreign employers often miss. Work with local experts or an EOR who understand state-specific labor regulations, and stay current on employment laws in India for 2026.

These compliance challenges are why most foreign businesses partner with an EOR or payroll provider instead of managing everything themselves.

Wisemonk EOR: Your Complete India Payroll Solution[toc=Wisemonk EOR]

Wisemonk is a leading Employer of Record helping companies pay employees in India compliantly without establishing a local entity. We handle complex payroll calculations, statutory compliance, and benefits administration so you can focus on building your team and growing your business in India.

Just starting to hire & pay employees in India? Use EOR at $99/employee/month. We become the legal employer, run monthly payroll in INR, handle all EPF, ESI, TDS, and professional tax filings, and onboard your first hire in 48 hours.

Already running operations in India? Use Managed Payroll starting at $49/employee/month. We take over your monthly payroll runs, statutory deposits, and compliance filings so your finance team doesn't have to track Indian deadlines.

Working with contractors? Contractor Payments start at $19/month. We handle classification, invoicing, and compliant payments so misclassification risk isn't something you're carrying.

Every plan includes a dedicated HR manager, 0.6% FX markup on USD to INR conversions (banks charge 3-5%), tax optimization that increases employee take-home pay by 15-20%, and equipment procurement anywhere in India.

Need to find the right people first? Our recruitment team sources engineers, marketers, designers, and GTM talent across India's top cities. Ready to build at scale? We set up and operate Global Capability Centers end-to-end, from legal setup to team onboarding, and our guide to establishing a captive center in India explains how this model boosts cost efficiency and control. And if you need to move from contractors to full-time employees, we handle that conversion without any gaps in pay or compliance.

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 →

What does this actually cost?

Our EOR pricing starts at $99/month per employee. Contractor management starts at $19/month.

For a 10-person India team, the difference in EOR fees alone saves you over $60,000 a year, before you even count the FX savings.

Don't just take our word for it. Wisemonk holds a 4.8/5 from 261 reviews, with users consistently highlighting fast onboarding, accurate payroll, and responsive local support.

Need more than just payroll? We also offer recruitment services, background verification, company registration in India, and GCC setup for companies ready to scale.

Want the exact cost for your team? Talk to our India hiring experts today.