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

Are you trying to pay employees in India from the US and unsure how to stay compliant?

As India payroll specialists with 6+ years of experience, we have processed $20M+ in payroll for 300+ global companies and hold a 4.8/5 on G2. We built this guide from that experience.

Junior developers in India cost $15,000 to $25,000 per year compared to $80,000 to $120,000 in the US, a 70-85% cost advantage, and the INR's 9.88% depreciation in FY2026 has made that gap even wider for US employers paying in dollars. (Source: Wisemonk India IT Services Report 2026)

But paying employees in India is not just a wire transfer. Every salary requires mandatory deductions, must be paid in Indian Rupees, and must reach the employee's account by the 7th of each month. Missing any deadline triggers penalties from multiple government authorities.

Updated for April 2026: The Income Tax Act 2025 took effect on April 1, 2026, renaming key TDS forms and section references. The four Labour Codes consolidated 29 central labor laws and took effect in November 2025. If your payroll system still references old form numbers, your filings will fail.

What are the main ways to pay employees in India?

There are four legal ways to pay employees in India from the US, and only one of them handles payroll compliance end to end.

Indian law requires every employee's salary to land in an Indian bank account in INR by the 7th of each month. This is a hard rule under FEMA. Paying in USD directly is not an option, regardless of what your employment contract states.

1. Employer of Record (EOR) - recommended

You send USD to the EOR. We convert it to INR, calculate and deduct EPF, ESI, TDS under Section 392(1) of the Income Tax Act 2025, and professional tax, then deposit the net salary directly into your employee's account.

No local entity needed. No compliance work on your end. With Wisemonk payroll, you can also denominate your employee's salary in your local currency, whether USD, GBP, or EUR, and our platform handles the FX conversion and INR disbursement transparently with every payroll run.

We convert at under 0.6% FX markup. Most US banks charge 3-5%.

Wisemonk payroll also supports flexible pay cycles. If your India team needs weekly or fortnightly payroll instead of monthly, we enable that without any additional setup.

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 (~$2,100), and IMPS is instant 24/7.

All three require a funded Indian bank account registered to your local legal entity. They move INR inside India, not USD from the US.

3. Global payroll provider or fintech platform

These convert your USD to INR at competitive rates and route it to employee accounts. Some issue virtual bank accounts that receive USD and disburse INR locally, which is faster and cheaper than SWIFT.

When evaluating any global payroll provider, confirm they handle Indian statutory filings, not just currency conversion. Most platforms move money but leave EPF, ESI, and TDS filings on your plate.

4. SWIFT wire transfer - slowest, most expensive

Your US bank wires USD to an Indian entity or payroll provider, who converts and pays via NEFT or RTGS. This takes 2-5 business days and costs $25-$50 per wire plus a 3-5% FX markup.

It works. It is just the least efficient way to run monthly payroll for an ongoing team.

What does not work

Paying in USD directly to an Indian bank account violates FEMA regulations and can trigger RBI penalties. PayPal and Venmo are not compliant for employee salary payments in India because they create documentation gaps for income tax and TDS filings.

Hiring independent contractors instead of full-time employees to avoid statutory benefits is also a compliance risk. Contractors in India have more autonomy over how they complete their work and are typically engaged for specific projects, while full-time employees are subject to employer direction and are legally entitled to minimum wage, overtime pay, paid leave, and statutory benefits. Contractor misclassification can result in back-payment of EPF and ESI contributions plus penalties from the Income Tax Department.

If you work with contractors, Wisemonk's Agent of Record service at $19/month handles compliant contractor payments, TDS deductions, invoicing, GST nuances, and FEMA cross-border compliance end to end.

What Do FX Costs Actually Add Up To?

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

That is over $12,000 saved annually on FX alone for a team of 10 people each earning $3,000 per month.

Once you know how the money moves, the next question is what gets deducted before it does. Every Indian payroll has six statutory deductions, each owed to a separate government authority, and missing any one of them triggers its own penalty regime.

Read our complete guide to payroll tax in India for a full breakdown of every deduction and rate.

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!

What registrations are required to pay employees in India?

Before you can legally process payroll in India, you need six registrations across different government authorities. Each covers a separate compliance obligation.

Miss even one and your payroll runs are non-compliant from day one, regardless of whether you pay your employees correctly.

One more thing US companies often overlook. Foreign nationals working in India who are not Indian citizens typically require a valid work permit or employment visa before they can be legally employed. If you are placing an overseas employee in India, this needs to be resolved before payroll begins.

If you do not have a local legal entity in India, you cannot obtain any of these registrations yourself.

This is the core reason most foreign businesses use an Employer of Record for managing payroll in India. With Wisemonk payroll, all registrations across all 28 states and 8 union territories are already in place. You skip this entire setup, stay fully compliant with Indian labor laws and payroll regulations, and onboard your first employee within 48 hours.

India has also consolidated 29 central labor laws into four Labour Codes covering wages, social security, industrial relations, and occupational safety. Not all states have fully implemented every code, which means your payroll compliance obligations can differ depending on where your employees are located. Wisemonk payroll tracks these state-level variations automatically so your team does not have to.

Now that the registration requirements are clear, let us look at exactly what statutory deductions you calculate and deposit every month.

What are the mandatory payroll deductions and contributions in India?

Every India payroll has six mandatory deductions. These are legal requirements under Indian labor laws, not optional line items, and each is owed to a separate government authority on its own deadline.

New reforms effective November 2025 require that basic salary plus dearness allowance must be at least 50% of total CTC. This directly increases EPF and gratuity calculations and reduces monthly take-home pay by 3-5%, but significantly improves long-term retirement benefits for employees.

Here is what each deduction means in practice.

Your 12% employer EPF contribution splits into two parts: 8.33% goes to the Employees Pension Scheme and 3.67% goes into the employee's EPF corpus. Employees cannot withdraw the pension scheme balance the way they withdraw EPF, so this matters at separation.

ESI covers medical, maternity, and disability benefits for employees earning below ₹21,000 gross per month in establishments with 10 or more employees. EPF and ESI together form India's mandatory social security contributions.

TDS on salary now falls under Section 392(1) of the Income Tax Act 2025, replacing Section 192 from April 1, 2026. Under the new tax regime, income up to ₹12.75 lakh is effectively tax-free after the ₹75,000 standard deduction. The 30% slab applies above ₹24 lakh.

Gratuity is not a monthly payment. You accrue 4.81% of basic salary monthly and pay it as a lump sum. Permanent employees are eligible after five years. Fixed-term employees become eligible after one year under the 2025 Labour Codes.

Your total employer cost for India payroll 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.

What does it actually cost to pay one employee in India?

USD figures use ₹94 = $1, reflecting the INR's 9.88% depreciation in FY2026. (Source: Wisemonk India IT Services Report 2026)

Here is a verified breakdown for a mid-level developer at ₹15 LPA CTC.

According to the Wisemonk India Investment Intelligence 2026 India hosts over 1,700 Global Capability Centers employing 1.9 million professionals generating $64.6 billion in revenue. Add Wisemonk EOR at $99/month and your all-in cost comes to $1,429/month for a fully compliant mid-level Indian developer. India offers a 70-85% cost advantage over equivalent US roles at junior levels and 50-65% at senior levels. (Source: Wisemonk India IT Services Report 2026)

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

What does a salary structure in India include?

Indian salaries follow a Cost-to-Company model, not a base salary model. CTC is everything you spend: gross pay, your EPF contribution, and gratuity accrual combined.

How you structure that CTC directly affects your employee's take-home pay, your payroll deductions, and your overall payroll compliance.

Smart salary structuring reduces your employee's tax deductions without increasing your total spend. Our experience shows this increases employee take-home pay by 10-15%, which directly improves retention in a market where top candidates hold four to five offers simultaneously.

Wisemonk payroll handles salary structuring end to end, including denominating salaries in your local currency, whether USD, GBP, or EUR, with full transparency from CTC to take-home across every pay run.

India's IT sector employs 5.95 million tech professionals under salary structures like these. (Source: Wisemonk India IT Services Report 2026)

This guide covers your four legal payment options, the exact monthly deductions, how Indian salary structures work, and what it actually costs all-in.

What is the step-by-step payroll process in India?

Managing payroll in India follows a fixed monthly cycle. Every step has a deadline, and every deadline has a penalty if missed.

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 cannot process statutory deductions without these.

Step 2: Calculate gross salary

Add basic salary, house rent allowance, dearness allowance, special allowances, and any performance bonuses. Basic salary plus dearness allowance must be at least 50% of total CTC under the 2025 Labour Codes.

Step 3: Apply statutory deductions

Deduct EPF at 12% of basic salary, TDS based on the employee's income tax slab under Section 392(1) of the Income Tax Act 2025, ESI at 0.75% if gross earnings are below ₹21,000, professional tax where applicable, and LWF where required.

Step 4: Disburse net salary

Transfer the employee's monthly salary to their Indian bank account in INR via NEFT, RTGS, or IMPS by the 7th of the following month. Cash payments are legally restricted.

Step 5: Deposit statutory contributions and file returns

This is where most foreign employers get tripped up. Every contribution goes to a different authority on a different date. See the full India payroll deadlines calendar for every monthly and quarterly deadline.

Failure to meet any of these payroll deadlines results in immediate interest and daily penalties. Late EPF attracts 12% annual interest plus damages. Late TDS filings cost ₹200 per day with a minimum ₹10,000 penalty.

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 laws, not optional. Read our guide on paystubs in India to understand exactly what each payslip must include.

For a deeper walkthrough, read our guide to the payroll process in 8 steps.

Wisemonk payroll automates every step of this cycle, from salary calculation and statutory deposits to Form 138 quarterly filings and Form 130 issuance. Our platform supports weekly and fortnightly payroll frequencies if your team needs a different pay cycle than monthly. Every client receives a compliance dashboard so your finance team always has full visibility without tracking six separate deadlines across six government authorities.

What compliance rules affect payroll in India?

Indian payroll compliance runs across four separate legal frameworks. Getting any one wrong creates liability across the others. Read our complete payroll compliance in India guide for a detailed breakdown of every obligation.

FEMA: Currency and Payment Rules

All employee salaries must be paid in Indian Rupees. Paying in USD directly, even if your employment contract states amounts in USD, violates the Foreign Exchange Management Act and can trigger RBI penalties for both you and your employee.

Independent contractors may receive foreign currency payments, but full-time employees cannot. This is one of the clearest legal lines in India payroll.

Income Tax Act 2025: What Changed April 1, 2026

The Income Tax Act 2025 replaced the Income Tax Act of 1961 on April 1, 2026. If your payroll system still uses old references, your TDS filings will fail validation on the income tax portal.

Here is what changed:

Labour Codes: Four Laws Replacing Twenty-Nine

India consolidated 29 central labor laws into four Labour Codes covering wages, social security, industrial relations, and occupational safety, effective November 2025. Not all states have fully implemented every code yet, so your payroll compliance obligations can differ by employee location.

The most operationally significant change is the 50% wage rule. Basic salary plus dearness allowance must constitute at least 50% of CTC. This affects every salary structure, every EPF calculation, and every gratuity accrual across your India team.

Termination and Severance Compliance

Employers must comply with both federal labor codes and state-specific regulations when terminating employees. Unjustified dismissals can lead to legal repercussions including back pay, reinstatement orders, and penalties.

For establishments with 100 or more workers, government approval is required before executing layoffs. Severance pay is calculated at 15 days of wages per completed year of continuous service.

Under the 2025 Labour Codes, full and final settlement of wages at separation must be completed within two working days.

Digital Personal Data Protection

India's Digital Personal Data Protection Act 2023 requires strict security protocols for all payroll records and employee information. Consent protocols must be in place before collecting employee data. Non-compliance carries significant penalties.

Wisemonk payroll is SOC 1, SOC 2, and ISO certified, covering data protection compliance as part of every client engagement alongside statutory payroll filings.

What are the mandatory statutory benefits and employer obligations in India?

These are legal obligations for all full-time employees. Contractors are not entitled to any of these benefits and handle their own taxes independently.

1. Gratuity: 15 days wages per completed year of continuous service. Permanent employees are eligible after 5 years. Fixed-term employees after 1 year under the 2025 Labour Codes.
2. Maternity Leave: 26 weeks fully paid for the first two children, 12 weeks for subsequent children under the Maternity Benefit Act 1961. Female employees receive full salary throughout. Establishments with 50 or more employees must provide crèche facilities.
3. Paid Sick Leave: Minimum 12 days per year. Many companies offer more as part of their employee benefits package.
4. Earned Leave: 1 day for every 20 days worked. Unused earned leave must be paid out at exit.
5. Overtime Pay: Minimum twice the employee's basic hourly rate for hours worked beyond 48 per week under Indian labor laws.
6. Statutory Bonus: Minimum 8.33% of annual wages. Mandatory for establishments with 20 or more employees under the Payment of Bonus Act.
7. Severance Pay: 15 days wages per completed year of service. Government approval required before terminating employees in establishments with 100 or more workers. Employers must follow both federal labor codes and state-specific regulations. Unjustified dismissals can lead to serious legal repercussions.

Misclassifying a full-time employee as an independent contractor exposes you to back payment of all the above benefits plus penalties from the Income Tax Department.

India's IT sector employs 5.95 million professionals, all covered under these statutory benefits. (Source: Wisemonk India IT Services Report 2026)

Wisemonk payroll manages every statutory benefit calculation across all 28 Indian states, from gratuity accruals to full and final settlements.

What are the minimum wage and overtime rules in India?

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?

From our experience managing payroll for 300+ global companies, these are the issues that consistently catch US employers off guard.

• Multi-state compliance: Professional tax, minimum wages, and leave policies vary by state. Remote workers across multiple cities mean tracking different compliance calendars simultaneously. Wisemonk payroll handles multi-state compliance automatically across all 28 states.
• Frequent regulatory changes: Income tax slabs, EPF limits, and ESI thresholds change regularly. The Income Tax Act 2025 alone restructured TDS section references, quarterly return forms, and annual certificate numbers from April 1, 2026. Payroll systems that are not updated in time produce invalid filings. Read our India payroll compliance guide for a full breakdown of 2026 changes.
• Contractor misclassification risks: Treating full-time employees as independent contractors to avoid statutory benefits leads to back payment of EPF, ESI, and all mandatory benefits plus penalties. Wisemonk's Agent of Record service at $19/month handles compliant contractor payments end to end, including GST, TDS, and FEMA cross-border compliance. Unsure whether to outsource payroll entirely? Read our guide to payroll outsourcing companies in India and the cost to outsource payroll in India before deciding.
• Missing statutory deadlines: Tracking the 7th for TDS, 15th for EPF, and 21st for ESI across multiple employees is a recurring operational risk without automated payroll. Failure to meet payroll deadlines results in immediate interest and daily penalties from separate government authorities. Read our India payroll deadlines guide for the full compliance calendar.
• International payroll complexity: Most global payroll providers handle currency conversion but leave statutory filings on your plate. Wisemonk payroll is built specifically for cross-border teams paying Indian employees, supporting salary denomination in your local currency, flexible payroll frequencies including weekly and fortnightly cycles, and complete statutory compliance in a single platform. If you are evaluating software options, read our breakdown of the best payroll compliance software in India.

India's IT sector is growing at 6.1% annually and employs 5.95 million professionals. (Source: Wisemonk India IT Services Report 2026) The companies building teams here need payroll infrastructure that matches the scale and compliance complexity of that market.

Wisemonk Payroll: Complete India Payroll Solution for Global Teams

Wisemonk is a trusted Employer of Record and Agent of Record in India. We help global companies hire, pay, and manage employees and contractors in India without setting up a local legal entity. With 6+ years as India payroll specialists, we have processed $20M+ in payroll across all 28 Indian states for 300+ global companies. Rated 4.8/5 on G2 from 261+ reviews, SOC 1, SOC 2, and ISO certified.

Here is exactly what we offer and what is included in each plan.

No India entity? Employer of Record - $99/employee/month

We become the legal employer. Wisemonk payroll handles everything from employment contracts and statutory deductions to INR disbursements and compliance filings. First hire onboarded in 48 hours.

Every EOR plan includes:

• Full payroll compliance: EPF, ESI, TDS under Section 392(1), professional tax, and LWF across all states
• Tax optimization that increases employee take-home pay by 15-20%
• Dedicated HR manager and local HRBP for every employee
• Background verification, onboarding documentation, and offer letters
• Unlimited expense reimbursements and bonus payouts
• Equipment procurement and lifecycle management for remote employees
• Individual tax filing support for each employee

Own entity in India? Managed Payroll - $49/employee/month

Wisemonk payroll runs your full monthly payroll cycle. Every statutory deposit hits its deadline. Every filing goes to the right authority. Your finance team focuses on growth, not government portals.

Paying contractors? Agent of Record - $19/month

End-to-end contractor payments from contracting and invoicing to foreign remittance agreements per transaction. Bulk payments, GST, TDS, and FEMA cross-border compliance handled with complete transparency.

Managing Indian vendors? Vendor Payments

Pay employees, contractors, and vendors on one platform. One invoice. Full visibility.

What makes Wisemonk payroll different

• Salary denominated in your local currency, USD, GBP, or EUR, with transparent FX conversion at every pay run
• Flexible payroll frequency: weekly, fortnightly, or monthly
• Flexible salary structures that match how your employees were historically paid
• 0.6% FX markup on USD to INR versus 3-5% at US banks, saving $12,000+ annually for a 10-person team
• SOC 1, SOC 2, and ISO certified for full data protection compliance

Need talent first? Our recruitment team sources engineers, product, and GTM hires across India. Ready to scale? We set up Global Capability Centers end to end.

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 →