Managing payroll isn’t just about paying salaries—it’s about ensuring your organization follows the law while keeping employees happy and secure. In India, payroll compliance is governed by various labor laws, tax rules, and statutory regulations. This guide breaks it down in a simple and practical way.
What is Payroll Compliance?
Payroll compliance refers to following all legal rules related to employee salary, deductions, taxes, and filings. It ensures your organization is compliant with Indian labor and tax laws while processing payroll.
Key Components of Payroll Compliance in India
1. Income Tax (TDS)
- Employers must deduct Tax Deducted at Source (TDS) from employee salaries based on income tax slabs.
- Must issue Form 16 annually and file TDS returns (Form 24Q) quarterly.
2. Provident Fund (PF)
- Managed by EPFO.
- Employee contributes 12% of basic salary, and the employer contributes 12% (split into PF and pension).
- Mandatory for employees earning less than ₹15,000 basic pay per month (optional above that).
3. Employee State Insurance (ESI)
- Applicable if the employee earns less than ₹21,000/month.
- Employee contributes 0.75% of gross salary, employer contributes 3.25%.
- Covers medical and sickness benefits.
4. Professional Tax (PT)
- State-specific tax; rates vary across states like Maharashtra, Karnataka, Tamil Nadu, etc.
- Deducted monthly and paid to the state government.
5. Labour Welfare Fund (LWF)
- Mandatory in some states.
- Small contribution from both employer and employee for worker welfare schemes.
Statutory Forms & Returns Checklist
| Requirement | Form/Return | Frequency |
|---|---|---|
| TDS Return | Form 24Q | Quarterly |
| PF Filing | ECR (EPFO portal) | Monthly |
| ESI Filing | ESIC Challan | Monthly |
| PT Filing | State-specific form | Monthly/Annually |
| LWF Filing | State-specific form | Half-Yearly/Annually |
| Salary Slips | Payslips to employees | Monthly |
| Income Tax Proof | Form 16 | Annually |
Common Payroll Compliance Mistakes
- Not updating employee records and salary changes.
- Missing deadlines for PF/ESI/TDS filing.
- Ignoring state-specific taxes like PT and LWF.
- Misclassifying allowances or benefits in salary structures.
Tips for Easy Payroll Compliance
✅ Use payroll software or tools to automate calculations and filings.
✅ Keep track of statutory deadlines using a calendar or alert system.
✅ Maintain clear documentation and audit trails.
✅ Provide training to HR/payroll staff on current labor laws.
✅ Partner with a payroll consultant if needed.
Conclusion:
Payroll compliance is a responsibility every HR and employer must take seriously. Non-compliance can lead to legal penalties, employee dissatisfaction, and loss of reputation. By understanding the basic rules and using the right systems, payroll compliance in India can be managed smoothly and accurately.
