Payroll

Paying your team isn’t just about transferring a salary on the 1st of the month. Behind every payslip sits a stack of rules, about how much tax to cut, how much to save for an employee’s retirement, and how much to set aside for their medical cover. Get these right, and nobody notices. Get them wrong, and you’re looking at interest, penalties, and in serious cases, prosecution. That set of rules is called payroll compliance. And in 2026, it matters more than ever, because India changed two of its biggest rulebooks back to back: a brand-new income tax law and four new labour codes. This guide breaks down the four things every employer must understand PF, ESIC, TDS, and the labour law basics. Whether you run a 5-person startup or a growing company, you’ll know exactly what to deduct, when to pay it, and what’s new this year. What Is Payroll Compliance in India? Payroll compliance simply means following every legal rule that applies when you pay your employees. That includes calculating salaries correctly, deducting the right taxes and contributions, depositing them with the government on time, filing the right returns, and keeping proper records. Here’s a distinction that trips up most business owners: Payroll processing = making sure salaries are calculated and paid. Payroll compliance = making sure those payments follow the law. You can process payroll perfectly, everyone gets paid on time and still be non-compliant because you missed a deduction or a filing. Think of compliance as the legal boundary inside which payroll has to operate. Cross that boundary, and the money you saved by “keeping it simple” comes back as fines. For most Indian employers, payroll compliance rests on four pillars: Provident Fund (PF), Employees’ State Insurance (ESIC), Tax Deducted at Source (TDS), and the broader labour laws that govern wages, bonus, and gratuity. Let’s take them one at a time. PF (Provident Fund / EPF) Compliance The Employees’ Provident Fund (EPF) is basically a forced savings account for retirement. A slice of the employee’s salary goes into it every month, the employer matches it, and the money (plus interest) is theirs when they retire or leave. Who it applies to: Any establishment with 20 or more employees must complete PF registration with the EPFO (Employees’ Provident Fund Organisation). Under the 2025 labour codes, this now applies across all industries, not just a select list of scheduled sectors. How much is deducted: Employee contributes 12% of “wages” (basic pay + dearness allowance). Employer contributes another 12%. Of the employer’s share, part goes into the pension scheme (EPS) and part into PF, calculated up to a statutory wage ceiling of ₹15,000 a month. What you must do: Register the business with EPFO and generate a UAN (Universal Account Number) for each employee — think of it as a permanent PF ID that follows them job to job. Deposit both contributions and complete the monthly PF return filing — the ECR (Electronic Challan cum Return) — by the 15th of the following month. Miss the deadline, and you owe interest plus damages on top of the unpaid amount. ESIC Compliance ESIC (Employees’ State Insurance) is a government-run health and social security scheme. In exchange for a small monthly contribution, covered employees get medical care, plus cash support if they fall sick, have a baby, or get injured at work. Who it applies to: Establishments with 10 or more employees (20 in a few states) must register. Big 2026 update  under the new Code on Social Security, ESIC now applies across all of India; the old rule that limited it to specific “notified areas” is gone. Who’s covered: Employees earning up to ₹21,000 a month (₹25,000 for employees with disabilities). How much is deducted: Employee contributes 0.75% of wages. Employer contributes 3.25%. Total: 4%. What the employee gets: Free treatment at ESIC hospitals and dispensaries, sickness benefit (cash while on medical leave), maternity benefit, disability benefit, and support for dependants if the worst happens. What you must do: Complete your ESIC registration on the ESIC portal, enrol every eligible employee, and deposit the monthly contribution by the 15th of the following month. TDS on Salary Compliance TDS (Tax Deducted at Source) is the income tax your employer cuts from your salary before paying you, and deposits with the government on your behalf. Instead of you paying a big tax bill once a year, a little is taken out every month. Simple idea, but the rulebook behind it changed completely in 2026. The big 2026 change: On 1 April 2026, the Income Tax Act, 2025 replaced the old Income Tax Act, 1961. A few things every payroll team needs to know: Salary TDS now falls under Section 392 of the new Act (it used to be Section 192). Any policy or payslip still quoting “Section 192” for salary paid after April 2026 is out of date. The terms “Previous Year” and “Assessment Year” are gone, replaced by a single “Tax Year.” Tax Year 2026-27 simply means 1 April 2026 to 31 March 2027. The forms were renumbered. The annual salary TDS certificate (the document that proves how much tax was cut from your salary) is now Form 130, it used to be Form 16. The quarterly salary TDS return is now Form 138, it used to be Form 24Q. How TDS is worked out: The employer estimates the employee’s yearly income, applies the income tax slabs under the regime the employee has chosen (old or new), and divides the tax across 12 months. Investment declarations for the new tax year must reference the new law. What you must do: Get a TAN (Tax Deduction Account Number) — you can’t deduct or deposit TDS without it. Deposit the TDS you’ve cut by the 7th of the following month. File the quarterly return in Form 138. Issue the annual certificate in Form 130 to every employee. Labour Law Basics Every Employer Must Know This is the part that changed the most