Monthly payroll in India: PF, ESI, PT and TDS step by step

Indian payroll is not hard, but it has many small rules, and one wrong input spoils the whole run. The safest approach is the same sequence every month. Here it is.

1. Lock attendance and leave

Payroll is only as good as attendance. Before you run it, approve pending corrections and leave, and resolve missed check-outs. The number you need from attendance is loss of pay (LOP) days: days that were neither worked nor covered by paid leave or holidays.

2. Calculate gross pay

Start from each employee's monthly salary structure - typically basic, HRA, conveyance and a special allowance - and reduce it for LOP:

Earned salary = monthly salary × (paid days ÷ days in the month)

Add overtime, arrears, bonuses and approved reimbursements for the month.

3. Provident Fund (PF)

• Employee contribution: 12% of PF wages (basic plus DA).
• Employer contribution: 12% of PF wages, of which 8.33% goes to the pension scheme (EPS, on wages up to ₹15,000) and the rest to EPF.
• Many employers cap PF wages at ₹15,000 for employees earning more; others contribute on the full basic. Choose one rule and apply it consistently.

4. Employees' State Insurance (ESI)

ESI applies to employees earning up to ₹21,000 a month in gross wages. The employee pays 0.75% and the employer 3.25% of gross wages. Eligibility is fixed for each six-month contribution period, so an employee who crosses the limit mid-period keeps contributing until it ends.

5. Professional Tax (PT)

PT is a state tax with its own slabs, and it is capped at ₹2,500 a year. Maharashtra, Karnataka, West Bengal, Tamil Nadu, Gujarat and several other states levy it; some do not. Use the slab for the state where the employee works, not where the head office is.

6. Income tax (TDS)

1. Project the year's taxable salary.
2. Apply the regime the employee chose (the new regime is the default), with its deductions and exemptions - HRA, 80C and so on apply only under the old regime.
3. Work out the year's tax, subtract tax already deducted, and divide the balance over the remaining months.

Collect investment declarations early in the year and proofs before the last quarter, so the final months do not carry a huge deduction.

7. Review, finalize and publish

Compare the run with last month: headcount, total gross, total net. Any big change should have a reason you can name. Then finalize, publish payslips and transfer salaries.

8. Pay the dues on time

Due dates change from time to time, so confirm them against current government notifications.