Building a startup is exciting—but it also means wearing many hats, including managing payroll. For many Indian startups, payroll feels like a complex, compliance-heavy process filled with acronyms like TDS, EPF, ESI, and more. The good news is, it doesn’t have to be overwhelming.
In this blog, we break down the payroll process in India for startups into simple, actionable steps—so you can pay your employees accurately, stay compliant with laws, and focus more on growing your business.
What Is Payroll and Why Is It Important for Startups?
Payroll is the process of calculating and distributing employee salaries while ensuring all statutory deductions and employer contributions are made. For startups, payroll is important because:
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It builds employee trust
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Ensures legal compliance with Indian labor laws
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Helps maintain clean financial and tax records
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Supports efficient HR and finance operations
Step-by-Step Payroll Process in India for Startups
1. Employee Information Collection
Gather all essential employee details including:
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PAN and Aadhaar numbers
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Bank account information
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Salary structure (basic, allowances, deductions)
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Tax declaration forms (Form 12BB)
2. Define a Salary Structure
A standard Indian salary structure includes:
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Basic Salary
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House Rent Allowance (HRA)
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Conveyance or Transport Allowance
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Medical Allowance
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Special Allowance
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Performance Bonus (if applicable)
3. Attendance and Leave Management
Track employee attendance, work hours, and leave data to calculate actual payable days. This helps in prorating salaries and avoiding overpayments.
4. Payroll Calculation
Calculate gross salary, then apply the following deductions:
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TDS (Tax Deducted at Source)
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EPF (Employee Provident Fund)
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ESI (Employee State Insurance)
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Professional Tax (where applicable)
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Any loan repayments or salary advances
5. Statutory Compliance and Contributions
Ensure timely payments to government bodies:
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EPF: 12 percent of basic salary contributed by employer and employee
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ESI: 0.75 percent employee + 3.25 percent employer (if applicable)
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TDS: Deposit monthly and file quarterly returns (Form 24Q)
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Professional Tax: Based on state laws
6. Payslip Generation and Distribution
Provide employees with monthly payslips that detail:
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Gross and net salary
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Deductions and allowances
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Tax information and employer contributions
7. Payroll Disbursement
Pay salaries through NEFT, RTGS, or salary accounts. Ensure the correct amount reaches employees on or before the agreed payday.
8. Record-Keeping and Reporting
Maintain detailed records for:
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Salary disbursal
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Tax filings
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PF and ESI challans
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Payslips and Form 16 (issued annually to employees)
Tools and Software to Simplify Payroll for Startups
For startups with limited HR capacity, using payroll software is a game-changer. Tools like RazorpayX Payroll, Zoho Payroll, Keka, or GreytHR can help automate:
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Tax calculations
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Payslip generation
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PF and ESI filing
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Employee onboarding and exits
Common Payroll Mistakes Startups Should Avoid
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Not registering for EPF or ESI on time
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Incorrect TDS deductions
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Missing filing deadlines
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Delayed salary payments
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Lack of proper documentation
Avoiding these errors helps you stay compliant and avoid penalties from tax and labor authorities.
Conclusion
Setting up a payroll system might seem complicated at first, but by following a structured process and using the right tools, startups in India can manage payroll smoothly and legally. Whether you’re hiring your first employee or building a team of 50, a streamlined payroll process builds trust, ensures compliance, and helps you scale confidently.
If you’re a startup founder handling payroll manually, now is the time to explore simple and affordable online payroll software to make your job easier.