Payroll & Employment Guide: India

Employment Contract

Employment contracts in India may be full-time or part-time and can be fixed-term or indefinite. Flexible arrangements, such as remote work and gig-based contracts, exist but must comply with Indian labour laws. All employment contracts must be in writing and must clearly include key particulars such as:

• Working hours
• Compensation and payment terms
• Paid leave entitlements
• Notice periods
• Termination conditions
• Statutory rights & employer obligations

Notice Periods

Employees are typically entitled to a notice period ranging from 30 to 90 days, depending on contract type, seniority, and company policy.

Termination of Employment

Employment may be terminated due to:

• Contract expiry
• Redundancy
• Mutual agreement
• Gross misconduct
• Performance issues
• Other recognized grounds under Indian labour regulations

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Employee Benefits

Employers in India must provide statutory benefits required under national and state labour laws. Many organizations further offer additional perks to attract and retain top talent.

Mandatory Benefits

• Statutory paid leave
• Paid national & festival holidays
• Sick leave (as per state rules)
• Maternity & paternity leave
• Employees’ Provident Fund (EPF)
• Employees’ State Insurance (ESI – where applicable)
• Gratuity (after 5 years of service)
• Statutory bonus (subject to eligibility)

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Leave Policies

Annual Leave:

Typically 12–21 days, depending on state laws and the Shops & Establishments Act.

Sick Leave:

Between 6–12 days, depending on state regulations.

Parental Leave:

• Maternity leave: 26 weeks (paid, as per Maternity Benefit Act)
• Paternity leave: Up to ~2 weeks (varies by employer policy)
• Shared parental leave is not statutory, but may be allowed by the employer.

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Healthcare

• Employees may be covered under ESI (based on salary limits).
• Many employers offer private health insurance for employees and dependents.

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Taxes in India

Taxes in India fund public programs, healthcare, and government infrastructure. Employers must deduct income tax (TDS), provident fund, and other statutory contributions according to employee earnings.

Personal Income Tax Rates (2026 Reference – New Tax Regime)

• 0% to 30% progressive slabs
• Lower tax rates up to higher income thresholds
• Applicable cess and surcharges may apply

Tax Allowances & Reliefs

Employees may be eligible for:

• Standard deduction
• Deductions on investments (Section 80C etc.)
• Housing rent allowance exemptions
• Other legally permitted tax benefits

Employers are responsible for deducting:

• TDS (Tax Deducted at Source)
• EPF contributions
• ESI contributions (eligible salary groups)

These deductions ensure compliant payroll under Indian tax law.

Payroll in India

Employers in India must pay salaries in accordance with employment contracts or applicable state rules. Salaries must meet or exceed minimum wage requirements for the job category and location.

Base Salary

The base salary is the fixed wage component before bonuses, benefits, or allowances. It forms the foundation of total compensation and must align with:

• Experience
• Role
• Industry benchmarks
• State-specific minimum wage notifications

Minimum Wage (2026 Reference Range)

(Actual wage varies by industry, region, and skill level)

• Skilled Workers: ~₹15,000–₹18,000/month
• Semi-skilled Workers: ~₹12,000–₹15,000/month
• Unskilled Workers: ~₹10,000–₹12,000/month

Payment Schedule

• Most employees are paid monthly, typically on the last working day of the month
• Payments are made in INR via bank transfer
• If a contract uses foreign currency (rare), it must specify exchange calculation and tax compliance

Additional Payments

• Bonus: Statutory bonus for eligible workers
• Annual bonus / Performance bonus: Company policy
• 13th-month salary: Not mandatory, but common in some industries

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Taxes and Social Security

Employers must deduct and contribute:

EPF (Employees’ Provident Fund)

• Employer: 12% of basic wage
• Employee: 12% deduction

ESI (Employees’ State Insurance)

Applicable only for employees under the eligible salary limits.

TDS (Income Tax Withholding)

Progressive slabs are applied monthly.

Gratuity

Employer liability after 5 years of service.

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Payroll Reporting

Monthly:

• PF returns
• ESI returns
• TDS deposits & filings

Quarterly:

• TDS returns

Annual:

• Form 16 (employee tax statement)
• Yearly payroll summary & compliance filings

Key Deadlines:

• Salary Payment: Last working day of the month
• PF & ESI: Monthly
• TDS: Monthly deposits, quarterly returns
• Annual payroll declarations: As per income tax deadlines

Payroll Currency: INR (₹)

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Legal Regulations

Indian labour laws include central statutes and state-specific rules covering employment status, minimum wage, working hours, leaves, and workplace protections.

Total Employment Cost:

• Employer EPF contribution
• ESI (if applicable)
• Gratuity liability
• Statutory bonus (where eligible)
• Paid leave costs
• Other allowances based on company policy

Probation Period:

3 to 6 months

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Work Permits & Visas for India

Foreign nationals must obtain a valid visa and work authorization, depending on job category and nationality.

Common Types of Work Permits:

• Employment Visa
• Business Visa (limited work permissions)
• Intern Visa
• Project Visa (for specific industries)

Processing time may vary based on background verification and documentation.

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Employer of Record (EOR) in India

Employer of Record (EOR) services in India enable companies to hire employees quickly and compliantly without setting up an Indian legal entity. This allows for fast market entry while avoiding complex registration processes, regulatory filings, and ongoing statutory obligations. The EOR becomes the legal employer, managing all employment compliance while you oversee day-to-day work.

Your EOR in India handles:

• Legally compliant employment contracts, aligned with Indian labour laws and state-specific regulations
• Monthly payroll processing, including salary calculations, payslips, and statutory reporting
• Tax, PF, ESI, and other statutory deductions, with accurate monthly filings to the relevant government bodies
• Employee onboarding and offboarding, documentation management, and HR support
• Benefits administration, including statutory benefits, insurance, and optional employee programs
• HR and labour law compliance, covering working hours, leave entitlements, gratuity rules, and termination requirements
• Ongoing employee lifecycle support, ensuring smooth HR operations

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PEO Services in India

PEO services in India are ideal for companies that already have a registered Indian entity but need support managing HR operations, payroll, benefits, and compliance across India’s diverse and highly regulated employment landscape. A PEO acts as an extension of your HR team, helping you streamline processes and reduce administrative burden while you remain the legal employer.

A Professional Employer Organization (PEO) in India provides:

• HR support and day-to-day workforce administration, including onboarding, employee records, documentation, attendance, and HR queries
• Payroll processing & benefits administration, covering salary calculations, tax deductions, PF/ESI contributions, and statutory benefits
• Compliance with Indian labour regulations, including state-wise employment laws, Shops & Establishment rules, leave policies, and termination requirements
• Drafting and managing employment contracts, ensuring alignment with central and state labour laws
• Ongoing regulatory guidance, helping you stay compliant with evolving labour codes and statutory changes

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Payroll Calculator

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