Payroll Management is far more than just transferring salaries to employees' bank accounts. It encompasses salary structure design, statutory deductions (TDS, PF, ESI, Professional Tax), payslip generation, compliance filings, and annual Form 16 issuance — all of which must be completed accurately and on time every month. For growing businesses, payroll complexity increases rapidly with headcount. This guide explains the full scope of payroll management and how to do it right.
💡 Need professional payroll management for your business? Our CA team provides end-to-end monthly payroll processing for businesses across India — salary computation, TDS, PF, ESI, payslips, and Form 16. Send an Enquiry →
1. Salary Structure — Key Components
A well-designed salary structure balances employee take-home pay with tax efficiency and statutory compliance:
- Basic Salary: Typically 40–50% of CTC — forms the base for PF calculation, gratuity, and leave encashment
- HRA (House Rent Allowance): Usually 40–50% of basic — partially exempt from income tax for employees paying rent
- Special Allowance: Remaining CTC component — fully taxable
- LTA (Leave Travel Allowance): Exempt for actual travel costs twice in a 4-year block
- Medical Reimbursement / Meal Vouchers: Tax-efficient perquisite components
- Performance Bonus / Variable Pay: Taxable in the month of payment
An optimised salary structure can save significant income tax for your employees — making you a more attractive employer at the same CTC. Get a free salary structure review.
Optimise Salary Structure →2. Mandatory Payroll Deductions
| Deduction | Rate / Basis | Applicability |
|---|---|---|
| TDS on Salary (Section 192) | Based on estimated annual taxable income and applicable slab rates | All employees whose annual taxable income exceeds ₹2.5 lakh (old regime) / ₹3 lakh (new regime) |
| EPF Employee Contribution | 12% of Basic + DA | Employees in establishments with 20+ employees; salary up to ₹15,000 (mandatory); above ₹15,000 (optional) |
| ESI Employee Contribution | 0.75% of gross wages | Employees with gross wages ≤ ₹21,000 in establishments with 10+ employees |
| Professional Tax | State-specific slabs | Applicable states only |
| Gratuity (provision) | 4.81% of basic (accounting provision) | Employees completing 5+ years — payable at separation |
3. Monthly Payroll Processing Cycle
- By 25th of month: Collect attendance, leaves, and variable pay data; compute gross salary for each employee
- Compute deductions: TDS (based on YTD income and declarations), PF, ESI, PT for each employee
- Generate payslips: Detailed payslip showing gross pay, all deductions, and net pay
- Process salary transfer: Net salary transferred to employee bank accounts (or cash register)
- Statutory deposits: TDS by 7th of next month; PF by 15th; ESI by 15th; PT by state-specified date
- Filing: PF ECR, ESI return, TDS return (quarterly)
Monthly payroll errors — wrong TDS computation, incorrect PF deduction — create compliance issues that cascade across the year. Our team ensures error-free monthly payroll runs.
Get Accurate Payroll →4. Annual Payroll Compliance
- Form 16 issuance: Every employee whose TDS was deducted must receive Form 16 (Part A from TDS traces + Part B with salary details) by 15th June
- TDS Return (Form 24Q): Quarterly — Q4 final filing by 31st May with full year salary details
- PF Annual Return: Filed on EPFO portal
- Investment declarations and verification: Collect employee investment proof by February — recalculate TDS and adjust in March salary
- Full and Final Settlement: On employee exit — compute pending salary, leave encashment, gratuity (if eligible), and process final payment with TDS computation
Outsourced Payroll Management — Monthly Processing, Compliance, Form 16
From salary structure design and monthly payslips to TDS, PF, ESI compliance, and annual Form 16 — our CA team provides complete payroll management for businesses of all sizes across India. Accurate, confidential, and always on time. Serving Banda, NCR, UP, and pan-India.
Start Payroll Management →Disclaimer: This article is for general informational and educational purposes only, representing our professional views as Chartered Accountants. It does not constitute legal or tax advice. Laws and regulations are subject to change. Please consult our team for situation-specific guidance.