Payroll process in India: a step-by-step monthly guide

The payroll cycle at a glance

Whether you pay 15 people or 500, the monthly cycle follows the same order. Skipping or rushing an early step shows up later as a wrong payslip, an arrears entry or a mismatch in the PF return.

1. Pre-payroll

   Gather joiners, leavers, revisions, attendance, leave, advances and one-off payments.

2. Processing

   Work out paid days, gross earnings, statutory deductions and recoveries for each employee.

3. Review and pay

   Check variances, approve, lock the month, pay salaries and issue payslips.

4. Post-payroll

   Deposit PF, ESIC, TDS and professional tax, and file returns.

Step 1: Pre-payroll inputs

This is where the month is won or lost. Set a cut-off, for example the 25th, after which changes move to next month's payroll as arrears.

Joiners and leavers

For new joiners, collect PAN, bank details, UAN (or register them for one) and ESIC details if they are covered. Note the date of joining so pay starts from the right day. For leavers, record the last working day, notice period recovery or payout, and any final settlement items.

Salary revisions

Record every revision with the month it takes effect. If a revision approved in October is effective from August, you owe two months of arrears. Overwriting the old salary in a sheet loses the history you need to calculate them.

Attendance cut-off

Close the attendance register for the period: present, absent, half days, weekly off and holiday duty, late marks and overtime hours. Resolve missing punches before calculation, not after.

Leave

Make sure every leave request in the period has been approved or rejected. Approved paid leave counts as paid days; unpaid leave and unauthorised absence become loss of pay.

Advances, loans and one-off items

List this month's advance and loan instalments, any skipped instalments, bonuses, incentives, fines and reimbursements. Confirm that TDS figures for the month are available from whoever computes them.

Step 2: Processing salary

Processing is mechanical once inputs are clean. For each employee, in this order:

1. Paid days = days basis − loss-of-pay days (with half days counted as 0.5).
2. Earned gross = salary pro-rated for paid days, plus overtime, holiday duty pay, incentives and arrears.
3. Employee PF = 12% of PF wages (basic + DA earned), respecting your policy on the ₹15,000 ceiling.
4. Employee ESI = 0.75% of gross wages, for employees covered under the ₹21,000 limit.
5. Professional tax as per the slab of the state where the employee works.
6. TDS based on the employee's projected annual taxable income and chosen regime.
7. Recoveries: advance and loan instalments, other permitted deductions.
8. Net pay = earned gross − all deductions.

Alongside, compute the employer's share: PF (split into EPS and EPF), EDLI, admin charges and ESI at 3.25%.

To check a single employee quickly, use the free salary calculator. The ESI rule used above is explained in ESI contribution periods.

Step 3: Review, approval and locking

Before anyone presses "pay", compare this month with last month. The most useful checks are:

• Headcount matches last month plus joiners minus leavers.
• Total gross and net change by an amount you can explain.
• Every employee with a big swing (more than a few days' pay) has a reason: LOP, revision, arrears, bonus.
• No negative or zero net pay unless intended, for example on hold.
• PF and ESI totals are consistent with the wages they are based on.
• Advance balances fall by exactly the instalments deducted.

Once reviewed, a second person approves. Then lock the month. A locked month cannot be edited, so the payslips, bank payment and PF return all come from the same figures. Any later correction is carried into the next month as arrears or a recovery, with a note.

Step 4: Payment and payslips

Pay net salaries by bank transfer or cash, as per each employee's payment method. Prepare a payment list grouped by bank or method, and record the payment date and amount against every employee. Mark anyone whose salary is held or partly paid, with a reason.

Under wage laws, monthly salaries have to be paid within a set number of days after the wage period ends; check the deadline that applies to your establishment and state.

Then issue payslips showing paid days, each earning, each deduction and net pay. Employees need them for loans, visas, rent agreements and tax filing.

Step 5: Post-payroll statutory work

After salaries are paid, deposit what you deducted and what you owe as employer.

• PF: prepare the ECR from the locked salary, upload it on the EPFO Unified Portal and pay the challan by the 15th. See the EPF ECR file guide.
• ESIC: file monthly contributions and pay by the 15th on the ESIC portal.
• TDS: deposit tax deducted from salary by the 7th of the next month; for March, by 30 April. Quarterly TDS returns follow.
• Professional tax: pay and file as per your state's schedule, which varies.

A monthly payroll calendar

Here is a practical calendar for September's payroll. Internal dates are suggestions; statutory dates are fixed.

Where payroll software removes manual steps

The steps do not disappear with software, but the re-typing does. In Swastik Payroll:

• Attendance syncs from biometric systems every minute, and approved leave marks attendance automatically, so there is no attendance sheet to import. See attendance management.
• Salary revisions are saved as new versions from their effective month, so past months keep the salary they were paid on.
• Advance and loan instalments, including skipped months, are deducted in the salary run.
• Each month moves from Draft to Calculated, Approved and Paid, and approved months can be locked.
• PDF payslips, a payment report by bank or cash, a PF ECR text file and an ESIC contribution sheet come from the same records.

What stays with you: deciding TDS amounts with your CA, and paying and filing on the EPFO, ESIC and income-tax portals.

Frequently asked questions

This guide is general information for employers and employees in India, not legal or tax advice. Statutory rates, limits and forms change; confirm the current position with EPFO, ESIC, the Income Tax Department or your CA before acting on it.