How to Do Payroll in India

Figuring out how to run payroll for your small business can be difficult. That’s why we’ve created this detailed step-by-step guide on how to run payroll in India. From hiring your first employee to easily running payroll and filing your own tax forms, we’ve covered all of the steps you need to know to run your own payroll.

Hire an Employee

If you’re reading this, you probably already have an employee or are considering hiring one. Hiring the right employee is a huge part of running a successful business.

Through a bit of trial and error, we’ve come up with a hiring method that works well for us. However, that’s a separate topic that I won’t get into in this article. For a good starting place, we recommend reading Who: The “A” Method for Hiring.

Alternatively, the employee may be you. If you run your business through a separate entity like a corporation, it can be a good choice to pay yourself as an employee.

You can learn more about the different ways to pay yourself through a corporation by reading our article about salaries vs. dividends.

Gather the Necessary Info from Your Employee

The next step is to collect the necessary information from your employee(s). You will need your employee’s:

• Tax-related forms filled out and signed
• Mailing address
• Social Security Number or equivalent
• Date of birth
• Bank account info if paying by direct deposit
• Contact info such as phone number, email, etc.

You will also want to clearly outline employment details, such as the compensation that your employee will receive, in an employment agreement.

There are many free employment agreement templates online that you can use, or you can quickly build one through a paid service such as LegalContracts.com.

Choose the Method - Payroll Software or Manual Payroll

You can pay your employees using payroll software or manually using a ledger and cheques or e-transfers. Unless you’re comfortable calculating payroll deductions and remittances, we recommend using payroll software to run payroll.

It’s more common to make errors when processing payroll manually. It’s frustrating for both employees and employers, plus there can also be penalties when mistakes are made.

Payroll Software

Use a reputable payroll software provider that supports Indian statutory compliance (EPF, ESI, PT, TDS, Form 16, etc.). Examples include:

• Zoho Payroll
• RazorpayX Payroll
• Keka
• greytHR

Note: Aman B & Associates is a financial firm, not payroll software. They may provide advisory or compliance services, but they are not an automated payroll platform.

Manual Payroll

If you do prefer to run payroll manually, you can use a combination of an online payroll deductions calculator and Google Sheets or Excel to track pay information. This can be a good method if your payroll is basic and you’re comfortable with calculating and tracking payroll info.

We’ve written an in-depth article on how to use an online payroll deductions calculator. Jump to that article if you would like to learn more about how to manually run payroll.

🎥 We also have a YouTube series on how to manually run payroll linked here

Decide on Payroll Frequency

Before registering your business for payroll, you’ll want to know the payroll frequency that you will be using.

The two most common frequencies for payroll are:

• Bi-weekly (every two weeks)
• Semi-monthly (twice per month)

These are quite similar, but we find that one option is better than the other depending on your circumstances.

The very short version of how to decide on frequency is:

• If you have any employees paid hourly, use bi-weekly.
• If you only have employees paid by salary, use semi-monthly.

Now we’ll explain it more thoroughly by going into some pros and cons of each.

Bi-Weekly Pay Periods (Every Two Weeks)

Paying your employees every two weeks has a lot going for it, but there is one major drawback that we’ve seen cause problems.

Pros

• Your employees are paid on the same day of the week every time (often every second Friday). Easy for them to remember “Yes! Friday is payday!”
• Employees are paid slightly more frequently (every 14 days instead of every 15–16 days). This can help employees’ cash flow by reducing the time period between paycheques.
• For hourly employees, this method makes it easier to remember the dates for which they are being paid. Typically, hourly employees are paid with a one-week delay.

Cons

• Twice per year, there will be a month that includes three pay periods. If your business has a monthly cycle for revenue, this can create cash flow problems on those months. It also makes consistent financial reporting more difficult when comparing one month’s results to another.

Because bi-weekly pay periods can cause three pay periods in one month, we prefer semi-monthly when employees are paid on salary. However, if employees are paid hourly, then bi-weekly makes tracking hours easier.

Semi-Monthly (Twice Per Month)

Paying your employees twice per month makes the administration more difficult when paying hourly employees, but it is our preferred method when you only have salaried employees.

Pros

• There are only two pay periods each month. This helps keep your cash flow predictable and will make it much easier to compare monthly financials.
• Paydays are always on the same day of the month (usually the 15th and last). This can help your employees plan for monthly expenses such as rent or mortgage payments.

Cons

• Paydays occur on different days of the week because they’re attached to numbered dates (15th and last day of the month, for example). There is no set day of the week that employees can remember as payday.
• For hourly employees, it’s more difficult to keep track of what hours are included in which pay period.

Payroll Software Setup

Setting things up properly in the beginning will reduce the chances of making costly mistakes.

If you’re using payroll software (e.g., Zoho Payroll, RazorpayX Payroll, Keka, greytHR), follow your provider’s onboarding steps, which typically include:

1. Organization setup: Legal name, CIN, TAN, PAN, registered address, pay locations.
2. Statutory registrations: Link your EPF, ESIC, and Professional Tax registrations; configure TDS settings.
3. Pay structure: Define CTC templates and components (Basic, HRA, allowances, reimbursements, employer PF/ESI, gratuity policy).
4. Attendance and leave: Configure workweeks, holidays, leave types, and attendance integrations if needed.
5. Employee onboarding: Upload employee master data, bank details for direct deposit, declarations (80C, 80D, HRA), and previous employment details for TDS projection.
6. Policy rules: Overtime, loss of pay, notice pay, bonus/ex-gratia, variable pay cycles.
7. Payroll cycle: Set pay periods, cutoff dates, approval workflows, and payout dates.
8. Compliance outputs: Enable Form 16, payslips, challan generation (PF ECR, ESI, PT), TDS return files (24Q), and vendor file formats for bank payouts.
9. Test run: Do a dry run for one cycle, verify net pay, statutory deductions, and reports before first live payout.

Note: If you prefer advisory or compliance assistance rather than a self-serve software setup, consider engaging a financial firm like Aman B & Associates for payroll compliance support, registrations, audits, and filings. They can work alongside your chosen software to ensure accuracy and compliance.

If you’d like, tell me which payroll software you’re planning to use (or share your headcount and needs), and I can tailor the setup steps and a checklist for your exact scenario.