HR Compliance and Payroll in India: A Beginner's Guide

Think about it this way: without rules, an employer could pay workers a few rupees a day, fire someone for becoming pregnant, or pocket the Provident Fund deducted from salaries. Employment laws exist to prevent exactly that. HR compliance simply means that your company is following those laws.

Here is the important part for you as a trainee: compliance isn’t optional, and ignorance is not a defence. A company that breaks labour law can face fines, prosecution of its officers, interest on unpaid dues, and reputational damage. HR’s job is to know the rules and help the whole organisation follow them.

Indian labour law is a wide landscape, but since November 2025 it is organised into four Codes. Learn these as your map of the territory.

Inside that framework, four schemes come up in almost every HR conversation. Here they are, each explained through a situation you might actually face.

Code on Wages — minimum wages, timely pay, and overtime ^{[Salaried Individuals & wage rules]}

The Code guarantees every employee a minimum wage (set by the appropriate government and never below the national floor wage), requires wages to be paid by the 7th of the next month (or the 10th in establishments with 1,000+ employees), and requires overtime to be paid at at least twice the normal rate.

EPF — the Employees’ Provident Fund ^{[EPFO — Present Rates of Contribution]}

A retirement savings scheme for establishments with 20 or more employees. The employee contributes 12% of Basic + DA and the employer matches it. Of the employer’s 12%, 8.33% goes to the pension scheme (EPS) and 3.67% to EPF — both calculated on a wage ceiling of ₹15,000/month. Every member gets a portable 12-digit UAN (Universal Account Number).

ESI — Employees’ State Insurance ^{[ESIC — Contribution]}

Health and income protection for lower-wage employees — those earning ₹21,000/month gross or less (₹25,000 for persons with disability). The employee pays 0.75% and the employer 3.25% of gross wages. In return: cashless medical care, sickness benefit, maternity benefit, disablement and dependants’ benefits.

Maternity Benefit — paid leave around childbirth ^{[Maternity Benefit (Amendment) Act, 2017]}

An eligible woman with fewer than two surviving children is entitled to 26 weeks of paid maternity leave (12 weeks if she already has two or more children), in establishments with 10 or more employees.

Now test yourself: given a workplace situation, which law or scheme applies?

Payroll is the process by which a company calculates what each employee has earned, deducts what’s owed to the government and to social-security schemes, and pays the remainder to the employee — on time, every month. It sounds simple. It rarely is.

In India the payroll cycle is almost always monthly, and each cycle moves through the same six phases. Walk through them now, following one employee:

This is the most common source of confusion for new employees and trainees alike. When someone says their salary is ₹6,00,000 a year, you must ask: gross or CTC? And what lands in the bank — the net pay — is a third, smaller number again.

Why is Priya’s TDS zero? Because of a major change in Budget 2025. Under the default new tax regime for FY 2025-26, a salaried person gets a ₹75,000 standard deduction, and the Section 87A rebate makes tax nil up to ₹12,00,000 of taxable income. ^{[Union Budget 2025-26 — New-Regime Slabs & Rebate]} In practice, a salaried employee pays no income tax on gross salary up to about ₹12.75 lakh. Above that, tax applies on a slab basis: nil up to ₹4 lakh, then 5% / 10% / 15% / 20% / 25% / 30% as income rises past ₹8L, ₹12L, ₹16L, ₹20L and ₹24L. ^{[Salaried Individuals for AY 2026-27]}

Experiment with the calculator below. Change the salary, Basic %, or Professional Tax and watch how take-home, EPF, TDS and the employer’s CTC respond.

Knowing the rules is one thing. HR trainees also need to know the mistakes organisations repeatedly make — so they can spot and prevent them.

1. Mistake 1

   Missing the EPF / ESI deposit deadline (15th)

   EPF (via the ECR) and ESI contributions for a month must be deposited by the 15th of the next month. Late EPF payment attracts interest (12% p.a.) plus damages — automatically. This is the most common monthly slip.

2. Mistake 2

   Depositing TDS late (7th)

   TDS deducted from salary must reach the government by the 7th of the next month (March's TDS by 30 April). Late deposit attracts interest, and late filing of Form 24Q attracts ₹200/day under Section 234E.

3. Mistake 3

   Misclassifying employees as 'consultants' or contractors

   Labelling a regular, supervised employee as a consultant to avoid EPF, ESI and gratuity is unlawful if the substance is employment. Authorities look at control and continuity, not the contract's title.

4. Mistake 4

   Not paying overtime at twice the rate

   Some managers pay overtime at the normal hourly rate. The Code on Wages requires at least 2× the normal rate for overtime — single rate is a violation.

5. Mistake 5

   Applying the wrong Professional Tax (or none)

   PT slabs differ by state and some states have none. Using head-office rules for an employee working in another state — or forgetting PT entirely — creates a state-tax default.

6. Mistake 6

   Poor record-keeping

   Wage registers, attendance, PF/ESI challans and Form 16s must be maintained and retained. 'We lost those files' is not a defence in an inspection or an employee dispute.