Payroll Compliance in India: Complete Guide and Checklist for Employers

In a typical month an Indian payroll touches several different laws, government portals and, for multi-state employers, several state rules. In practice, compliance failures often come not from not knowing the law but from wrong inputs, unclear ownership and deadlines tracked in someone's head. This guide sets out what payroll compliance covers, which laws apply at which headcount, a law-by-law checklist with due dates, who should own each item, the monthly, quarterly and annual routine, and how to keep an audit trail. Each law has its own detailed guide, linked as you go; for how salary is processed end to end, see our payroll process guide.

What is payroll compliance?

Payroll compliance is meeting every legal requirement that arises from paying employees: what you must pay (minimum wages, overtime, bonus, gratuity), when you must pay it, what you must deduct and deposit (PF, ESI, professional tax, labour welfare fund, TDS), what you must file, and what records and documents you must keep and give to employees.

Compliance is usually divided into two types: statutory compliance, meaning what the law requires, and internal (policy) compliance, meaning following the employer's own policies and controls. This guide is about the first, but the second is how you achieve it.

It is part of wider statutory compliance, which also covers registrations, working conditions, safety, standing orders and similar labour-law duties.

What does "statutory" mean?

"Statutory" means required by a statute: an Act of Parliament or a state legislature, and the rules and notifications made under it. In simple words, a statutory payment or deduction is one the law makes compulsory, as opposed to one that comes from company policy or the employment contract. Employer PF, ESI, professional tax, TDS, statutory bonus and gratuity are examples; a performance bonus, meal card or health insurance top-up is not. Other words used in the same sense are "mandatory", "legal" or "regulatory" requirements. The purpose of statutory requirements is to guarantee minimum protections, such as fair and timely pay, social security and tax collection, that do not depend on the employer's goodwill.

The four Labour Codes and the other laws

From 21 November 2025, 29 central labour laws were replaced by four Labour Codes: the Code on Wages, 2019 (minimum wages, payment of wages, bonus, equal remuneration), the Code on Social Security, 2020 (PF, ESI, gratuity, maternity benefit), the Industrial Relations Code, 2020 and the Occupational Safety, Health and Working Conditions (OSH) Code, 2020. The Central Rules under all four Codes were notified on 8 May 2026 (the texts are on the Labour Ministry website); states have notified, or are notifying, their own rules for establishments under them.

Outside the Labour Codes, payroll is also governed by the Income-tax Act, 2025 (TDS on salary, in force from 1 April 2026), each state's professional tax and labour welfare fund Acts, and state shops and establishments laws. Our Labour Codes guide explains what changed for salary and HR.

Central or state rules?

Which rules and forms apply depends on the "appropriate government". The Central Government covers, among others, central public sector undertakings, railways, major ports, mines, oilfields, banking and insurance companies and, for some purposes, establishments with branches in more than one state. Most single-state private employers fall under the state government for labour matters, though PF and ESI are run by the central bodies EPFO and ESIC for everyone. Check which applies before adopting forms or registers.

Which laws apply to your establishment?

Many obligations start only at a headcount threshold, so the first compliance step is mapping your establishment against them:

The PF and ESI thresholds under the Code are set out in the Labour Ministry's press release of 18 December 2025. Two points are easy to miss. Thresholds count all employees, including those hired through contractors for some laws, and an establishment that crosses a threshold usually stays covered even if headcount later falls. Each guide linked below covers its law's exact test.

Payroll compliance for startups and small employers

A new company does not take on every obligation at once. A practical way to think about it:

• From the first employee: minimum wages and timely payment, wage slips and records, TDS on salary where pay is taxable, professional tax and labour welfare fund in states that levy them, and state shops and establishments registration where required.
• At 10 employees: ESI (for employees within the wage limit), gratuity and maternity benefit come in, along with appointment letters and registration under the OSH Code where it applies (it covers establishments with 10 or more workers, and mines, ports and dock work at any size). Below 10, appointment letters are still good practice and some state shops laws require them.
• At 20 employees: PF and statutory bonus become compulsory. An employer can also register for PF voluntarily before reaching 20, which some do to offer it as a benefit.

Track headcount monthly, including contract workers where they count, so that registration is done before, not after, a threshold is crossed.

Payroll compliance checklist, law by law

This is the core of the guide: for each law, what to do, by when, and where to read more. Due dates are for a normal month; check the state-specific items for your state.

1. Registrations

• Labour Codes: establishments for which the Central Government is the appropriate government (and which the OSH Code covers) register online on the Shram Suvidha portal under the OSH Central Rules (Form I); an establishment already registered under an older central law was required to update its particulars within six months of the rules coming into force, that is, by 8 November 2026; if you missed it, update now. State-sphere establishments follow their state's registration rules.
• EPFO and ESIC: register the establishment on crossing the threshold, and register every eligible employee from the day they join (UAN for PF, insurance number for ESI).
• Professional tax and labour welfare fund: employer registration in each levying state where you have employees.
• TAN for TDS, and state shops and establishments registration where required.

2. Wages, payment and wage records

• Pay at least the notified minimum wage for the state, zone and skill category, and revise pay when the variable dearness allowance changes (twice a year in many states).
• Pay monthly wages before the 7th day of the following month ends, and dues on resignation, removal, dismissal or retrenchment within two working days.
• Make only the deductions the Code on Wages allows (taxes, PF, ESI, recoveries authorised by law or in writing, and similar), with total deductions not exceeding 50% of wages (Code on Wages, section 18(2)).
• Pay overtime at no less than twice the normal rate of wages.
• Give every employee a wage slip on or before payday (electronic is allowed) and an appointment letter where the OSH Code applies.
• Keep the registers: under the Central wage rules notified on 8 May 2026 as the Code on Wages (Central) Rules, 2026 (G.S.R. 343(E); PRS summary), an employee register (Form I), a register of wages, overtime, advances, fines and deductions (Form IV) and an attendance register cum muster roll (Form IX), in physical or electronic form, kept for five years after the last entry.
• Give 21 days' notice before changing workers' wages, allowances or PF contributions where the Industrial Relations Code requires it, and never cut wages only to reduce contributions.

Our Code on Wages guide covers the wage definition and the 50% rule, which changes PF, ESI and gratuity bases, and the salary slip guide covers what a payslip must show.

3. Provident fund

• Deduct 12% of PF wages from the employee and add the employer's 12% (8.33% to the pension scheme on wages up to ₹25,000, the balance to EPF), plus EDLI and administration charges.
• File the ECR and pay within 15 days of the month end on the EPFO portal. The PF wage ceiling is ₹25,000 a month from 17 September 2026 (earlier ₹15,000).
• Keep UAN, KYC and nominations up to date, and settle exits and transfers on time.

Full detail in the EPF payroll guide; check amounts with the PF calculator.

4. ESI

• Deduct 0.75% and add 3.25% for employees whose ESI wages are up to ₹21,000 a month at the start of the contribution period.
• File and pay by the 15th of the following month on the ESIC portal.
• Register new joiners at once so medical cover starts, and report employment injuries.

Full detail in the ESI guide and the ESI calculator.

5. TDS on salary

• Estimate each employee's tax for the year under the regime they choose, using their declarations in Form 124 (formerly Form 12BB), and deduct monthly. Forms and due dates are on the Income Tax Department site.
• Deposit TDS within 7 days of the month end; for March, by 30 April (non-government deductors).
• File the quarterly salary TDS statement in Form 138 (formerly Form 24Q) by 31 July, 31 October, 31 January and 31 May.
• Issue the annual certificate in Form 130 (formerly Form 16) by 15 June after the tax year; the first Form 130 is for tax year 2026-27.

Our guide to TDS on salary explains the monthly calculation; the TDS on salary calculator estimates it.

6. Professional tax and labour welfare fund

• Apply the professional tax slab of the state where each employee works, deposit and file by that state's due date (for example the 15th in Maharashtra, the 20th in Karnataka and the 21st in West Bengal).
• Deduct and deposit labour welfare fund in the states that levy it, usually in June and December or once a year, with the employer's share.

See the professional tax guide, the PT calculator and the LWF calculator.

7. Bonus, gratuity and maternity benefit

• Bonus: pay statutory bonus of at least 8.33% (up to 20%) to eligible employees within eight months of the close of the accounting year; see the bonus calculator.
• Gratuity: collect nominations, provide for the liability, and pay within 30 days of it becoming payable on exit; see the gratuity guide.
• Maternity benefit: pay maternity benefit for the leave period to eligible women; the maternity benefit calculator works out the amount.

8. Exits

• Pay dues on resignation, removal, dismissal or retrenchment within two working days, with gratuity within 30 days of it becoming payable.
• Mark the exit on the EPFO and ESIC portals, and include the final month in the TDS statement and annual certificate.

The full and final settlement guide covers the whole exit process.

Monthly, quarterly and annual compliance routine

Laws are organised by statute; payroll teams work by calendar. The same obligations, arranged as a routine:

Due dates move when governments extend them (EPFO extended the September 2026 ECR date to 31 October 2026, for example), so keep the calendar updated from official sources rather than last year's list.

What changed for payroll compliance in 2026

• Still bedding in: the Labour Codes, in force from 21 November 2025, with Central Rules notified on 8 May 2026; registration updates on Shram Suvidha were due by 8 November 2026 for central-sphere establishments already registered under an older law.
• Wage definition: PF, ESI (in the Labour Ministry's view), gratuity and bonus now work on wages as defined in the Codes, including the 50% add-back, which raised statutory costs for many low-basic structures.
• PF wage ceiling: ₹25,000 a month from 17 September 2026.
• Income-tax Act, 2025: from 1 April 2026, with new form numbers: Form 124 for employee declarations, Form 138 for quarterly salary TDS statements and Form 130 for the annual certificate.
• Interest: 12% a year simple interest on amounts due under the Code on Social Security, notified on 29 May 2026 (Gazette copy of S.O. 2698(E), via TaxHeal) with effect from 21 November 2025.
• States: Maharashtra moved its professional tax due dates to the 15th, West Bengal revised its PT slabs from 1 October 2026, Odisha repealed PT from 1 April 2026, and ESI was extended to more districts, such as all of Gujarat from 1 October 2026.

Multi-state payroll compliance

An employer with staff in several states runs one payroll but several rule sets. PF, ESI and TDS work the same everywhere, but minimum wages, professional tax, labour welfare fund, shops and establishments rules, holidays and, for state-sphere establishments, the Labour Code rules and forms all follow the state where the employee works. Practical controls:

• Record a work location (state and city) for every employee, and change it on the date of any transfer.
• Keep a state matrix: PT slab and due date, LWF rate and months, minimum wage zone and VDA cycle, registration numbers, and which rules apply.
• Register for PT and LWF in a new state before the first salary is paid there.
• For remote employees, record the state they actually work from, because it drives PT, LWF and minimum wages; the employer's head office state does not decide it on its own.

Contract labour and outsourced payroll

Using a contractor or staffing agency does not remove compliance risk. Under section 55 of the OSH Code, where its contract-labour chapter applies, the principal employer must pay wages the contractor fails to pay. Social security laws make the principal employer liable for unpaid dues too, and contract workers count towards some thresholds. Check, every month, that the contractor has paid wages on time and deposited PF and ESI for the workers deployed with you: ask for the ECR, ESI challan and wage register for your site, and match headcounts. The same applies to an outsourced payroll provider: it can do the work, but the legal duty stays with the employer.

How to run a payroll compliance audit

The usual compliance methods are checklists, clear ownership, reconciliation, periodic audits and records. An audit brings them together:

The most cited model of a compliance programme is the seven elements from US HHS-OIG guidance: written policies and procedures, a compliance officer, training, open communication, monitoring and auditing, consistent enforcement, and prompt corrective action. It is a management framework, not Indian law, but it maps neatly to payroll: the checklist above, the ownership table below, and a record of every check. You may also hear of the "three C's" of compliance; the term is informal and used in different ways (commonly communication, consistency and commitment), and for payroll it comes down to clear instructions, the same process every month, and management backing.

Who owns payroll compliance?

Compliance often breaks down at the hand-offs between HR, payroll and finance. Give every item one owner and one checker:

If an outside payroll provider or contractor runs part of this, the principal employer remains responsible for many obligations, especially for contract workers, so keep the right to see challans and returns.

Audit trail: what records to keep

Compliance is only as good as your ability to prove it. For each month, keep together:

• the approved payroll register and change log (who changed what and why);
• attendance, leave and overtime records;
• bank transfer files and confirmations;
• PF ECR and challans, ESI contribution receipts, PT and LWF challans and returns;
• TDS challans, Form 138 acknowledgements, employee declarations and proofs;
• wage slips issued, registers, appointment letters and notices of change.

The Central Rules allow registers in electronic form and require them to be kept for five years after the last entry; tax and other laws set their own retention periods, so check the longest one that applies before deleting anything.

Common payroll compliance mistakes

• Wrong work location: PT, LWF and minimum wages applied for the wrong state.
• Stale wage bases: PF and ESI wages not recalculated after a revision or the Labour Codes' 50% rule.
• Late registration of joiners: ESI medical cover or PF membership not started from day one.
• Old form names and dates: using Form 16, 24Q or 12BB processes without updating to Forms 130, 138 and 124, or old state due dates.
• Unpaid or late exit dues: full and final settlement beyond two working days.
• No proof: checks done but not recorded, so they cannot be shown in an inspection.

Late deposits are expensive: PF damages under the EPF Scheme, 2026 are graded by the length of delay, at 0.25%, 0.50% or 1% of arrears a month, on top of 12% interest a year (see our PF challan and late payment guide), and interest and damages on ESI and TDS also build up from the due date. Fixing a pattern of errors can cost more than the original amounts.

Related reading: Payroll in India · Payroll process · Social Security Code guide · Salary structure under the Labour Codes

Frequently asked questions

What is statutory compliance in HR?

Statutory compliance means following the laws that apply to employing people: registering the establishment, paying at least minimum wages on time, deducting and depositing PF, ESI, professional tax, labour welfare fund and TDS, paying bonus and gratuity, keeping registers and filing returns. "Statutory" simply means required by statute, that is, by an Act of Parliament or a state legislature and the rules made under it.

What are all HR statutory compliances in India?

For most private employers: registration under the Labour Codes and with EPFO and ESIC, minimum wages and timely payment of wages, wage slips and registers, PF, ESI, professional tax and labour welfare fund where the state levies them, TDS on salary with quarterly statements and annual certificates, statutory bonus, gratuity, maternity benefit, appointment letters, and state shops and establishments rules. Which ones apply depends on headcount, wages and state.

What is compliance in payroll?

Payroll compliance is the part of statutory compliance that runs through the monthly salary process: calculating pay and deductions correctly under each law, paying salaries and depositing deductions by their due dates, filing returns and statements, issuing payslips and certificates, and keeping records that prove all of it.

What is the biggest payroll compliance risk?

Usually not a missed law but bad input data: a wrong work location, a missing UAN or ESI number, a salary revision that was not reflected in PF or ESI wages, or attendance changed after payroll was locked. These errors flow into every deduction and filing. The second biggest risk is late deposits, because interest and damages build up every month.

How do you check HR and payroll compliance?

Run a monthly check before payroll closes (inputs, applicability, deductions), reconcile after it closes (payroll register against bank file, challans and returns), and do a fuller review every quarter and year (TDS statements, bonus, gratuity provisioning, registers, registrations and notices of change). Keep evidence of each check so that it can be shown in an inspection.

Is compliance a part of HR?

Statutory compliance is shared. HR usually owns employee data, policies, registrations and labour law; payroll owns calculations, deductions and filings; finance owns deposits, TDS deposits and accounting. Compliance is not the same as HR: it is a set of legal duties that HR, payroll and finance share. What matters is that each item has one named owner and a checker, which is why the checklist in this guide shows ownership.

Position as of 14 November 2026. Based on the four Labour Codes and their Central Rules, 2026, the Income-tax Act, 2025, and state professional tax and labour welfare fund laws. State rules, forms and due dates differ, so check the position for your state. General information, not legal or tax advice.