Payroll Process in India: Step-by-Step Guide, Calendar and SOP

Payroll processing is the monthly routine that turns attendance and salary data into correct net pay, statutory deposits and records. If you are new to the subject, start with our guide to what payroll is, which explains the components and works through a full payroll register. This guide is the operating manual: the monthly calendar, the inputs checklist, the order of calculation, the checks to run before money leaves the bank, the due dates, and how to write it all into a payroll SOP.

The payroll process at a glance: 5 stages

Ask ten payroll teams for their steps and you will get anywhere from five to twelve, but they all describe the same sequence. Grouped into stages, it looks like this:

1. 1. InputsCollect joiners, exits, attendance, leave, revisions and claims; freeze them at the cut-off
2. 2. CalculatePaid days, earnings, PF, ESI, PT, LWF, TDS and other deductions, then net pay
3. 3. CheckCompare with last month, explain every difference, second-person approval
4. 4. PayBank transfer of net pay and a wage slip to every employee
5. 5. Deposit and recordTDS, PF, ESI, PT and LWF deposits, returns, registers and accounting

Stages 1 to 4 happen before payday. Stage 5 happens after it, and is where interest and penalties arise if anything is late, because each deposit has its own deadline and portal. The rest of this guide takes each stage in turn.

Monthly payroll calendar: November 2026 example

The law fixes only the outer dates: when salary must reach employees and when deductions must reach the government. Everything before payday is set by company policy. Here is how a company paying on the last working day might schedule its November 2026 payroll:

Some companies pay on the 1st of the month instead. That is also within the law; what matters is that monthly wages are paid before the seventh day of the following month ends (Code on Wages, 2019, section 17, in force since 21 November 2025). Fix your own dates once, publish them to managers, and keep them every month.

Stage 1: Collect and freeze the payroll inputs

Many payroll errors start as input errors rather than calculation errors. The fix is a fixed list of inputs, a named owner for each, and a cut-off after which nothing changes for the month.

Anything that arrives after the cut-off moves to next month as arrears or a recovery, with a note of why. The one input that cannot wait is an exit: dues on resignation, removal, dismissal or retrenchment must be paid within two working days (section 17(2) of the Code on Wages). Our full and final settlement guide covers what goes into those dues.

Stage 2: Calculate the payroll in the right order

The order matters, because each figure feeds the next. PF depends on wages for the paid days, TDS depends on the projected annual salary after PF, and net pay depends on everything before it.

1. Paid days. Total days in the month minus loss-of-pay days. Your company's divisor (calendar days, 30 or 26) changes the result; the monthly salary calculator shows the difference.
2. Fixed earnings for the paid days. Basic, DA, HRA and other allowances, prorated for joiners, leavers and loss of pay.
3. Variable earnings and arrears. Overtime, incentives, shift pay, and arrears from back-dated revisions.
4. Wages for PF and gratuity. Apply the Labour Code wage definition, including the 50% rule on excluded allowances. See the PF wage ceiling guide for the ₹25,000 ceiling.
5. PF and ESI. Employee and employer shares (our EPF guide explains the PF split); check them with the PF calculator and ESI calculator.
6. Professional tax and labour welfare fund. By the state where the employee works, using the professional tax calculator and LWF calculator.
7. TDS on salary. Project the year's taxable salary under the employee's regime, deduct what was already deducted, and spread the balance over the remaining months. Our TDS on salary guide explains the method and the TDS calculator does the sums.
8. Other deductions. Loan instalments, advances, and any other deduction the law permits and the employee has authorised.
9. Net pay. Gross earnings minus all deductions. This is the bank transfer amount.

If you want to see these steps applied to real figures, the payroll guide's worked example runs one month for two employees, from gross pay to every deposit.

Stage 3: Check the payroll before you pay

A payroll that has been calculated is not ready to pay. The check stage is where you prove the total is right, and it takes less time than correcting a wrong payment afterwards.

Reconcile this month with last month

Start from last month's gross pay, add or subtract every known change, and compare the result with what the payroll actually produced. Any gap is an error until it is explained.

Example: a company paid ₹24,60,000 gross to 47 employees in October 2026. It pays on calendar days, so November has a divisor of 30.

The ₹18,000 has to be traced before anyone is paid. In this example it was a one-time incentive keyed in twice. Without the reconciliation, the error would have been paid, taxed and reported in the quarterly TDS return before anyone noticed. Run the same check on headcount, total PF, total ESI and total TDS.

Pre-release checklist

• Headcount in payroll matches HR records: joiners in, leavers out (or paid only to their last day).
• No employee with zero or negative net pay, and no unexplained large change in net pay.
• Every employee covered by PF or ESI has a deduction, and nobody outside coverage has one.
• TDS for employees with no tax declaration is worked out under the correct default regime.
• Bank account numbers changed this month are verified against a document, not an email.
• Bank file total equals net pay total in the payroll register.

Maker-checker control

The person who runs the payroll should not be the person who approves it or releases the payment. In a small business this can be as simple as the owner reviewing the reconciliation and the bank file before authorising the transfer. It is a control, not a legal requirement, but it is the single best protection against both errors and payroll fraud, such as fictitious employees or changed bank details.

Stage 4: Pay salaries and issue wage slips

Net pay goes to employees by bank transfer, normally through a bulk upload file from the payroll register. Monthly wages must be paid before the seventh day of the next month ends.

Each employee also gets a wage slip. Where the Central Government is the appropriate government, the Wages (Central) Rules, 2026 require a wage slip in Form V, on or before the day wages are paid, and allow it to be electronic (rule 52). States have their own rules and forms. Our Labour Code Central Rules guide explains which rules apply to whom, and the salary slip generator produces a slip with the required details.

Stage 5: Deposit dues, file returns and keep records

After payday, every amount deducted from employees, plus the employer's own contributions, has to reach the right authority by its due date.

A note on ESI. The old ESI regulations were saved by the Social Security Code's transition clause for one year from 21 November 2025, which ends this month. ESIC published draft ESI (General) Regulations, 2026 in July 2026; as reported, the draft keeps the 15-day payment window, but the final regulations had not been notified at the time of writing. Keep paying by the 15th and watch the ESIC website. Our post on the 21 November 2026 transition for PF and ESI explains the position.

Records are part of the process too. Under rule 51 of the Wages (Central) Rules, 2026, an employer keeps 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), electronically or on paper, for five years after the last entry. Payroll software and a well-built spreadsheet can produce these from the same data. Finally, pass the accounting entries for salary, deductions and employer contributions, so the books match what was paid and deposited.

Quarterly and annual payroll tasks

A few payroll jobs come round less often than monthly. They are easy to miss because they do not sit in the monthly routine, so put them in the same calendar.

Our Form 16 and Form 130 guide covers the certificate in detail.

Running payroll in Excel, Tally or payroll software

The five stages are the same whatever tool you use. What changes is how much of stage 2 and stage 5 the tool does for you.

Whichever tool you use, payroll can be run in-house or outsourced to a payroll service provider. Outsourcing moves the work, not the responsibility: the employer remains liable for correct pay, deposits and returns, so the stage 3 checks still belong with you. Our guide to salary structure covers the pay components every tool works from.

A payroll spreadsheet needs one row per employee and, at minimum, these columns: employee ID and name, days in month, paid days, each fixed earning prorated for paid days, variable pay and arrears, gross pay, PF wages, employee PF, ESI wages and employee ESI, professional tax, TDS, other deductions, net pay, then employer PF, EPS, EDLI and employer ESI. Each month, copy last month's sheet, update the inputs, let the formulas recalculate, run the stage 3 reconciliation against last month's totals, and lock the file once approved.

To run payroll in Excel, start from our free salary sheet in Excel format, which already has the PF, ESI and net pay formulas. To compare products such as Zoho Payroll, greytHR or Keka, see our payroll software comparison. Whichever you use, do the stage 3 reconciliation yourself: software calculates fast, but it calculates wrong inputs just as fast.

How to write a payroll SOP

A payroll SOP (standard operating procedure) is the written version of your process, so payroll runs the same way when the usual person is on leave or leaves. It does not need to be long. A useful SOP covers:

1. Scope: entities, locations and categories of staff covered, and the states whose PT and LWF rules apply.
2. Calendar: input cut-off, run, approval and pay dates, plus every statutory due date.
3. Inputs: the checklist above, with the owner and format for each input.
4. Calculation rules: salary divisor, rounding, proration, arrears, the PF and ESI wage bases, and the TDS method.
5. Checks: the reconciliation, the pre-release checklist, and who approves.
6. Payment: bank file process, who authorises it, and how bank-detail changes are verified.
7. Deposits and returns: each portal, who files, and where challans are saved.
8. Exits: the full and final settlement steps and the two-working-day deadline.
9. Records: registers, wage slips, challans and approvals, and how long each is kept.
10. Changes: who updates the SOP when a rate, ceiling or rule changes.

Related reading: What is payroll? · Labour Code Central Rules 2026 · Full and final settlement · TDS on salary

Frequently asked questions

Is payroll processing part of HR?

Usually it is shared. HR owns the inputs: joiners, exits, attendance, leave and salary revisions. Finance or accounts usually approves the payroll, makes the payment and posts the entries. In small companies one person often does both, which is why a second person should still check the payroll before money is released.

How can I do payroll for free?

For a small team you can run payroll in a spreadsheet: one row per employee, with paid days, earnings, PF, ESI, professional tax, TDS and net pay. Free tools such as HR Calcy's salary sheet, salary slip generator and PF, ESI and TDS calculators cover the calculations. You still have to deposit the dues and file returns yourself on the EPFO, ESIC, income-tax and state portals.

How do I process payroll in Keka or greytHR?

The stages are the same in any payroll software: update inputs, lock attendance, run the payroll, review the variance and exception reports, approve, then release payslips and the bank file. Menu names differ between products and change with updates, so follow the vendor's own help guide for the exact screens.

Can salary be paid after the 7th of the month?

Not for monthly-paid employees. Under section 17 of the Code on Wages, monthly wages must be paid before the seventh day of the following month ends. Companies can pay earlier, for example on the last working day of the month, but the 7th is the legal outer limit.

What happens to inputs received after the payroll cut-off?

Most companies carry them to the next month's payroll as arrears or recoveries, and record why. Exceptions are usually allowed only for exits, because dues on resignation, removal, dismissal or retrenchment must be paid within two working days, and for errors that would otherwise underpay an employee.

Position as of 13 November 2026. Due dates are from the Code on Wages, 2019, the Wages (Central) Rules, 2026, the EPF Scheme, 2026, the ESI regulations as saved, and the Income-tax Rules, 2026. State rules on wage slips, registers, professional tax and labour welfare fund differ, so check your state's rules. General information, not legal or tax advice.