Adding starters to payroll in India
Reviewed by Mellow Editorial Team, HR & payroll content team
When a new employee joins your organisation in India, you must complete a specific sequence of registrations, deductions and filings before their first salary is paid. Miss any step and you risk compliance penalties, delayed PF accounts, or incorrect TDS from day one.
Collect the right documents before Day 1
Before you can add someone to payroll, you need a small but critical set of documents:
- PAN card — mandatory for TDS deduction and Form 16 issuance
- Aadhaar card — required for EPF and ESI registration
- Bank account details — account number and IFSC code for salary transfer
- Previous employer's Form 16 or salary slip — needed to calculate correct TDS for the year if they join mid-year
- Declaration under the new tax regime — employees must confirm whether they are opting in or out; this determines how you calculate their monthly TDS
Get these on or before the joining date. Chasing them after the fact creates delays and risks an incorrect first payroll run.
Register the employee for EPF and ESI
If your establishment is covered under the Employees' Provident Fund and Miscellaneous Provisions Act, every new eligible employee must be registered on the EPFO unified portal.
EPF: The contribution rate is 12% of basic wages from the employee's side, matched by 12% from the employer. You generate a Universal Account Number (UAN) for first-time employees, or link their existing UAN if they have worked before. Linking the existing UAN is important — it carries forward their PF balance and service history. Activate the UAN on the portal and verify it against their Aadhaar before the first ECR (Electronic Challan cum Return) is filed.
ESI: If the employee's gross wages fall below the applicable threshold, they must also be registered under the Employees' State Insurance scheme. Registration happens on the ESIC portal, and you receive an insurance number for the employee. ESI contributions are due from the month of joining.
Both registrations must be completed before you file the first monthly return for that employee.
Set up the correct TDS calculation
TDS on salary is governed by Section 192 of the Income Tax Act. As the employer, you are responsible for deducting the right amount each month so the employee's projected annual tax liability is collected across the year.
The current new tax regime has progressive slabs rising to 30%, with a 4% health and education cess applied on top of the income tax. A Section 87A rebate is available for employees with lower annual incomes, which can bring the net tax liability to nil. If an employee has not explicitly opted for the old regime, the new regime applies by default from the current tax year.
If the employee joins mid-year, you must factor in income they earned from their previous employer. Their previous Form 16 or salary certificate is your basis. Ignoring prior income and calculating TDS only on your salary leads to a shortfall that the employee has to make up at year-end — and you remain liable for the under-deduction.
Recalculate the projected tax liability at the start of each quarter and adjust monthly deductions accordingly.
File Form 24Q each quarter
You report salary TDS to the Income Tax Department by filing Form 24Q on a quarterly basis. This return captures every employee's salary paid, tax deducted and tax deposited during the quarter. New joiners must appear in Form 24Q from the quarter in which they first receive a salary from you.
TDS deducted must be deposited to the government by the 7th of the following month (with a different deadline for March). Late deposit attracts interest; late filing attracts fees. At the end of the financial year, the data in your Form 24Q filings flows into Form 16, which you must issue to each employee.
Account for gratuity and other statutory dues from day one
Gratuity becomes payable after five years of continuous service, but your liability starts accruing from the employee's first day. Many employers provision for gratuity monthly, either through a Life Insurance Corporation group gratuity scheme or an internal accrual. It is good practice to record the joining date accurately in your payroll system — that date determines eligibility when the employee eventually leaves.
Also check whether the four consolidated Labour Codes, which came into force in 2025, affect how you define wages, calculate leave encashment or structure the cost to company for this hire. The definition of "wages" under the Code on Wages has downstream effects on PF computation, so verify that your payroll software or process is aligned with the revised definition.
Keep a clear audit trail
Maintain a joining register or digital record that timestamps when the employee's documents were collected, when the UAN was activated, when ESI registration was completed and when they first appeared in your TDS workings. This trail is your first line of defence in any inspection or dispute.
Payroll compliance in India is not difficult when it is systematic. The risk comes from treating onboarding as an HR formality and payroll as a separate process — the two must run together from the moment an offer is accepted.
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