An HR checklist for new Indian employers
Reviewed by Mellow Editorial Team, HR & payroll content team
Hiring your first employee in India triggers a set of legal registrations, deductions and filings that must be in place before — or on the day — you run your first payroll. Miss them and you face penalties, back payments and potential litigation.
Register your business as an employer
Before you pay anyone, you need the right registrations.
PAN and TAN. Your company needs a Permanent Account Number (PAN) to file tax returns and a Tax Deduction and Collection Account Number (TAN) to deduct TDS from salaries. Apply for TAN through the NSDL or UTIITSL portals. Without a TAN, you cannot legally deduct or remit TDS.
EPF registration. Once you employ 20 or more workers, registration with the Employees' Provident Fund Organisation (EPFO) becomes mandatory. Some employers register voluntarily before hitting that threshold. Both employee and employer each contribute 12% of the employee's basic wages to the provident fund every month.
ESI registration. The Employees' State Insurance scheme covers employees whose wages fall below the prescribed threshold. Employers with the requisite number of employees must register with the ESIC. Contributions from both sides are calculated as a percentage of gross wages.
Shops and Establishments registration. Every state has its own Shops and Establishments Act. You must register your place of business with the local labour department, usually within 30 days of commencing operations. The certificate must be displayed at the premises.
Professional Tax. Most states levy Professional Tax on salaried employees. The employer deducts it from salary and remits it to the state government. Rules, slabs and due dates vary by state, so check the specific requirements for every state where you have employees.
Set up payroll correctly from day one
Salary structure matters. How you split a salary into basic, HRA, special allowance and other components affects both the employee's tax liability and your statutory contribution base. A poorly designed structure creates problems at year-end when employees want to claim exemptions. Work through the structure with an accountant before you make your first offer letter.
TDS on salaries. Under the new income tax regime, salaries are taxed at slabs rising to 30%, plus a 4% health and education cess. A Section 87A rebate reduces tax to nil for employees within the lower income range. As the employer, you must estimate each employee's annual taxable income at the start of the year, deduct TDS monthly from salary, deposit it within the due date, and file Form 24Q returns each quarter. At year-end, you issue every employee a Form 16, which is their certificate of TDS deducted and deposited.
Payroll register. Maintain a detailed monthly payroll register showing gross pay, each deduction (TDS, EPF, ESI, Professional Tax, loans) and net pay. This is your audit trail for any statutory inspection.
Draft compliant employment documents
Offer letter and appointment letter. These should state the designation, salary structure, leave entitlement, notice period and place of work. Keep signed copies on file.
Employment contract. For roles involving confidential information or client relationships, include appropriate clauses. Make sure any non-compete terms are reasonable — Indian courts have consistently read down overly broad restrictions.
Standing Orders. If you grow to the threshold covered by the Industrial Employment (Standing Orders) Act, you must formalise and certify your workplace rules.
India's four consolidated Labour Codes — covering wages, industrial relations, social security, and occupational safety — came into force in 2025. These consolidate dozens of older central laws. Familiarise yourself with the Code on Wages in particular, since it governs the definition of wages used across most statutory calculations.
Build your leave and attendance framework
The Labour Codes, the applicable state rules and your Shops and Establishments registration all specify minimum leave entitlements: earned leave, casual leave and sick leave. Your leave policy cannot provide less than the statutory minimum.
Attendance and leave records must be maintained and available for inspection. Many employers use basic HR software from the start — even a simple system is better than spreadsheets when a labour inspector asks for records.
Gratuity and long-term obligations
Gratuity is payable to an employee who has completed five continuous years of service, on resignation, retirement or death. The Payment of Gratuity Act sets out the formula. While you will not owe gratuity on day one, you should account for it as an accruing liability from the moment someone joins. Larger employers often fund this liability through a group gratuity scheme with an insurer.
You should also be aware that the Labour Codes introduce a broader definition of "wages" that feeds into gratuity, provident fund and other calculations. Getting the wage definition right at the start prevents restatement headaches later.
Keep a compliance calendar
Statutory due dates are unforgiving. TDS must be deposited monthly and Form 24Q filed quarterly. EPF and ESI contributions have their own monthly deadlines. Professional Tax remittance varies by state. Annual returns are due under multiple statutes.
Build a compliance calendar that lists every filing, its due date and the person responsible. Review it at the start of each financial year when thresholds or rates are revised in the Union Budget or state budgets.
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