From 5 to 50 employees in India: an HR roadmap
Reviewed by Mellow Editorial Team, HR & payroll content team
Growing from 5 to 50 employees is not just a hiring exercise — it is the point at which informal people management breaks down and statutory compliance becomes unavoidable. The obligations that apply at 50 employees are substantially different from those at 5, and the gap catches many founders off guard.
What changes as you cross key headcounts
Indian labour law is not a single threshold — it layers on as you grow.
Once you have 10 or more employees in a factory, or 20 or more in most commercial establishments, the Employees' Provident Fund (EPF) Act applies. From that point, both the employee and the employer each contribute 12% of eligible wages to the provident fund. This is not optional and the liability is retrospective to the date you crossed the threshold.
The Employees' State Insurance (ESI) Act kicks in for establishments with 10 or more employees (the threshold varies slightly by state). ESI covers employees whose wages fall below the prescribed ceiling, providing medical and sickness benefits. Once your establishment is covered, you register and begin deductions.
The Shops and Establishments Act is state-specific, but most states require registration once you have even one employee. If you have been deferring this, fix it before you scale.
India's four consolidated Labour Codes — the Code on Wages, the Industrial Relations Code, the Code on Social Security, and the Occupational Safety, Health and Working Conditions Code — are in force from 2025. The thresholds and definitions within them now govern standing orders, retrenchment procedures, and contractor compliance. If your HR documentation was written against the old Acts, review it.
Building a payroll function that holds up
At 5 employees, a spreadsheet and a CA can manage payroll. At 50, that breaks. You need a repeatable process with clear ownership before you hit 30 employees, not after.
What that process needs to include:
TDS on salaries. You are required to deduct tax at source from employee salaries under the Income Tax Act, deposit it with the government, file Form 24Q quarterly, and issue Form 16 to each employee at the year end. In the current 2026/27 tax year, most employees will default to the new regime, which has slabs rising to 30% with a section 87A rebate for lower incomes and a 4% health and education cess on top. You need each employee's regime declaration at the start of the year to deduct the right amount.
Gross-to-net calculation. As your salary structures become more varied — different grades, allowances, joining dates — the scope for errors multiplies. Standardise your salary components early. A proliferation of ad hoc allowances creates inconsistency in EPF computation and TDS working.
Payroll reconciliation. Before every payout, reconcile total payroll against the previous month. Unexplained variances signal either errors or compliance gaps.
HR documentation you cannot skip
Somewhere between 10 and 20 employees, verbal agreements become unworkable. Document these before they become disputes.
Offer letters and appointment letters. These should state the role, CTC, notice period, and which policies apply. They are your first line of defence in a wrongful termination claim.
HR policies. At minimum: leave policy (mapping to the applicable state Shops and Establishments Act entitlements), anti-harassment policy (mandatory under the POSH Act for establishments with 10 or more employees, including the requirement for an Internal Complaints Committee), code of conduct, and a disciplinary procedure.
Gratuity. You do not need to pay gratuity until an employee completes five years of continuous service, but you should model the liability from the day you hire. At 50 employees, some of your early hires may be approaching that mark.
Building people infrastructure, not just process
Compliance is the floor, not the ceiling. As you grow toward 50 employees, a few structural decisions will define your culture more than any policy document.
Decide how performance conversations happen. If managers have no framework, feedback becomes arbitrary and retention suffers. A lightweight quarterly check-in rhythm, documented somewhere, is far better than an elaborate annual review that no one does.
Define your compensation philosophy before your 20th hire. Will you pay at the 50th percentile of your market, the 75th, or benchmark to a different city? Inconsistency at this stage creates pay equity problems that are expensive to unwind later.
Invest in a basic HRIS before you need it. Onboarding 10 people a quarter on spreadsheets creates errors in statutory registers, incorrect ESI and EPF filings, and gaps in documentation that surface during audits. How Mellow runs payroll across six countries on one platform illustrates what a system-of-record approach looks like at different scales.
Common mistakes in this growth band
Treating compliance as a year-end exercise. EPF contributions, TDS deposits, and ESI payments all have monthly deadlines with interest and penalty provisions. Miss them consistently and the arrears compound.
Delaying contractor classification. At 50 employees many companies are also managing 10 to 20 contractors. Under the Labour Codes, misclassification carries real risk. Review each engagement against the actual working arrangement, not just the contract label.
Skipping exit documentation. Full and final settlement, relieving letters, and Form 16 at exit are obligations, not courtesies. Poor exit processes generate most of the employment disputes small companies face.
The jump from 5 to 50 is where an Indian business becomes an employer in the full statutory sense of the word. The companies that manage it cleanly are the ones that start building the infrastructure one headcount threshold ahead of when they need it.
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