How much does payroll cost in India?
Reviewed by Mellow Editorial Team, HR & payroll content team
Payroll cost in India is not a single number — it depends on headcount, salary levels and which statutory contributions apply. For most employers, the true cost of running payroll sits between 13% and 20% above an employee's gross salary, once mandatory contributions and compliance overhead are factored in.
What makes up the cost of payroll in India
There are three distinct layers to think about:
Statutory contributions on top of salary. These are mandatory and non-negotiable. The biggest is the Employer Provident Fund (EPF) contribution: 12% of basic wages for every eligible employee. If your employees fall below the ESI wage threshold, you also owe an ESI contribution as the employer. These costs sit entirely outside the CTC that employees see and must be budgeted separately.
The cost of compliance. India's payroll compliance calendar is dense. You file Form 24Q every quarter, issue Form 16 annually, manage TDS deductions each month, and handle returns under the EPF and ESI schemes separately. Someone — an in-house payroll executive, an outsourced accountant or a payroll platform — has to do this work. That person or service has a cost.
Professional tax and other state-level levies. Professional Tax is imposed by most (not all) Indian states and is deducted from employee salaries. The rates and slabs vary by state, and the employer is responsible for depositing it. If you operate across multiple states, this multiplies your compliance footprint.
The statutory contribution numbers
To be concrete, here is what you owe on top of gross salary for a full-time employee on the EPF and ESI schemes:
- EPF employer contribution: 12% of basic wages
- ESI employer contribution: applies where the employee's gross wages are below the notified threshold; the employer's share is a percentage of gross wages
EPF applies once an employee crosses a minimum wage threshold; below that, registration is still generally required once the establishment meets the headcount trigger. Once registered, contributions are owed on the basic + dearness allowance component of salary, not necessarily total CTC — which is why structuring salary correctly matters for cost planning.
For a mid-level employee with a basic of ₹25,000 a month, the EPF employer contribution alone is ₹3,000 a month, or ₹36,000 a year. Multiply that across a team and it becomes a significant line item quickly.
TDS and income tax: a cost of administration, not of the employer
TDS on salary is the employee's income tax liability — you are collecting it on the government's behalf. It does not add to the employer's payroll cost directly. What it does add is work: you must calculate the correct deduction each month under the applicable regime, deposit it within the due date, file Form 24Q quarterly and issue Form 16 by the deadline after year-end.
For 2026/27, the income tax new regime has slabs rising to 30%, with a section 87A rebate available for lower incomes and a 4% health and education cess on the tax payable. Employees can also choose the old regime. Managing both options across a workforce, especially mid-year when employees switch declarations, is where errors typically creep in.
The cost of getting it wrong
Late deposits and missed filings carry interest and penalties. EPF defaults can attract interest at a rate set by the EPFO, and wilful non-compliance carries criminal liability for directors and authorised signatories. ESI defaults follow a similar pattern. Given India's four consolidated Labour Codes — which have been in force from 2025 — the definitions of wages and the calculation base for contributions have also shifted, so older payroll setups that have not been updated may be calculating incorrectly.
Errors in TDS create problems at the employee's end when they file their ITR, which creates friction and raises HR issues even if the legal liability sits elsewhere.
Outsourced versus in-house: how the numbers compare
A dedicated in-house payroll executive in a mid-sized Indian city costs ₹4–6 lakh per annum in salary alone, plus EPF on their wages, statutory benefits and management time. That is a reasonable benchmark for a team of 30–80 employees where payroll complexity is moderate.
Payroll software or a managed payroll service typically charges on a per-employee, per-month basis — costs vary widely depending on the provider and the scope of services (calculations only versus full compliance management including filings).
For businesses running payroll across multiple countries alongside India, the per-country overhead of maintaining separate local accountants can exceed the cost of a unified platform significantly.
Gratuity adds a longer-term cost that is easy to overlook in early-stage budgeting: after five years of continuous service, every employee becomes eligible. Some employers fund this through a group gratuity scheme; others treat it as a provision. Either way, it is a real liability that accrues from day one of employment.
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