HR and payroll for creative agencies in India
Reviewed by Mellow Editorial Team, HR & payroll content team
Running payroll and HR for a creative agency in India is genuinely different from running it for a software firm or a manufacturing unit. The workforce is a mix of salaried designers and copywriters, project-based freelancers, part-time consultants and occasionally interns — and each category carries different statutory obligations.
Who counts as an employee, and why it matters
The most common compliance mistake creative agencies make is treating freelancers and contract workers as a payroll-free zone. Under Indian labour law, the distinction between an employee and an independent contractor turns on factors like control, exclusivity and economic dependence — not just what the contract says.
If a person works only for your agency, follows your working hours and uses your equipment, regulators and courts may treat them as an employee regardless of how you have labelled the arrangement. That triggers EPF, ESI and gratuity obligations you may not have budgeted for.
For genuine freelancers — those who work for multiple clients, set their own hours and invoice you — TDS under the Income Tax Act applies instead. You deduct tax at source on professional fees and issue the relevant TDS certificate. Keep clean records of each person's status from day one.
Payroll structure for salaried agency staff
For employees on a fixed salary, the structure that works best for creative agencies is broadly the same as any other sector, with a few practical notes.
Basic salary and allowances. Keep basic salary at a reasonable proportion of CTC. A very low basic inflates take-home in the short run but reduces EPF contributions (calculated at 12% of basic wage for both employee and employer), which employees often resent later. It also understates gratuity, payable after five years of continuous service and calculated on last drawn basic and dearness allowance.
Variable pay. Many agencies pay project bonuses or performance incentives. These are fully taxable as salary and must be included in TDS calculations. If you pay them irregularly, adjust Form 24Q filings in the quarter you actually pay them out — do not wait until year end.
Income tax under the new regime. From 2026/27, most employees default to the new tax regime unless they opt out. Slabs rise progressively to 30%, with a section 87A rebate available for lower incomes and a 4% health and education cess on top of income tax. When running TDS calculations at the start of the year, collect investment declarations anyway — employees who want to opt into the old regime must do so explicitly and may change their choice once during the year.
Form 16 and Form 24Q. You file Form 24Q quarterly and issue Form 16 to each employee by the deadline after the financial year closes. For small agencies filing for the first time, this is where most errors occur — particularly in Q4 when year-end adjustments, final investment proofs and any arrears all land together.
Managing a mixed workforce across projects
Creative agencies typically ramp up for pitches and campaigns, then scale back. This creates a revolving door of short-term hires, which has real HR implications.
Fixed-term contracts. Under India's consolidated Labour Codes (applicable from 2025), fixed-term employees must receive the same wages and benefits as permanent employees in the same role for the duration of the contract. They are also entitled to proportionate gratuity even if they have not completed five years — a change from the previous position. Make sure your offer letters and HR system reflect this.
Interns. Unpaid internships sit in a legal grey area. If an intern performs productive work under supervision, there is a reasonable argument they are a worker under the Code on Wages. Many agencies now pay a stipend and treat stipend payments as professional fees for TDS purposes, which is cleaner than ignoring the question.
Moonlighting and exclusivity clauses. Designers and creative directors in India commonly freelance on the side. Whether you permit this or not, your employment contracts should be explicit. If you restrict outside work, ensure the clause is proportionate — blanket bans on all outside activity have been challenged in disputes.
Statutory registrations you cannot skip
EPF. Mandatory once you cross 20 employees. Many agencies delay registration hoping to stay below the threshold, which is a false saving — past contributions become due with interest and penalty.
ESI. Applies to employees whose wages fall below the notified threshold. Creative agencies in cities often find that most of their staff earn above it, but check this for junior roles, office support staff and part-time hires.
Professional Tax. Levied by state governments at varying rates. Maharashtra, Karnataka and West Bengal all have professional tax — if your agency operates across states, register and remit in each state separately.
Shops and Establishments registration. Required in most states for any office-based business. This also governs working hours, leave entitlements and termination procedures for your state.
Keeping HR records that hold up
Creative agencies are often informal by culture, which creates problems when disputes arise. An employee who claims they were verbally promised a bonus, or that their termination was sudden, is harder to manage without documentation.
Maintain written offer letters, signed appointment letters, leave records, appraisal records and any amendments to compensation. For remote or hybrid employees — common in agencies post-2020 — specify the work location in the contract, because this affects which state's Shops and Establishments Act applies and which professional tax jurisdiction governs you.
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