HR and payroll for legal firms in India
Reviewed by Mellow Editorial Team, HR & payroll content team
Running HR and payroll for a legal firm in India involves the same statutory obligations as any other employer, but the workforce structure — a mix of partners, associates, support staff and often contract-based counsel — creates specific complications that generic payroll advice tends to gloss over.
Who counts as an employee in a legal firm
This is where most legal firms get into trouble. Partners in a partnership firm or LLP are not employees; they draw profit shares, not salary, so payroll and TDS treatment differ entirely. Associates on the rolls, paralegals, legal assistants, clerks and administrative staff are employees and must be treated as such under labour law.
Retainer counsel and freelance advocates present a separate question. If someone works exclusively for your firm, on your premises, under your direction and supervision, tax authorities and labour tribunals may treat the relationship as employment regardless of what the contract says. If that happens, you owe EPF, ESI and other statutory contributions retroactively. Get the classification right from the start.
Payroll structure for associates and staff
Associates at larger firms often receive fixed base pay, a performance bonus and allowances — house rent, conveyance, and sometimes a bar council fee reimbursement. Structuring the salary correctly matters for both income tax efficiency and your firm's compliance position.
Under the new income tax regime for 2026/27, slabs rise to 30% at the top end. Employees can claim the Section 87A rebate if their income falls within the relevant threshold. Regardless of regime choice, you deduct TDS on salary every month under Section 192, file Form 24Q quarterly and issue Form 16 to each employee at year-end. Partners' profit distributions are handled outside payroll entirely and reported differently.
For EPF: employee and employer each contribute 12% of basic wages. The employer's contribution includes a component routed to the Employees' Pension Scheme. ESI applies to employees whose gross wages fall below the applicable wage threshold, covering medical and other social security benefits. Firms in metros with large support staff populations — peons, typists, record room staff — almost always cross the ESI coverage threshold.
A 4% health and education cess applies on income tax liability for all employees.
The partnership and LLP complication
Most law firms in India are registered as partnership firms or LLPs. Partners are taxed individually on their share of profit; they are not on the firm's payroll. However, if a managing partner also draws a salary from the firm (permitted under the LLP agreement), that salary component is treated as an expense for the firm and as income in the partner's hands — and TDS applies to it.
This dual role — partner and salaried employee in part — needs careful documentation. The LLP agreement must explicitly permit salary to partners, and the amount must be within limits prescribed under the Income Tax Act. Keep the agreement, board resolutions and payroll records aligned.
Labour Codes and what they mean for legal firms in 2025 onwards
India's four consolidated Labour Codes — covering wages, industrial relations, social security and occupational safety — have been in force from 2025. The Code on Wages changes how "wages" is defined for the purpose of calculating PF and gratuity, with a floor for the basic wage component. This directly affects how you structure associate salary breakdowns.
Gratuity remains payable after five continuous years of service at 15 days' wages per year of service. For long-tenured associates and senior support staff, the gratuity liability can be significant. Firms that rely heavily on non-compete clauses and long service tenures should model this liability and consider a funded gratuity trust or an LIC group gratuity policy.
The Code on Occupational Safety is relevant if your firm occupies large premises or has a headcount that crosses applicable thresholds — something larger full-service firms need to check with an employment lawyer.
Practical record-keeping and compliance calendar
Legal firms tend to be meticulous about client documentation and surprisingly lax about their own HR records. The minimum you need:
- Signed appointment letters for every employee, including terms of notice and probation
- Salary register updated monthly, with TDS deductions recorded
- Form 24Q filed within the due date each quarter; Form 16 issued before 15 June each year
- EPF and ESI challans paid monthly before the respective deadlines
- Gratuity eligibility tracked individually by joining date
- Leave records, particularly for the earned leave encashment provisions under the Labour Codes
Bar Council registration numbers for advocates on staff are worth maintaining in the HR file — they are occasionally required for regulatory submissions and audit purposes.
For firms operating across multiple states with branch offices, each state may have its own shops and establishments registration requirement. The Labour Codes rationalise some of this, but state-level notifications vary, so verify compliance in each jurisdiction where you have a registered office or resident staff.
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