HR and payroll for manufacturing in India
Reviewed by Mellow Editorial Team, HR & payroll content team
Manufacturing payroll in India carries obligations that go well beyond a standard office payroll — shift differentials, piece-rate workers, contractor labour and factory-specific compliance all sit on top of the usual PF, ESI and TDS requirements.
The statutory framework manufacturing employers must cover
Most manufacturing units fall under the Factories Act, which governs working hours, overtime, leave entitlements and safety obligations. From 2025, India's four consolidated Labour Codes — covering wages, industrial relations, social security and occupational safety — have consolidated much of the older legislation, but many of the substantive protections for factory workers remain intact within those codes.
For payroll specifically, your primary obligations are:
- EPF: 12% of basic wages contributed by the employee, matched by the employer. Mandatory once your headcount crosses the threshold.
- ESI: applicable for employees whose wages fall below the prescribed threshold. The employer contributes a higher share than the employee. Manufacturing plants with large workforces of machine operators, helpers and semi-skilled workers typically have a significant share of staff covered under ESI.
- TDS: deducted monthly from salaried employees, remitted to the government. Employers file Form 24Q quarterly and issue Form 16 annually.
- Gratuity: payable to any worker who completes five continuous years of service. On a factory floor with high tenures, this liability adds up quickly and should be provisioned for, not treated as a surprise outflow.
Wages and the complexity of shift-based pay
Manufacturing rarely runs on a single 9-to-5 shift. Most plants run two or three shifts, and payroll must correctly handle:
Overtime: Under Indian labour law, hours beyond the standard working day attract overtime wages — typically at twice the ordinary rate. If your payroll system or process cannot distinguish regular hours from overtime hours by shift, you will either overpay or face grievances and inspections.
Night shift and other allowances: Many plants pay a night shift allowance, a conveyance allowance or a meal allowance. Some of these are structured specifically to remain outside the definition of "wages" for PF calculation purposes — but the Labour Codes have tightened what counts as wages, so review your allowance structure with a labour law consultant if you have not done so since 2025.
Piece-rate and daily-wage workers: If any workers are paid per unit produced or engaged as daily-wage labour (badli workers), their payroll calculations differ from monthly salaried staff. Minimum wage compliance must be verified independently for each category and each state — minimum wages in India are set at both central and state level and vary by scheduled employment type.
Contract labour and the compliance trap
A very large number of manufacturing units rely on contract labour for non-core functions — loading, cleaning, canteen operations — and sometimes for core production during peak periods. This is where payroll compliance becomes genuinely complicated.
Under Indian law, the principal employer (your factory) carries residual liability if the contractor fails to pay statutory dues — PF, ESI, minimum wages — to the contract workers. If you engage contractors, you need:
- A valid registration under the applicable code provisions
- Contractors who are themselves registered and compliant
- A process to verify that the contractor has deposited PF and ESI on time, every month — not just at year-end
Audit your contractors' compliance registers and challan receipts regularly. A labour inspector finding unpaid PF for a contractor's workers on your premises can treat your factory as liable.
Managing payroll across multiple plants and states
If you operate plants in more than one state, payroll administration multiplies in complexity. Professional tax, for instance, is a state-level levy with different slabs and due dates across Maharashtra, Karnataka, Tamil Nadu and other states. Minimum wages differ by state and by skill category. Labour welfare fund contributions, where applicable, also vary.
A practical approach: maintain a compliance calendar specific to each plant location, not a single national one. The due dates, forms and portals differ enough that a generic checklist will cause you to miss something.
Payroll records, inspections and documentation
Factory payroll is subject to inspection under multiple statutes. Inspectors can ask to see wage registers, muster rolls, overtime registers, PF and ESI challans, and accident records. Under the Labour Codes, many of these records can now be maintained digitally — but they must be current, complete and available on demand.
Practical minimums to keep in order:
- A wage register showing gross pay, each deduction, and net pay for every worker, every month
- Separate muster rolls or attendance records that reconcile with the wage register
- PF and ESI challan receipts for the past several years
- Form 16s issued on time for all employees whose income attracts TDS
For manufacturing businesses growing headcount or adding shifts, running payroll on spreadsheets very quickly becomes a source of errors and audit risk. The volume of variable data — attendance, overtime, shift codes, contractor counts — needs a structured process behind it, whether that is a dedicated payroll team, software or an outsourced solution.
---
Run HR and payroll in India with Mellow
Mellow brings HR, payroll and 12 AI agents into one platform — built to handle India properly, with payroll included, from £4 per employee per month. The AI agents don't just answer questions; they generate contracts, run cost estimates and draft letters for you.
[Start a free trial →](/register)