HR and payroll for non-profit in India
Reviewed by Mellow Editorial Team, HR & payroll content team
Non-profits in India follow the same core payroll and labour law obligations as any other employer. Registered salaries, provident fund contributions, TDS deductions and statutory filings all apply — the non-profit status of your organisation does not create a separate set of rules.
What makes non-profit payroll distinct
The main practical differences are not legal exemptions but internal realities: grant-funded budgets, donor restrictions on administrative costs, multi-state operations, and a workforce that often mixes salaried staff, contractual consultants and unpaid volunteers. Each of these creates a distinct compliance pressure.
Grant agreements frequently cap "overhead" or "administration" spending. Since salaries are often the largest line item, your payroll structure must align with your funder's cost categorisation. Many non-profits maintain a project-wise cost allocation — mapping each employee's time and salary to specific grants — so they can demonstrate that restricted funds are used correctly. This is an HR and finance discipline, not a statutory requirement, but auditors and donors will look for it.
Volunteers are not employees and must not be treated as such. If a volunteer receives any regular payment beyond genuine out-of-pocket reimbursement, there is a risk they are reclassified as a worker under labour law. Keep documentation clear: separate volunteer agreements, reimbursement policies and attendance records that are distinct from your employee register.
Statutory compliance obligations
Non-profits that employ paid staff are subject to the same statutory framework as commercial employers:
Provident Fund (EPF): Both employee and employer contribute 12% of the employee's basic wages. Organisations above the threshold headcount must register with the EPFO. Many small NGOs remain below the mandatory threshold for years, then cross it during a project surge — monitor headcount carefully so registration happens on time.
ESI: Employees whose wages fall below the applicable threshold are covered under the Employees' State Insurance scheme. ESI registration and monthly filings apply once you cross the prescribed headcount.
TDS and income tax: Salaries are subject to Tax Deducted at Source. Employees pay income tax under the new default regime, with slabs rising to 30% and a 4% health and education cess. The section 87A rebate applies to lower-income employees. As the employer, you deduct TDS monthly, issue Form 16 to each employee annually and file Form 24Q every quarter.
Gratuity: Any employee who completes five continuous years of service is entitled to gratuity on separation. This applies to non-profits without exception. Build this liability into your budgeting — especially if you run multi-year projects with dedicated long-term staff.
Labour Codes: India's four consolidated Labour Codes are in force from 2025. They cover wages, industrial relations, social security and occupational safety. Non-profits employing paid workers are covered. Review the definitions of "worker" and "establishment" under each Code, since your obligations depend on headcount, nature of work and sector classification.
Managing a mixed workforce
Most NGOs and trusts have at least three categories of workers: permanent employees, fixed-term project staff and independent consultants. Each carries different compliance implications.
Fixed-term employees on project contracts are still employees for the duration of the contract. EPF, ESI and TDS obligations apply from day one. When the project ends and their contract terminates, gratuity may be payable depending on tenure.
Consultants engaged as independent contractors must genuinely be independent — they set their own hours, work for multiple clients and are not integrated into your day-to-day management. If the reality is otherwise, the engagement may be treated as employment. TDS applies to consultant fees under a separate provision of the Income Tax Act, and you are responsible for deducting and remitting it.
For organisations working across several states, minimum wages vary by state and category of work. Staff in field locations in Rajasthan, Bihar or Odisha may have different applicable minimum wages from head-office staff in Delhi or Bengaluru. The four Labour Codes will eventually standardise some of this, but state-level notifications still govern minimum wage floors in the interim.
Foreign funding and FCRA considerations
Non-profits that receive foreign contributions must hold a valid FCRA registration. While FCRA is administered by the Ministry of Home Affairs and is separate from payroll law, it directly affects how you manage salary payments. FCRA rules specify that foreign funds must be received in a designated FCRA account and may only be used for stated purposes. Paying salaries from FCRA funds is permitted, but the proportion of funds used for administrative purposes — including staff costs — is subject to regulatory limits. Maintain a clear audit trail separating FCRA and domestic fund expenditure in your payroll records.
Record-keeping and audit readiness
Donors, statutory auditors and government inspectors may all review your employment records. Maintain:
- Appointment letters for every employee, clearly stating compensation, role and project allocation
- Monthly payslips with TDS and EPF deductions itemised
- Copies of all Form 24Q filings and annual Form 16 issuances
- EPF and ESI challan receipts
- A separate volunteer register, distinct from the employee register
Non-profits that receive CSR funding from corporates or grants from international foundations are increasingly expected to demonstrate clean compliance. An employment audit trail is no longer optional — it is part of due diligence.
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