HR for a business with 1–10 employees in India
Reviewed by Mellow Editorial Team, HR & payroll content team
Running HR properly at a small scale matters just as much as it does for large companies — and in some ways it is harder, because every compliance gap falls directly on the founder.
What "HR" actually means at this size
For a team of one to ten, HR is not a department. It is a set of tasks the founder or office manager handles alongside everything else. Those tasks fall into three buckets: hiring and contracts, ongoing payroll and compliance, and record-keeping. Getting all three right from day one avoids problems that compound fast.
Hiring and employment contracts
Every person you bring on — whether a permanent employee, a fixed-term hire or a consultant — should have a signed written agreement before they start work. For employees, that agreement should cover designation, compensation, working hours, leave entitlement, notice period and confidentiality. For consultants, it should clearly state that the arrangement is a service contract, not employment, because the distinction affects tax deductions and statutory benefits.
India's four consolidated Labour Codes are in force from 2025. They cover wages, social security, industrial relations and occupational safety. Even small businesses fall under parts of these Codes, particularly the Code on Wages, which applies to all establishments and mandates timely payment and a defined pay day. Make sure your contracts and pay practices are consistent with these requirements.
Payroll, tax and statutory deductions
Payroll for a small team has three moving parts: salary calculation, statutory deductions and tax withholding.
Provident Fund (EPF): Once you cross the threshold number of employees, EPF registration is mandatory. Both the employee and employer contribute 12% of basic wages each month. If you are already small but growing, it is worth registering proactively — the administrative cost is low and it helps with hiring.
ESI: Employees whose wages fall below the applicable threshold are covered under the Employees' State Insurance scheme. As the employer, you contribute alongside the employee. Check current thresholds with the ESIC portal, as they are revised periodically.
Income tax (TDS): If an employee's annual salary exceeds the basic exemption limit under the applicable tax regime, you must deduct tax at source from each salary payment. Under the new default regime, tax is calculated using slabs that rise to 30%, there is a section 87A rebate available for lower incomes, and a 4% health and education cess applies on the tax computed. Employees can opt for the old regime if it benefits them — they must notify you at the start of the financial year.
At year end, issue each employee a Form 16. File Form 24Q quarterly to report TDS to the Income Tax Department. These are not optional filings — penalties for late submission can exceed the tax itself.
For consultants paid above the TDS threshold, deduct tax under the applicable section for professional fees before making payment, and issue Form 16A.
Leave, policies and documentation
The Labour Codes standardise several leave types, but many states have their own Shops and Establishments Act rules that sit alongside them. At a minimum, define in writing: earned leave (and whether it accumulates), sick leave, casual leave and public holidays. For a team of ten, an informal understanding is not enough — disputes over leave almost always trace back to nothing being written down.
Keep a personnel file for each employee. It should contain their signed contract, KYC documents collected at onboarding, payslips, leave records and any performance-related correspondence. If someone leaves and later raises a dispute, this file is your evidence.
Gratuity is payable to an employee who has completed five years of continuous service with you. The amount is calculated on last drawn wages. Even if you have never had a long-tenure employee yet, budget for it — particularly if you are hiring people who may stay.
When to get outside help
A small team does not need an in-house HR manager, but it does need someone who knows what they are doing. A chartered accountant or payroll bureau can handle EPF, ESI and TDS filings at a reasonable retainer. That cost is worth it compared to the penalties and interest that accumulate when statutory filings slip.
If your team is remote or working across states, payroll becomes more complex because professional tax rates and Shops and Establishments registrations vary by state. How Mellow runs payroll across six countries on one platform gives a sense of how that complexity is managed when you are not operating from a single location.
The honest advice: set the basics up correctly in the first month of hiring. A good contract template, a payroll register, and registered with EPF and ESI if applicable. Everything else can be built on that foundation.
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