HR for Indian startups: the essentials
Reviewed by Mellow Editorial Team, HR & payroll content team
Startups in India face the same statutory HR obligations as large companies — the legal framework does not offer a smaller rulebook just because your headcount is low. Getting the basics right from the first hire saves you from costly corrections later.
Hiring and employment documentation
Every employee should have a written employment contract before they start work. The contract needs to cover designation, compensation (including variable components), working hours, leave entitlements, notice period, and confidentiality obligations. These terms will be tested if a dispute arises, so vague language costs you.
Beyond the contract, maintain a personal file for each employee: offer letter, PAN card copy, address proof, bank details, and educational certificates. This is not bureaucratic excess — it is the foundation for payroll compliance and background verification.
India's four consolidated Labour Codes, which came into force in 2025, rationalise older labour laws into four broad areas: wages, industrial relations, social security, and occupational safety. Startups should read the Code on Wages carefully — it defines the concept of "wages" broadly, and that definition flows directly into your statutory contribution calculations.
Payroll and statutory contributions
Payroll in India is not just cutting a salary. From the first month, you are responsible for deducting and depositing several statutory amounts.
Provident Fund (EPF): Once your establishment registers under EPF, both employee and employer contribute 12% of applicable wages each month. The employer's 12% is split between EPF and the Employees' Pension Scheme. Deposits must be made by the 15th of the following month. Missing this deadline attracts interest and damages.
ESI: Employees whose gross wages fall below the applicable threshold are covered under the Employees' State Insurance scheme. Both employer and employee contribute. ESI gives covered employees access to medical and sickness benefits, so it is genuinely valuable to your team, not just a compliance checkbox.
Income tax (TDS): As an employer, you are responsible for deducting tax at source from salaries every month based on each employee's projected annual income and their declared investments. The new tax regime is the default; employees can opt into the old regime if it benefits them. Tax slabs in the new regime rise up to 30%, with a Section 87A rebate available at lower income levels and a 4% health and education cess applied to the final tax amount. You file Form 24Q every quarter and issue Form 16 to employees by the due date after year-end. Getting this wrong creates liability for the company, not just the employee.
If you are building payroll infrastructure for a distributed team, how Mellow runs payroll across six countries on one platform explains how multi-country payroll administration works in practice.
Leave policy and the statutory floor
The Labour Codes specify minimum leave entitlements, but many startups either ignore them or set policies below the legal floor without realising it. Your leave policy must at minimum comply with the applicable state rules under the Occupational Safety, Health and Working Conditions Code.
Common leave types to address in your policy: earned leave (privilege leave), sick leave, casual leave, and maternity leave. The Maternity Benefit Act requires paid maternity leave of 26 weeks for employees in establishments above the threshold headcount — this applies to startups that have crossed the relevant size, so check whether you are covered.
Write your leave policy clearly, build it into your employment contract, and track balances. Employees should not have to ask whether they have leave left.
Gratuity planning
Gratuity is payable to an employee who has completed five continuous years of service. The amount is calculated on the basis of last drawn wages and years of service. For startups, this feels distant in the early days — but if you have employees approaching that milestone, the liability is real and it belongs on your books.
Some startups choose to subscribe to a group gratuity scheme through an insurer. This makes the liability predictable and removes the cash-flow shock of paying gratuity from operating funds when the time comes.
Building HR processes that scale
A startup with three employees does not need an HRMS. A startup with 25 does. The mistake is waiting until you have 50 employees to build any process at all — by then, inconsistencies in offers, undocumented decisions, and missed compliance filings have accumulated.
The minimum viable HR stack for an early-stage startup: a standard employment contract template reviewed by a labour lawyer, a documented leave policy, a reliable payroll system that handles TDS and statutory contributions, and a basic offer letter process so every hire starts on the same footing.
Compliance failures in India are rarely about bad intentions. They are almost always about founders and HR leads not knowing what is required and when. Building a simple compliance calendar — registration deadlines, monthly deposit dates, quarterly filing dates, annual return dates — and actually following it is the practical answer.
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