Managing a small team in India
Reviewed by Mellow Editorial Team, HR & payroll content team
Managing a small team in India means handling EPF, ESI, TDS, and the Labour Codes correctly from day one — the obligations apply regardless of how few people you employ.
Understand which statutory deductions apply to you
Payroll compliance in India is not optional once you have even one employee on the books. The main obligations are:
EPF (Employees' Provident Fund): Once you cross the threshold for EPF coverage, both you and each employee contribute 12% of the employee's basic wages to the fund each month. You pay your 12% employer contribution on top of the salary cost, so factor it into your budgeting from the start.
ESI (Employees' State Insurance): This applies to employees whose wages fall below the prescribed threshold. Contributions are split between employer and employee as a percentage of gross wages. It covers medical, maternity, and disability benefits, so it matters to your team.
TDS (Tax Deducted at Source): You are required to deduct income tax at source from each salaried employee based on their estimated annual income under whichever tax regime they have chosen. The new tax regime has slabs rising to 30%, with a 4% health and education cess on top. A section 87A rebate reduces tax liability for employees below the relevant income threshold. You file Form 24Q quarterly and issue each employee a Form 16 at the end of the financial year. Missing quarterly filings attracts penalties, so put the dates in your calendar.
Register correctly before you pay your first salary
Before you run your first payroll, make sure you have:
- A TAN (Tax Deduction and Collection Account Number) for deducting and remitting TDS
- EPF registration if your headcount meets or exceeds the applicable threshold
- ESI registration if you have eligible employees
Many small employers delay registration because they assume they can sort it out later. The penalties for late registration and non-remittance compound quickly, and regulators have become more active about enforcement.
Know what the Labour Codes mean for your contracts and policies
India's four consolidated Labour Codes — covering wages, industrial relations, social security, and occupational safety — are in force from 2025. They replace a sprawling set of older legislation and, in practice, change how you define wages, structure leave, and frame your employment contracts.
A few things small employers specifically need to watch:
Wage definition: The Codes define wages more precisely. This affects how you calculate EPF contributions, gratuity, and leave encashment, since these are tied to the wage definition, not just the basic salary label on a payslip.
Leave and notice terms: Written appointment letters must reflect the correct notice periods and leave entitlements. If your offer letter templates predate the Codes, review them.
Gratuity: Payable to any employee who has completed five continuous years of service. For a small team, one long-serving employee leaving can be a meaningful expense. Account for the accruing liability in your finances rather than treating it as a surprise payout.
Handle variable pay and reimbursements carefully
Small teams often rely on variable pay — performance bonuses, project-linked incentives — and reimbursements for phone, internet, or travel. Both need careful treatment.
Reimbursements that are genuinely expense reimbursements (backed by actual bills) are typically not treated as salary and are therefore not subject to TDS or EPF. But if you pay a flat monthly allowance without requiring bills, the tax and compliance treatment changes. Get clarity on this early and document your policy.
Variable pay is salary for TDS purposes. If a bonus pushes an employee into a higher slab for the month you pay it, you need to adjust your TDS calculation accordingly. Many small employers make the mistake of deducting a flat TDS month-on-month without accounting for lumpy pay, then scrambling at year-end.
Keep records that can actually be audited
Good record-keeping is not just about compliance — it protects you in a dispute. At a minimum, maintain:
- Signed offer letters and appointment letters
- Monthly payslips for every employee
- Proof of EPF and ESI remittances
- Form 16 copies issued each year
- Attendance and leave records
Under the Labour Codes, certain records must be maintained for specified periods. Digital records are generally acceptable, but make sure they are backed up and accessible.
For small teams using spreadsheets, the risk of calculation errors and missed deadlines is high. Even a basic payroll tool that automates TDS calculations and generates Form 24Q data reduces that risk considerably. If you are also working with contractors or remote employees across states, the complexity increases further — how Mellow runs payroll across six countries on one platform covers how a centralised approach helps.
The fundamentals are not complicated, but they do require consistency. Running a clean payroll from the start is far less painful than fixing errors across multiple quarters.
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