Payroll is not hard because of arithmetic. It is hard because four rule books change at different times.
Four rule books, one payslip
An Indian payslip usually reflects several statutory components, each governed separately and filed on its own schedule. Getting any of them wrong affects employees directly and can attract penalties for the employer.
This is general information, not legal or tax advice. Rates, thresholds and rules change, so confirm current requirements with your advisor or the relevant authority.
Provident Fund (PF)
PF is a retirement savings scheme where both employee and employer contribute a share of eligible wages. Employers need to calculate contributions correctly, remit them on time and keep member records up to date.
Employee State Insurance (ESI)
ESI provides medical and cash benefits to eligible employees, usually those below a wage threshold. Eligibility can change when an employee's wages cross that threshold, which is a common source of error in manual payroll.
Professional Tax (PT)
PT is a state-level tax, so the slabs and filing rules depend on where the employee works. A company with staff in several states has several sets of rules to follow.
TDS on salary
Employers deduct income tax at source on salaries, based on the employee's estimated annual income and declared investments. That is why tax declarations matter, and why mid-year changes need a recalculation.
A monthly payroll calendar
Each statutory component has its own due date and filing method, and missing one has its own consequences. A useful habit is to keep a compliance calendar listing, for each item, the due date, who prepares it, who approves it and where proof of filing is stored. Review it at the start of each month so deadlines do not surprise anyone.
Common payroll mistakes
- Applying the wrong state's Professional Tax slab to an employee who has moved.
- Missing an ESI eligibility change when wages cross the threshold.
- Not updating TDS after a mid-year raise or a revised investment declaration.
- Calculating on attendance exported before final leave approvals.
- Keeping the only copy of the calculation logic in one person's spreadsheet.
Common questions
Do all companies have to follow all four? Applicability depends on factors such as headcount, wages and state. Check with your advisor which apply to you.
Can employees see how their pay is calculated? A self-service payslip with a clear breakdown reduces queries to HR considerably.
What should we keep for audits? Calculations, filings and proof of payment, in a form that can be retrieved by employee and period.
Where software helps
The risk in manual payroll is the combination: attendance, leave, declarations and four calculations that all depend on each other. Loom computes PF, ESI, Professional Tax and TDS from connected attendance and employee data, and gives employees a self-service portal for payslips and tax declarations.
Related: why a connected HRMS beats spreadsheets.
See Loom HRMS in detail, or talk to the Valueye team about your setup.
