The day you hire, you inherit a second job: the state's payroll agent. Salary TDS, provident fund, ESI, professional tax, gratuity, bonus — each with its own threshold, portal and penalty clock. None of it is hard; all of it is unforgiving of neglect, because employee money held back and not deposited is the one compliance failure that escalates fastest. Here is the employer's complete map, sized for small business.
TDS on salary — Section 192
- Deduct monthly on each employee's estimated annual tax, averaged across the year — regime chosen by the employee (new regime is default; collect declarations)
- Collect investment/deduction proofs by January–February; true-up the final months
- Deposit by the 7th of the next month; file quarterly returns in Form 24Q; issue Form 16 by 15 June
- Perquisites (car, rent-free housing, ESOPs) have valuation rules — get them priced into the monthly TDS, not discovered in March
Provident Fund: the 20-employee line
EPF registration becomes mandatory at 20 employees (voluntary earlier — sometimes worth it for hiring credibility). Both sides contribute 12% of basic + DA (employer's split partly to pension), with the statutory wage ceiling of ₹15,000 governing mandatory coverage — employees above it can be covered by agreement. Deposits by the 15th of the following month via ECR on the EPFO portal; UANs for every employee. The teeth: delayed deposits attract interest plus damages up to 100%, and — the trap founders forget — the employee's deducted share not deposited is a criminal exposure, while Section 36(1)(va) disallows the expense deduction for even one day's delay in depositing the employee contribution.
ESI: health cover below ₹21,000
- Mandatory at 10 employees (state variations exist) for employees earning gross up to ₹21,000/month
- Contributions: employer 3.25%, employee 0.75% of gross wages; deposit by the 15th
- Registration on the ESIC portal; employees get medical care for self and family through ESI facilities
- Once covered, an employee stays covered for the contribution period even if wages cross the ceiling mid-period
Professional tax, gratuity, bonus — the supporting cast
Professional tax: a state levy (UP currently doesn't levy it; Maharashtra, Karnataka, WB and others do) — slab-based small deductions, employer registration, monthly/annual deposits per state. Gratuity: under the Payment of Gratuity Act (10+ employees), payable at exit after five years' service — 15 days' wages per year of service, capped at ₹20 lakh; accrue for it rather than meeting it as a surprise. Statutory bonus: the Payment of Bonus Act (20+ employees) mandates 8.33%–20% for eligible wage bands — factories and establishments routinely miss this until an inspector doesn't.
7th: salary TDS deposit. 15th: PF and ESI deposits. State dates: professional tax. Quarterly: 24Q. Annually: Form 16 (June), bonus computation, gratuity accrual review. One page, on the wall, owned by a named person.
Structuring salaries with compliance in mind
CTC design interacts with every levy: basic-versus-allowance splits drive PF (keep basic realistic — artificially low basic to cut PF invites scrutiny and hurts employees); gross thresholds decide ESI; perquisites carry valuation TDS. New-hire paperwork bundle: offer letter, PAN/Aadhaar, UAN transfer or generation, ESI declaration, regime election, nominee forms. And contractors versus employees is a classification with payroll consequences — misclassifying staff as 'consultants' to skip PF/ESI is the oldest audit finding in the book.
How Aidwish helps
Aidwish sets up payroll end to end — registrations (PF/ESI/PT), CTC structures, the monthly run with deposits and returns via its payroll partners, and the compliance calendar — so hiring builds the business instead of the backlog.