Payroll looks simple — pay people on time — until you add attendance, leave, reimbursements, PF, ESI, professional tax and TDS. Here's the monthly process, step by step.
Step 1: Fix the salary structure
A typical monthly CTC splits into basic pay, HRA, special allowance and other allowances, plus employer contributions. Keep structures consistent by grade. Under the Labour Codes, wages for statutory purposes include basic, DA and retaining allowance; if excluded allowances go above half of total pay, the excess is added back to wages — so very low basic pay no longer shrinks PF and gratuity the way it once did.
HR, GPS attendance, shifts, leave, payroll, tax declarations, onboarding, engagement, projects and timesheets — one employee record behind all of it.
Start free See the demoStep 2: Close attendance and leave
Lock the attendance period (for example the 26th to the 25th or the calendar month). Confirm:
- Days present, weekly offs and holidays.
- Approved paid leave and leave without pay.
- Late marks or half days if your policy counts them.
- New joiners and exits during the month (pro-rata pay).
Step 3: Add variable pay and reimbursements
Overtime, incentives, arrears, bonuses, approved expense claims and any recoveries such as advances or loans.
Step 4: Calculate statutory deductions
| Deduction | Who pays | Basics |
|---|---|---|
| EPF | Employee 12%, employer 12% | On basic + DA; employer share partly goes to the pension scheme (EPS) on wages up to ₹15,000 |
| ESI | Employee 0.75%, employer 3.25% | For employees with gross wages up to ₹21,000 a month |
| Professional tax | Employee (deducted by employer) | State-specific slabs, maximum ₹2,500 a year |
| Labour welfare fund | Employee and employer | Only in some states, small fixed amounts |
| TDS on salary | Employee (deducted by employer) | Based on estimated annual taxable income and the regime the employee chooses |
For TDS, the new tax regime is the default unless the employee opts for the old one. Collect investment declarations early in the year and proofs before the final quarter.
Step 5: Run payroll and review
Compare totals with last month. Investigate big changes — a new joiner, an arrear, a missed deduction. Get a second person to approve before payment.
Step 6: Pay salaries and share payslips
Transfer net pay through bank upload or payouts. Share payslips showing earnings, deductions, leave balance and year-to-date figures. Under the Code on Wages, monthly wages should be paid by the 7th of the following month.
Step 7: Deposit and file on time
- PF and ESI contributions are due by the 15th of the following month.
- TDS deposited by the 7th of the following month (with a later date for March), quarterly TDS returns and annual Form 16 to employees.
- Professional tax as per your state's schedule.
Exits and full and final settlement
Settle unpaid salary, leave encashment as per policy, gratuity if eligible (generally five years of continuous service, or as the Codes provide for fixed-term staff), and recoveries. The Code on Wages expects wages on separation to be paid within two working days.
A monthly payroll checklist
- Attendance locked and approved.
- New joiners, exits and salary revisions updated.
- Reimbursements approved.
- Statutory deductions verified.
- Totals reviewed and approved by a second person.
- Salaries paid, payslips shared.
- Challans paid and returns filed.
MizUp BMS connects attendance, leave, salary structures, payroll runs, payslips, tax declarations and loans in one place, so each month starts from real data instead of spreadsheets. Our HR and payroll software guide covers what to look for.
Frequently asked questions
Is PF mandatory for every business?
EPF applies to establishments with 20 or more employees (some can join voluntarily). For covered employees, PF is calculated on basic wages plus dearness allowance.
Who is covered by ESI?
ESI applies to covered establishments for employees earning up to ₹21,000 a month in gross wages (₹25,000 for persons with disability).
Is professional tax the same in every state?
No. Professional tax is levied by some states only, with their own slabs and due dates, capped at ₹2,500 a year per person.
Do the new Labour Codes change payroll?
Yes. The Codes use a common definition of wages, which can increase the base for PF and gratuity when allowances form most of the salary. Review salary structures with your advisor.
