Onboard fast. Pay right.
Employee onboarding, payroll processing, and HR compliance.
HR Lifecycle Overview
| Phase | Key Activities | Core Documents |
|---|---|---|
| 1. Pre-Joining | Offer & background check | Offer Letter, NDA, Pre-employment Form |
| 2. Onboarding | Verification, policy induction | Appointment Letter, KYC, PF/ESIC Nomination |
| 3. Payroll Processing | Salary computation, deductions | Payroll Sheet, Payslip, Statutory Register |
| 4. Compliance | Statutory remittances & filings | EPF, ESI, PT, TDS filings |
| 5. Separation | Exit, F&F, experience letter | Resignation Letter, Exit Checklist, Relieving Letter |
Key Statutory Registrations for Startups
| Registration | Authority | Applicability |
|---|---|---|
| Shops & Establishment Act | State Labour Department | Mandatory for all offices & establishments |
| EPF (Employees' Provident Fund) | EPFO | 20 or more employees |
| ESIC (Employee State Insurance) | ESIC | 10 or more employees (salary ≤ ₹21,000) |
| Professional Tax (PT) | State PT Department | State-specific (e.g., MH, KA, WB, TN) |
| Labour Welfare Fund (LWF) | State Welfare Boards | State-specific deduction |
| PAN & TAN | Income Tax Department | For tax deduction & filing |
| Startup India / MSME Registration | DPIIT / Udyam | Optional (for benefits & rebates) |
Employee Onboarding: Step-by-Step Process
| Step | Action | Template / Form |
|---|---|---|
| 1 | Issue Offer Letter | Offer Letter Template |
| 2 | Collect Employee Documents (ID, address, PAN, bank, education, experience) | Employee Personal Data Form |
| 3 | Collect Joining Forms | Form 11 (EPF), Form 1 (ESIC), Nomination Forms |
| 4 | Execute Employment Agreement / Appointment Letter | Appointment Letter Template |
| 5 | Obtain NDA & IP Agreement | Confidentiality/Intellectual Property Agreement |
| 6 | Register under EPF & ESI portals | Employer registration & UAN generation |
| 7 | Create Employee File & Master Record | Employee Master Data Sheet |
| 8 | Induct into HR Policies | HR Policy Handbook / Code of Conduct |
| 9 | Add to Payroll System | Payroll Software / Excel Template |
Payroll Structure: Components of Salary
| Head | Typical Component | Tax / Statutory Impact |
|---|---|---|
| Basic Salary | 40–50% of CTC | Fully taxable, base for PF/ESI |
| HRA | 40–50% of Basic | Tax exempt (subject to rent) |
| Conveyance / Travel Allowance | Fixed or variable | Partially exempt |
| Special Allowance | Balance of CTC | Fully taxable |
| Employer PF Contribution | 12% of Basic | Non-taxable |
| Employee PF Contribution | 12% of Basic | Tax deductible (80C) |
| ESIC | 0.75% employee + 3.25% employer | Applicable if < ₹21,000/month |
| Bonus / Incentives | Variable | Taxable |
| Gratuity (post 5 yrs) | 4.81% of Basic | Tax-exempt up to ₹20L (on exit) |
Payroll Calculation Formula
Gross Salary = Basic + HRA + Allowances
Deductions = PF + ESI + TDS + PT + LWF
Net Pay = Gross Salary – Deductions
CTC = Gross Salary + Employer Contributions (PF, ESI, Gratuity)
Statutory Payroll Compliance & Timelines (India)
| Compliance | Form / Portal | Due Date | Responsible Authority |
|---|---|---|---|
| EPF Payment | EPFO Portal (ECR) | 15th of next month | EPFO |
| ESI Payment | ESIC Portal | 15th of next month | ESIC |
| TDS on Salary | TRACES / Income Tax | 7th of next month | IT Dept |
| Professional Tax (PT) | State PT Portal | 10th–20th of next month (state-specific) | State Govt |
| PF Return (ECR) | EPFO | 15th of next month | EPFO |
| ESI Return | ESIC | 15th of next month | ESIC |
| Form 24Q (Quarterly TDS) | TRACES | 31st July / 31st Oct / 31st Jan / 31st May | IT Dept |
| Form 16 (Salary Certificate) | Issue to employees | By 15th June | Employer |
| Labour Welfare Fund (LWF) | State-specific | Half-yearly (June & Dec) | Labour Welfare Board |
| Bonus Act Compliance | Maintain Register D & E | Annual (within 8 months of FY close) | Labour Dept |
| Gratuity Records | Maintain under Gratuity Act | Ongoing | HR Dept |
HR Statutory Registers (Mandatory)
| Register | Purpose | Applicable Law |
|---|---|---|
| Form A | Register of Fines | Payment of Wages Act |
| Form B | Register of Deductions | Payment of Wages Act |
| Form C | Register of Advances | Payment of Wages Act |
| Form D | Register of Overtime | Factories Act / Shops Act |
| Form 11 | PF Declaration Form | EPF Act |
| Muster Roll | Attendance Register | Shops & Establishment Act |
| Leave Register | Annual Leave & Holidays | State Labour Law |
| Wage Register | Salary & Deductions | Payment of Wages Act |
| Bonus Register | Bonus Calculation | Payment of Bonus Act |
⚠ Non-Compliance Penalties
- PF non-payment: ₹1 lakh + 12% interest + damages
- ESI non-payment: ₹10,000 + 12% interest
- Late TDS: 1.5% per month interest + ₹200/day late fee
- Non-issuance of Form 16: ₹100 per day
- No HR Registers: ₹10,000 – ₹1 lakh
- Failure to provide statutory benefits: Fine + imprisonment under labour laws
HR & Payroll Compliance Checklist for Indian Startups
| Category | Key Action | Frequency |
|---|---|---|
| Recruitment | Offer + Appointment + NDA | Per hire |
| Onboarding | EPF/ESI registration + Form 11 | On joining |
| Payroll | Attendance, salary calculation | Monthly |
| Statutory Payments | PF, ESI, TDS, PT | Monthly |
| Returns Filing | Form 24Q, LWF | Quarterly/Half-yearly |
| Annual | Form 16, Bonus, Gratuity | Yearly |
| Records | Maintain statutory registers | Continuous |
| Policies | HR, leave, code of conduct | Annual update |
Frequently Asked Questions (FAQs)
When do I need to register for EPF (Provident Fund)?
Registration for EPF (Employees' Provident Fund) with the EPFO is mandatory once a company has 20 or more employees.
When is ESIC (Employee State Insurance) registration mandatory?
ESIC registration is mandatory for companies with 10 or more employees, specifically for employees with a salary of ₹21,000 or less.
What is the difference between an Offer Letter and an Appointment Letter?
An Offer Letter is a provisional offer that includes salary and joining conditions.
An Appointment Letter is the final, legal employment contract that confirms the terms of employment after the candidate accepts the offer.
What is the difference between CTC, Gross Salary, and Net Pay?
Gross Salary: This is your total salary before any deductions. It includes Basic, HRA, and all allowances.
Net Pay (Take-Home): This is what you receive in your bank account. It is your Gross Salary minus all deductions (like employee PF, ESI, TDS, and Professional Tax).
CTC (Cost to Company): This is the total cost the company incurs for hiring you. It is your Gross Salary plus the employer's contributions (like employer PF, ESI, and Gratuity).
What is the due date for EPF, ESI, and TDS payments?
For monthly compliance:
- EPF & ESI Payment: 15th of the next month.
- TDS on Salary: 7th of the next month.
When do I issue Form 16 to employees?
Form 16, which is the annual salary TDS certificate, must be issued to all employees by 15th June following the end of the financial year.
What are some mandatory HR registers for startups?
Even small startups must maintain several statutory registers under various labour laws. Key registers include:
- Muster Roll (Attendance Register)
- Wage Register (Salary & Deductions)
- Leave Register (Annual Leave & Holidays)
- Register of Fines (Form A), Deductions (Form B), and Advances (Form C)
- Bonus Register
What are the penalties for not paying PF or ESI?
Penalties for non-compliance are significant and can include fines, interest, and even imprisonment for severe defaults.
- PF non-payment: Can attract a penalty of ₹1 lakh, plus 12% interest and damages.
- ESI non-payment: Can attract a penalty of ₹10,000, plus 12% interest.
- Late TDS: Incurs 1.5% per month interest plus a late fee of ₹200 per day.
When should I start the onboarding process for a new employee?
Onboarding should begin on or before the employee's joining date. Key documents and registrations must be completed within 7-10 days of joining to ensure compliance with EPF, ESIC, and other statutory requirements.
What documents should I collect from an employee on their first day?
On the first day, collect:
- PAN Card copy
- Aadhaar Card copy
- Address proof (utility bill, rental agreement)
- Bank account details (for salary transfer)
- Passport-size photo (4-6 copies)
- Educational certificates
- Previous employment documents
- PF/ESIC nomination forms
Key Takeaways for HR & Payroll Compliance
- Payroll is Non-Negotiable: Monthly salary payment is the most critical HR function. Late or incorrect salaries can trigger employee grievances, compliance issues, and legal action.
- EPF Registration at 20 Employees: Once you hire your 20th employee, EPF registration with EPFO becomes mandatory. Failure to register within 30 days attracts penalties and interest.
- ESIC Registration at 10 Employees: With 10 or more employees earning ≤₹21,000/month, ESIC registration is mandatory. Non-compliance can result in fines up to ₹10,000 plus interest.
- Monthly Compliance Deadlines are Fixed: EPF & ESI due 15th, TDS due 7th of next month. Missing these deadlines results in interest (12-18%) and penalties (₹100-₹500 per day).
- Form 16 is Legal Requirement: Every employer must issue Form 16 (annual salary TDS certificate) to employees by June 15th. Non-issuance attracts ₹100 per day penalty.
- Statutory Registers are Mandatory: Maintain Muster Roll, Wage Register, Leave Register, Forms A/B/C, and Bonus Register. These are subject to inspection by labour authorities.
- Payroll Structure Must Follow Law: Basic salary should be 40-50% of CTC (affects PF/ESI calculations). HRA taxable exemption requires proof of rent. Improper structure can lead to IT scrutiny.
- NDA & IP Assignment Essential: Every employee must sign NDA and IP assignment agreement on joining. Protects company confidentiality and ensures all work-related IP belongs to company.
- Professional Tax (PT) is State-Specific: PT varies by state (₹0 to ₹2,500 in Maharashtra, ₹100-₹2,500 in Karnataka). Check applicability and deduction rules for your state.
- Labour Welfare Fund (LWF) Often Forgotten: Some states mandate LWF contribution (0.5%-1% of wage). Missing this results in compliance violations during inspections.
- Gratuity is Legal Obligation: After 5 years of service, employees are entitled to gratuity (4.81% of Basic). Failure to pay results in legal action and damages.
- TDS on Salary is Critical: Compute TDS correctly on monthly salary under Section 192. Late deposit of TDS results in interest (1.5% per month) and penalty (₹200/day).
- Bonus Act Compliance Required: If company has 20+ employees and profit >₹5 lakh, bonus is mandatory (minimum 8.33% of wages). Register must be maintained.
- Appointment Letter Must Be Formal: Every employee deserves written appointment letter with clear terms—salary, designation, reporting, notice period, probation, benefits. Protects both employer and employee.
- Offer Letter ≠ Appointment Letter: Offer Letter is provisional (subject to background check). Appointment Letter is final legal contract. Keep both signed copies.
- Background Verification is Important: Conduct background checks on all hires to verify employment history, educational qualifications, and address. Protects company from fraud.
- Leave Policy Must Be Clear: Define casual, sick, annual, and special leaves clearly. Maintain leave register and communicate policy to all employees. Absence of policy can lead to disputes.
- Shop & Establishment License is First Step: Before hiring any employee, register under Shops & Establishment Act at state labour department. This is mandatory for all offices.
- Payroll Software Reduces Errors: Use payroll software (QuickBooks, BambooHR, Workday, or even Excel with proper controls) to automate calculations and ensure accuracy. Manual payroll is error-prone.
- Professional Help is Cost-Effective: Hiring an HR consultant (₹500-₹2,000 per employee per year) or using a payroll outsourcing service is cheaper than legal penalties (₹10,000-₹1 lakh+) and compliance corrections.
Critical Insight: HR and payroll compliance is foundational to business sustainability. Non-compliance not only results in heavy penalties and interest but also damages employee trust and creates legal liabilities for founders personally. The cost of compliance (≤2% of payroll) is far less than litigation costs, reputational damage, and operational disruption from labour disputes. Startups that treat HR/payroll as a priority from day one build stronger, more stable teams and avoid costly legal battles later.