Unified Startup Enablement & Growth Platform

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 (Corpfy HR & Payroll, Keka, greytHR, 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.

Key Takeaways for HR, Payroll & Compliance

PF registration is mandatory the moment you hire your 20th employee — not after:

Under the Employees' Provident Funds Act 1952, any establishment with 20 or more employees must register with EPFO within 30 days of crossing the threshold. Delayed registration triggers back-contributions with interest at 12% per annum plus damages of up to 25% of arrears. Many startups unknowingly cross the threshold when counting contractors or third-party payroll staff — all count toward the 20-employee threshold.

ESI applicability is based on salary ceiling, not company size:

The Employees' State Insurance scheme applies to employees earning up to ₹21,000/month in establishments with 10 or more workers (lower threshold in some states). Both employer (3.25%) and employee (0.75%) contributions must be deposited by the 15th of the following month. Failing to deduct ESI for eligible employees — including contractual workers on your premises — exposes directors to personal liability under Section 85 of the ESI Act.

TDS on salary (Section 192) must reflect actual projected annual income, not monthly extrapolation:

Many startups deduct TDS on salary by simply multiplying the monthly salary by 12, missing variable pay, ESOPs exercised during the year, and joining bonuses. Under-deduction of TDS makes the employer liable for the shortfall plus interest under Section 201. At the start of each financial year, collect projected investment declaration forms from all employees and recalculate TDS after accounting for all taxable income components.

ESOP documentation must be watertight before the first grant:

An ESOP plan for an Indian private limited company requires board and shareholder approval, a trust deed (for trust-based ESOPs), and individual grant letters specifying vesting schedule, exercise price, and lapse conditions. Grants made without a board-approved ESOP scheme are void. Use a SEBI-compliant ESOP plan template reviewed by a CA/CS and maintain a grant register updated with each exercise and lapse event.

Labour law compliance varies significantly by state — audit your obligations annually:

India's Shops and Establishments Act, Minimum Wages Act, and Maternity Benefit Act are state-specific. Maharashtra, Karnataka, and Delhi each have different leave entitlements, working hour limits, and bonus calculation rules. Startups that expand to a new state without reviewing that state's labour laws often find compliance gaps only during an employee dispute or investor due diligence. Conduct an annual multi-state labour law audit as headcount grows.

Automate payroll from the first salaried hire to eliminate compliance errors:

Manual payroll calculations in Excel are the leading source of TDS computation errors, PF contribution mismatches, and payslip discrepancies in early-stage startups. Platforms like RazorpayX Payroll, Corpfy HR & Payroll, or Keka automate PF/ESI challan generation, Form 16 issuance, and TDS reconciliation with the TRACES portal. The cost (₹200–500 per employee per month) is a fraction of the CA fees and penalty exposure from manual errors.

Inside Corpfy HR & Payroll

Corpfy's HR & Payroll dashboard manages your entire employee lifecycle from offer letter to full & final settlement — employee master, monthly payroll runs, statutory filings, and leave management in one place. Payroll runs in minutes once your employee master is set up, with auto-computation of PF, ESI, Professional Tax, and TDS.

What you get in the dashboard

Feature	What it does	Compliance output
Employee Master	Full employee profile — PAN, Aadhaar, bank account, department, grade, CTC breakdown	Source data for all statutory filings
Monthly Payroll Run	One-click payroll with auto-calculated gross, deductions (PF, ESI, PT, TDS), and net pay	Payslips generated per employee, ready to distribute
PF / ESI Tracker	Monthly PF and ESI liability computation with EPFO / ESIC challan amounts	Challan data for direct EPFO/ESIC portal upload
TDS Workings	Monthly TDS deduction per employee under old or new tax regime	Form 16 and TDS return data for your CA
Leave Management	CL, SL, EL balances per employee with leave application and approval workflow	Leave register for Shops & Establishments Act compliance

From payroll run to statutory filing in one workflow

After running payroll in Corpfy, the dashboard generates the PF challan amount, ESI challan amount, TDS deposit amount, and Professional Tax liability for the month — formatted for direct entry into the EPFO portal, ESIC portal, and your bank's tax payment gateway. Startups using Corpfy HR & Payroll report reducing their monthly payroll compliance effort from 3 days to under 4 hours.