The Indian payroll system is a complex framework governed by various federal and state labor laws. It typically involves monthly salary payments and includes multiple components such as basic salary, allowances (e.g., House Rent Allowance, Dearness Allowance), and statutory deductions. It plays a crucial role in ensuring that employees are paid accurately and on time, while businesses remain compliant with various labor laws and tax regulations. Companies must comply with regulations like the Payment of Wages Act, Minimum Wages Act, and state-specific labor laws. The system requires meticulous record-keeping, timely statutory payments, and regular filing of returns to various government authorities. Global payroll solutions can help companies with international teams streamline payroll operations, ensure compliance with local laws, and efficiently manage and pay employees across multiple countries without establishing a local entity.

Key differences from US payroll

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Labor Laws in India

India's labor laws are governed by a complex framework of federal and state legislation. The Constitution of India provides the foundation for labor rights, with Articles 16, 19, 23, 24, and 39-43 enshrining the dignity of labor and the need to protect workers' interests. Labor is a concurrent subject, meaning both central and state governments can legislate on it.

Key features of Indian labor laws include:

1. Central and State Legislation: Laws are enacted at both national and state levels.
2. Constitutional Provisions: Fundamental rights and directive principles guide labor legislation.
3. Ministry Oversight: The Ministry of Labour and Employment is responsible for worker protection and welfare.
4. Sector-Specific Regulations: Different industries may have tailored labor laws.

Payroll-related Acts and Regulations

Several acts govern payroll compliance in India. The most significant ones include:

The Payment of Wages Act, 1936

This Act regulates the payment of wages to certain classes of employed persons, ensuring that businesses pay employees timely and accurately. Key provisions include:

• Timely payment of wages without unauthorized deductions
• Wages must be paid in current coin or currency notes, or by cheque or crediting to the bank account
• Specifies the wage period, which should not exceed one month

The Minimum Wages Act, 1948

This Act sets the minimum wages that must be paid to skilled and unskilled laborers. Important aspects include:

• Minimum wages are set by both central and state governments
• Rates vary based on factors such as geographic area, industry, and skill level
• Employers must pay at least the minimum wage rate applicable to their employees

The Code on Wages, 2019

This is a recent legislation that aims to consolidate and simplify wage-related laws. It subsumes four existing laws: The Payment of Wages Act, 1936, The Minimum Wages Act, 1948, The Payment of Bonus Act, 1965, and The Equal Remuneration Act, 1976. Key features include:

• Introduction of a statutory national minimum wage
• Uniform definition of 'wages' across all labor laws
• Provisions for timely payment of wages and bonuses
• Prohibition of gender discrimination in matters related to wages

The Employees' Provident Funds and Miscellaneous Provisions Act, 1952

This Act provides for the institution of provident funds, pension funds, and deposit-linked insurance funds for employees. Key points include:

• Mandatory for establishments with 20 or more employees
• Both employer and employee contribute 12% of basic wages
• Provides retirement benefit to employees

Payroll tax is calculated based on employees' gross pay, and understanding local payroll and tax regulations is crucial for global companies hiring talent in India to ensure compliance with federal and state laws.

The Employees' State Insurance Act, 1948

This Act provides for certain benefits to employees in case of sickness, maternity, and employment injury. Important aspects include:

• Applicable to establishments with 10 or more employees
• Contributions from both employer (3.25% of wages) and employee (0.75% of wages)
• Provides medical benefits, sickness benefits, maternity benefits, and disability benefits
  

Employee Classification

When setting up payroll and compensation structures for your workforce in India, it's crucial to understand the different employment types. This knowledge directly impacts how you pay your employees and the associated legal and financial obligations. In India, employment types can be broadly categorized into two main categories: full-time employees and contractors.

Full-time Employees

Full-time employment is the most common type in India. Key characteristics of processing payroll for full-time employees include:

• Work hours: Typically 40-48 hours per week, not exceeding 9 hours per day as per the Factories Act of 1948.
• Benefits: Entitled to various benefits such as paid leave, superannuation payments, parental leave, and health insurance.
• Salary structure: Usually includes basic pay and various allowances. Efficient payroll processes are essential to ensure accurate and timely salary disbursement.
• Statutory deductions: Employers must deduct and remit Provident Fund (PF), Employee State Insurance (ESI), and Professional Tax.
• Income Tax: Employers are responsible for Tax Deducted at Source (TDS) from employee salaries.

Payroll implications:

2. Regular monthly salary processing
3. Management of various allowances and deductions
4. Compliance with labor laws regarding working hours, overtime, and leave
5. Responsibility for providing and managing employee benefits

Contractors

Contractors in India are self-employed individuals or entities providing services to businesses. They include consultants, freelancers, and gig workers.

Key characteristics of contractors:

• Higher level of autonomy in work methods and schedules
• Usually engaged for specific projects or time periods
• Limited or no entitlement to employee benefits
• Responsible for their own taxes and social security contributions

Payroll implications for engaging contractors:

• Payment structure: Usually project-based or hourly rates, paid against invoices
• TDS: Companies must deduct 10% TDS as a tax deduction if payments exceed INR 30,000 annually
• GST: Contractors with annual income exceeding INR 20 lakh must register for and charge GST
• No statutory benefits: Employers are not required to provide PF, ESI, or other employee benefits

Outsourcing payroll for managing contractors can offer benefits such as cost savings, compliance with local regulations, and freeing up internal HR resources to focus on core business functions.

Compensation Structure

The payroll structure in India, which outlines the salary breakdown, is designed to divide the Cost to Company (CTC) into various components. These components contribute to determining the employee’s in-hand salary. Understanding these components is crucial for both employers and employees. 

‍Basic Salary

‍The basic salary is the foundation of an employee's compensation package. It is a fixed amount that typically constitutes 40-50% of the total salary. Key points about basic salary include:

• It's the primary component used to calculate other allowances and benefits
• Subject to income tax as per the applicable tax slab
• Used as the base for calculating retirement benefits like Provident Fund and Gratuity

House Rent Allowance (HRA)

‍HRA is a significant component of the salary structure in India, designed to help employees meet their housing expenses. Important aspects of HRA include:

• Usually ranges from 40-50% of the basic salary
• Tax-exempt up to certain limits, depending on the city of residence and actual rent paid
• Employees need to provide rent receipts to claim tax benefits on HRA

Conveyance Allowance

‍Provided to cover an employee's travel expenses from home to work. It's now categorized under 'Standard Deductions' with a current amount of ₹50,000 per annum (approximately $600), helping reduce the taxable income of the employee.

‍Leave Travel Allowance (LTA)

‍Offered to cover travel expenses for employees and their families for domestic travel. It's tax-exempt for up to two journeys in a block of four calendar years, but only for actual travel costs.

‍Medical Allowance

‍Meant to cover medical expenses of the employee. It's tax-free up to ₹15,000 per annum (approximately $180), with some companies offering it as reimbursement against actual medical expenses incurred.

‍Special Allowance

‍A flexible component used to balance the CTC after accounting for other components. It's usually fully taxable.

‍Flexible Benefits Plan

‍Many companies in India now offer Flexible Benefits Plans, allowing employees to customize their compensation package based on individual needs and preferences. This can include:

• Health insurance
• Life insurance
• Employee Stock Options (ESOPs)
• Additional retirement benefits
• Meal vouchers
• Gadget allowances
• Education allowances

These benefits are often tax-efficient and can be tailored to suit individual employee needs.For a detailed explanation of how Flexible Benefits Plans work and their advantages, check out our comprehensive guide: Understanding Flexible Benefits Plans in India.

‍Performance Bonus or Variable Pay

‍A performance-linked component based on individual, team, or company performance. It can be a significant portion of the total compensation in some roles and is taxed as per the regular income tax slab.

‍Cost to Company (CTC)

‍The total cost incurred by the company for an employee, including all direct and indirect benefits. It's often higher than the actual take-home salary due to various deductions and non-cash benefits.

Understanding these components is crucial for structuring a competitive and tax-efficient compensation package while paying employees in India ensuring compliance with Indian labor laws and regulations. The exact composition of these components can vary based on company policies, industry standards, and individual negotiations.

13th Month Pay:

In India, the concept of a 13th-month salary is not mandatory but some companies offer it as an additional benefit. It's typically equivalent to one month's basic salary and is often paid as a festive bonus or performance incentive. While not legally required, it has become a common practice in many sectors to boost employee morale and retention.

Statutory Deductions and Contributions

Provident Fund (PF):

The Employee Provident Fund (EPF) is a retirement savings scheme mandated by the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, and overseen by the Indian government. It applies to establishments with 20 or more employees. Both the employer and employee contribute 12% of the employee’s basic salary and dearness allowance towards the PF account. The employee’s contribution is deducted from their salary, while the employer’s contribution is in addition to the salary. PF contributions are eligible for tax deductions under Section 80C of the Income Tax Act. Employers must register with the EPFO and make monthly contributions.

‍Employee State Insurance (ESI):

‍ESI is a self-financing social security and health insurance scheme for Indian workers. It is mandatory for establishments with 10 or more employees and applies to employees earning up to ₹21,000 per month. The employer contributes 3.25% of the employee's wages, while the employee contributes 0.75%. ESI provides various benefits such as medical care, sickness benefits, maternity benefits, and disability benefits. Employers must register with the ESIC and make timely contributions.

‍Income Tax

Income tax in India is a progressive direct tax imposed on individuals’ earnings. For the financial year 2023-24, taxpayers can choose between two tax regimes: the Old and the New. The new tax regime has six different levels of tax rates. If you earn up to INR 300,000, you don’t have to pay any tax. For every additional INR 300,000 you earn, the tax rate goes up by 5%.

The Income Tax Department plays a crucial role in enforcing tax regulations and ensuring responsibilities related to payroll and tax deductions are met.

‍Surcharge for New Tax Regime:

• 10% if income exceeds INR 50 lakhs but not INR 1 crore
• 15% if income exceeds INR 1 crore but not INR 2 crore
• 25% if income exceeds INR 2 crore

In comparison, the old tax regime offers 4 levels of tax rates with a 0% tax rate for income of up to INR 250,000. It allows various deductions and exemptions. The common deductions include Section 80C (investments), HRA, LTA, and health insurance premiums. This is suitable for those with significant eligible investments and expenses.

Surcharge for Old Tax Regime:

• 10% if income exceeds INR 50 lakhs but not INR 1 crore
• 15% if income exceeds INR 1 crore but not INR 2 crore
• 25% if income exceeds INR 2 crore but not INR 5 crore
• 37% if income exceeds INR 5 crore

Additionally, a 4% Health and Education Cess is applied to the tax amount after adding surcharges in both regimes.

Moreover, employees have the flexibility to choose whether they want to go with the old or the new. 

Professional Tax

Professional tax is a tax levied by state governments on salaried individuals, professionals, and businesses. The tax rates and slabs vary from state to state. In most states, employers are responsible for deducting professional tax from their employees' salaries and remitting it to the state government.

For instance, in Maharashtra, the professional tax slabs for salaried individuals are:

• Up to ₹7,500 per month: Nil
• ₹7,501 to ₹10,000 per month: ₹175 per month
• Above ₹10,000 per month: ₹200 per month (maximum limit)

Payroll Cycle and Process

Pay Periods in India

In India, the most common pay period is monthly, with salaries typically disbursed on the last working day of the month or within the first few days of the following month. This aligns with the country's financial and regulatory practices, where most statutory payments and filings are done on a monthly basis. While some industries or specific roles (like daily wage workers) might have weekly or fortnightly pay cycles, these are exceptions rather than the norm. 

Payroll Processing Steps

When paying employees in India, it's crucial to follow a structured process to ensure accuracy, compliance, and timely payments. Here's an overview of the key steps:

Pre-payroll Activities

1. Data Collection: Gather all necessary information, including:
   • Employee attendance records
   • Leave data
   • New joiners and exits
   • Salary revisions or promotions
   • Loan or advance details
2. Policy Updates: Ensure all payroll-related policies are up-to-date and compliant with current laws.
3. Statutory Compliance Check: Verify compliance with latest labor laws and tax regulations.

Payroll Calculation

1. Gross Salary Computation: Calculate the total earnings, including basic salary, allowances, and variable pay.
2. Deductions: Apply all necessary deductions, such as:

• Provident Fund (PF)
• Professional Tax
• Income Tax (TDS)
• Payroll taxes, including statutory contributions like Employees' State Insurance (ESI) and the Employees' Provident Fund (EPF)
• Loan repayments
• Any other company-specific deductions

3. Net Salary Calculation: Subtract total deductions from gross salary to arrive at the net payable amount.
4. Verification: Cross-check calculations to ensure accuracy.

Try our  CTC Calculator to accurately compute Cost to Company for your employees in India and simplify your payroll calculations.

Post-payroll Tasks

1. Salary Disbursement: Process payments to employees’ bank accounts.
2. Statutory Payments: Remit deductions and contributions, including tax payments, to appropriate authorities (PF, ESI, TDS, etc.).
3. Reporting: Generate and distribute payslips to employees.
4. Record Keeping: Update payroll records and maintain documentation for audit purposes.
5. Compliance Filings: Prepare and submit necessary returns and reports to government authorities.

By following these steps systematically, employers can ensure efficient and compliant payroll processing in India. It’s important to note that many companies use specialized payroll software or outsource these tasks to experts to manage the complexities involved.

Salary Disbursement Methods

1. Electronic Funds Transfer (EFT): Most common method, including NEFT, RTGS, or IMPS.
2. Direct Deposit: Salary credited directly to employee bank accounts.
3. Salary Cards: Pre-loaded cards, useful for unbanked employees.
4. Cheques: Less common now, but still used in some small businesses.
5. Cash: Rare, mainly for daily wage workers in informal sectors.

Each method has its own processing time and regulations, with electronic transfers being the preferred choice for most organized sectors due to their speed, security, and ease of record-keeping.

Leave Policies and Paid Time Off

Understanding leave policies is crucial when paying employees in India. These policies affect employee compensation and ensure compliance with Indian labor laws. Here's an overview of the main types of leave:

Types of Leave in India:

1. Earned Leave (EL): 15-30 days annually
2. Casual Leave (CL): 7-10 days annually
3. Sick Leave (SL): 7-14 days annually
4. Maternity Leave: 26 weeks for first two children
5. Paternity Leave: Company-specific, usually 5-15 days
6. Public Holidays: 10-14 days annually, varies by state

Impact on Payroll Calculations:

1. Paid leaves treated as working days for salary calculation
2. Unpaid leaves deducted from monthly salary
3. Leave encashment taxed as salary income
4. Extended unpaid leaves may affect PF and ESI contributions
5. Accurate leave tracking crucial for correct payroll processing

Key Considerations:

• Maintain clear leave policies
• Implement robust leave management system
• Ensure compliance with state-specific regulations
• Regularly update payroll systems to reflect leave policy changes

To gain a more comprehensive understanding of leave policies and holidays in India, refer to this detailed article: Understanding Leave Policy Laws and Holidays in India.

Overtime and Working Hours

Regulations on Working Hours:

1. Standard working hours: 8-9 hours per day, 48 hours per week
2. Maximum daily limit: 12 hours (including overtime)
3. Mandatory rest breaks: Usually after 5 hours of continuous work
4. Weekly limit: 48 hours (can extend to 54 hours in special circumstances)

Overtime Calculation and Limits:

1. Definition: Work beyond standard hours (over 8-9 hours/day or 48 hours/week)
2. Overtime rate: Generally twice the ordinary rate of wages
3. Formula: (Hourly Rate x 2) x Number of Overtime Hours
4. Limits: Varies by industry; generally should not exceed 50 hours per quarter
5. New regulations: Cap increased from 50 to 125 hours quarterly for factory workers

Key Considerations:

• Accurate tracking of regular and overtime hours
• Proper application of overtime rates
• Compliance with industry-specific and state-specific regulations
• Regular updating of payroll systems to reflect regulatory changes

Tax Considerations for Foreign Employers

Foreign employers operating in India face unique tax challenges. Two crucial aspects they need to consider are Permanent Establishment (PE) issues and Double Taxation Avoidance Agreements (DTAA).

Permanent Establishment (PE) Issues

A Permanent Establishment (PE) is a fixed place of business that generally gives rise to income or value-added tax liability in a particular jurisdiction.

Significance:

• If a foreign company is deemed to have a PE in India, its business profits become taxable in India to the extent attributable to the PE.
• PE status can significantly increase tax liability and compliance requirements.

Types of PE:

• Fixed Place PE: A specific geographical location where business is conducted.
• Service PE: Created when employees or other personnel provide services in India for a specified period.
• Agency PE: When an agent habitually exercises authority to conclude contracts on behalf of the foreign enterprise.

Factors Determining PE:

• Physical presence in India
• Duration of activities
• Nature of business activities
• Contractual relationships with Indian entities

Double Taxation Avoidance Agreements (DTAA)‍

DTAAs are bilateral agreements between two countries to avoid taxing the same income twice and to prevent tax evasion.

India's DTAA Network:

• India has DTAAs with approximately 85 countries.
• These agreements provide relief from double taxation for income such as salaries, dividends, interest, and royalties.

Key Benefits:

• Tax Exemption: Certain types of income may be exempt from tax in one country.
• Tax Credit: Allows claiming credit for taxes paid in one country against tax liability in another.
• Reduced TDS Rates: Lower rates of Tax Deducted at Source on various types of income.

How DTAA Works:

• Source Rule: Income is taxed in the country where it originates.
• Residence Rule: Income is taxed in the country of residence, regardless of its origin.
• India generally follows the residence rule for its residents.

Application Process:

• Determine DTAA applicability based on the transaction and parties involved.
• Identify the relevant DTAA based on the non-resident party's country of residence.
• Apply the appropriate article of the DTAA to determine tax treatment.

Documentation Required:

• Tax Residency Certificate (TRC) from the country of residence
• Form 10F (if TRC doesn't contain all required information)
• PAN (Permanent Account Number) or Form 60
• Self-declaration stating eligibility for DTAA benefits

Methods of Claiming DTAA Benefits:

• Exemption Method: Income is taxed only in one country and exempt in the other.
• Tax Credit Method: Tax paid in one country is credited against tax liability in the other.
• Deduction Method: Income is taxed in both countries, but tax paid in one is allowed as a deduction in the other.

Foreign employers must carefully navigate these tax considerations to ensure compliance with Indian tax laws while optimizing their tax position. 

Currency and Foreign Exchange

Salary Payment in Local Currency:

• Salaries in India must be paid in Indian Rupees (INR)
• Foreign employees can receive salaries in INR and then convert to their preferred currency

Foreign Exchange Regulations:

• Governed by the Foreign Exchange Management Act (FEMA), 1999
• Employees can repatriate their salaries abroad after paying applicable taxes
• For repatriation, employees need an RBI-approved bank and proper documentation
• Employers must comply with FEMA regulations for any cross-border transactions

Termination and Final Settlement

Notice Period Requirements:

• Typically 1-3 months, as per employment contract or company policy
• Mandatory as per Industrial Disputes Act for workmen in certain establishments
• Can be waived or shortened by mutual agreement

Calculation of Final Pay:

1. Regular salary for days worked
2. Payment for unused leave (as per company policy)
3. Gratuity (if eligible - 5+ years of continuous service)
4. Bonus/incentives (if applicable)
5. Reimbursements of pending expenses
6. Provident Fund settlement (employee's share + interest)

For more detailed information, visit our "How to Terminate a Remote Employee in India" article.

Challenges in Managing Payroll in India

1. Complex Regulatory Environment: Navigating numerous and frequently changing labor laws, tax regulations, and statutory compliance requirements across different states, including management of PF, ESI, and professional tax.
2. Employee Classification and Benefits Management: Accurately categorizing diverse workforce types (full-time, contractors, gig workers), managing varied benefits structures, and ensuring correct application of leave policies, overtime calculations, and bonus payments.
3. Data Security and Technological Challenges: Protecting sensitive employee information, complying with data privacy regulations, implementing robust payroll systems that can adapt to changing regulations, and managing payroll for remote workers across different locations.
4. Calculation Complexities and Error Prevention: Avoiding errors in complex payroll computations involving various allowances, deductions, and taxes; managing different minimum wage rates across states and industries; and ensuring accurate and timely filing of various statutory returns and reports.
5. International Payment Challenges: Handling payroll for multinational companies, dealing with currency conversions, complying with foreign exchange regulations, and managing payroll during company restructuring or for employees working across borders.

How Payroll Services Help

Regulatory Compliance:

• Stay updated with the latest laws and automatically apply changes
• Handle complex calculations and statutory filings

Automated Processes:

• Reduce errors through automated payroll systems
• Streamline payroll processing and reporting

Data Security:

• Implement robust security measures to protect employee information
• Ensure compliance with data protection laws

Flexibility:

• Manage diverse workforce types (full-time, contractors, remote workers)
• Handle multi-state and international payroll requirements

Cost-Effective:

• Reduce the need for in-house payroll expertise
• Minimize risks of compliance-related penalties

Wisemonk: Your Indian Payroll Solution

Wisemonk is a leading Employer of Record (EOR) service provider that empowers global businesses to Hire, Pay and Manage Employees in India without establishing a local entity.

1. Recruitment Services:
   Wisemonk provides end-to-end recruitment support, from resume screening to submitting candidates after interviews. Their team handles the entire process, including initial assessments, coordinating interviews, and final candidate selection. This service streamlines the hiring process, helping you find the right talent efficiently.
2. Employer of Record (EOR) Services:
   Wisemonk acts as the legal employer for your workforce in India, handling local employment, benefits, and immigration support. This service allows companies to hire employees in India without setting up a local entity, significantly reducing time and costs associated with international expansion.
3. Payroll Management:
   The platform offers end-to-end payroll processing for both employees and contractors. Wisemonk manages tax optimization, ensures local compliance, and generates detailed salary slips. Their automated systems reduce errors and streamline the entire payroll process, allowing businesses to focus on core operations.
4. Comprehensive HR Support:
   Wisemonk assists with document collection, background verification, and policy orientation for new hires. This comprehensive HR support ensures a smooth onboarding process and helps maintain consistent HR practices across your Indian workforce.
5. Contractor Payment and Management:
   The platform offers efficient solutions for paying and managing contractors in India. Wisemonk handles payments, ensures compliance with local regulations, and provides tools for effective contractor management, simplifying the process of working with a flexible workforce.
6. Compliance Support:
   Wisemonk keeps your business updated with local regulations and handles all statutory requirements. This includes tax filing, labor law compliance, and other regulatory obligations. Their team of experts ensures that your company remains compliant with India's complex and evolving legal landscape.
7. Equipment Management:
   To support remote and on-site workers, Wisemonk provides equipment leasing and ordering services. They maintain asset registers and handle recovery when needed, ensuring your team has the tools they need to work effectively while managing the logistical challenges of equipment provision.

Wisemonk's integrated approach to these services provides a one-stop solution for companies looking to build and manage teams in India. Whether you're a startup or an established company, Wisemonk simplifies the complexities of Indian Payroll management, allowing you to focus on growth and innovation.

To simplify your payroll process in India, Contact Wisemonk today. 

You can Schedule a Demo  to learn more about how our services can benefit your business and streamline your operations in India.

FAQs

How much does it cost to run payroll in India?

The cost of running payroll in India varies depending on factors such as the number of employees and the complexity of payroll calculations. While exact costs differ, using a specialized service like Wisemonk can often be more cost-effective than managing payroll in-house. For detailed pricing information, visit Wisemonk's Pricing page.

What is TDS and how is it calculated?

TDS (Tax Deducted at Source) is a method of collecting income tax from employees' salaries by deducting it directly at the time of payment. It is calculated based on the employee's taxable income slab as per the Income Tax Act. Employers must remit TDS to the government monthly and issue Form 16 annually.

What is the minimum wage in India?

Minimum wages in India vary by state, industry, and skill level. Wisemonk stays updated with these variations and ensures that all employee compensations comply with the applicable minimum wage laws.

How often should payroll be processed?

Payroll is typically processed monthly in India, aligning with most companies' salary disbursement cycles. Some organizations may choose bi-weekly or weeklprocessing based on industry practices or specific employee agreements.

Can I manually run payroll for workers in India?

While it's possible to manually run payroll in India, it's time-consuming and prone to errors due to complex tax regulations and frequent changes in labor laws. Many businesses find it more efficient and compliant to use specialized services like Wisemonk, which handle all aspects of payroll processing and ensure adherence to local regulations.

How do you pay contractors in India?

Contractors in India are typically paid through bank transfers based on submitted invoices. It's crucial to have clear contracts and comply with tax regulations, including withholding tax (TDS) where applicable. Wisemonk offers contractor payment services that manage these complexities, ensuring compliant and timely payments.

How do foreign businesses pay remote employees in India?

Foreign businesses can pay remote employees in India through services like Wisemonk, which handle currency conversion, compliance with local regulations, and ensure payments are made in Indian Rupees (INR). Wisemonk's Employer of Record (EOR) services simplify this process, managing all aspects of employment and payroll for remote workers in India.

What are the penalties for non-compliance with payroll regulations?

Non-compliance with payroll regulations can result in penalties ranging from fines to legal action against the company. These penalties vary depending on the nature of non-compliance, such as late payment of statutory dues or incorrect tax deductions. Ensuring timely compliance helps avoid these issues.

Is 13th month pay mandatory in India?

No, 13th month pay is not mandatory in India. However, some companies offer bonuses or ex-gratia payments during festivals or at the end of the financial year as part of their employee benefits package.

How does payroll work in India?

Payroll in India involves calculating employee salaries, deducting statutory contributions like Provident Fund (PF) and Employee State Insurance (ESI), applying income tax deductions (TDS), and disbursing net salaries. Wisemonk streamlines this process, handling all calculations, deductions, and compliance requirements, allowing businesses to focus on their core operations.

What are the components of salary structure in India?

The salary structure in India typically includes basic salary, house rent allowance (HRA), dearness allowance (DA), conveyance allowance, special allowances, bonuses, and statutory deductions like PF and TDS. These components vary based on company policy and employee agreements.

How to choose the best payroll service?

To help you make an informed decision, we have a comprehensive article on the "Top Best Payroll Processing and Outsourcing Services in India." This guide will assist you in evaluating your options effectively.

What is the formula for payroll in India?

The formula for payroll calculation is:

Net Pay = Gross Salary - Deductions

Where Gross Salary includes Basic Salary + Allowances + Bonuses, and Deductions include taxes and statutory contributions.

How is payroll processing done in India?

Payroll processing in India involves several steps: Pre-payroll activities include collecting attendance data and calculating gross salary; Payroll processing involves calculating deductions (like TDS and PF); Post-payroll activities include disbursing salaries and filing statutory returns.