Payroll Processing

Is PF and ESI mandatory for all businesses in India?

PF (Provident Fund under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952): Mandatory for establishments with 20+ employees (some industries: 10+). Employees earning basic + DA up to ₹15,000/month are compulsorily covered. ESI (Employees State Insurance under ESI Act, 1948): Mandatory for establishments with 10+ employees (some states: 20+) where employees earn up to ₹21,000/month gross. Both have statutory minimum contribution rates and monthly challan payment deadlines.

What are the current PF and ESI contribution rates?

PF: Employer contributes 12% of basic + DA (of which 3.67% goes to EPF, 8.33% to EPS — capped at ₹1,250/month for EPS). Employee also contributes 12% of basic + DA. ESI: Employer contributes 3.25% of gross wages; employee contributes 0.75% of gross wages. Both contributions must be paid by the 15th of the following month (ECR/challan submission on EPFO/ESIC portal).

What is the TDS on salary (Section 192) process?

Employers must deduct TDS from salary at the estimated income tax rate for the year. Process: (1) Collect investment declarations from employees (January–February); (2) Compute estimated annual income and eligible deductions; (3) Compute annual TDS and divide by remaining months; (4) Deduct monthly TDS from salary; (5) Deposit TDS by 7th of following month (30 April for March); (6) File quarterly Form 24Q; (7) Issue Form 16 by 15 June. Getting Step 2 wrong leads to underpayment (employee gets notice) or overpayment (employee waits for refund).

What is a payslip and what must it contain?

A payslip is the monthly salary statement given to each employee. Legally, it must contain: employee name and ID, month/year, gross salary with components (basic, HRA, special allowance, conveyance), deductions (PF, ESI, TDS, LOP/late deductions), and net pay. Digital payslips are valid and recommended for record-keeping. Payslips are required for background verification, loan applications, visa applications, and legal disputes.

What is the Employees' Provident Fund (EPF) withdrawal process?

Employees can withdraw EPF (Form 31 partial, Form 19 full) from EPFO UAN portal on resignation/retirement (full withdrawal after 2 months of unemployment) or for specific purposes (medical emergency, home purchase — partial withdrawal rules apply). Employer's role: ensure employee UAN is active, KYC (PAN, Aadhaar, bank) is verified on EPFO portal, and exit date is updated on EPFO. Delays in UAN KYC cause withdrawal processing delays.

What is the Gratuity calculation formula?

Gratuity is payable to employees who have completed 5 or more years of continuous service upon resignation, retirement, or death. Formula: (Last drawn basic + DA) × 15/26 × years of service. Maximum gratuity: ₹20 lakh (tax-exempt). For example: employee with 8 years of service and ₹40,000 basic+DA: gratuity = 40,000 × 15/26 × 8 = ₹1,84,615. We track gratuity liability on your payroll register and compute the annual provision.