Payroll for startups

Registrations and thresholds

Before the first salary, check your state's Shops and Establishments registration and whether professional tax applies where your people work. PF and ESI apply once your establishment crosses the headcount and wage limits set under the Code on Social Security; the EPF applicability and ESI applicability pages explain when. Note the month you crossed each threshold. Investors' due diligence often asks exactly that, and a clean answer saves an awkward week.

A salary structure that survives the wage rule

Set the structure once and set it right. Under the Code on Wages, basic pay plus DA must be at least half of total remuneration, or the excess allowances are added back to wages for PF, gratuity and bonus. For a ₹60,000 monthly gross, a clean split is Basic ₹30,000, HRA ₹12,000 and Special ₹18,000, which adds up to ₹60,000 with Basic at exactly half. In Direct Payroll, set Basic at 50 percent in the company percentages, with HRA and Special making up the rest, so every new offer follows the same pattern without a spreadsheet.

Employees, interns, fixed-term hires and consultants

Not everyone who works for a startup belongs on the same payroll. Employees, including fixed-term hires, who hold full employee status under the Industrial Relations Code, go through Direct Payroll, where PF, ESI and professional tax are deducted as they apply. Interns receive a stipend; decide with your CA how stipends are handled, and read the intern rights page. Consultants and freelancers raise invoices and are paid by accounts, outside payroll. Mixing these groups up is a frequent due diligence finding.

ESOPs, bonuses and the month-end routine

ESOPs are a promise of equity, not salary. The ESOP plan, grant letters and vesting schedules are kept by the founders and the company secretary, and their tax treatment is worked out with your CA; ZeniaHR does not manage ESOPs. Cash bonuses go through payroll as a bonus input or a separate bonus run. Each month the routine is the same: close attendance, add inputs such as incentives and reimbursements, take the run through draft and review to finalized, approve the payment batch and pay by the 7th. Direct Payroll does not compute TDS, so your CA handles income tax alongside it.

How to set it up in ZeniaHR

1. Complete HRMS Setup with company basics and the employee code format before adding salaries.
2. Set company percentages so Basic is half of gross, with HRA and Special making up the rest.
3. Enter each employee's monthly gross, and use employment types to keep permanent, fixed-term and intern records apart.
4. Choose the loss of pay basis and the half-day pay fraction in the deduction policy.
5. Each month, add incentives, bonuses and reimbursements as payroll inputs, finalize the run and approve the payment batch.
6. Agree with your CA who calculates TDS and files returns, since Direct Payroll does not compute TDS.

Read more about payroll in ZeniaHR.

Roles this applies to

Frequently asked questions