Payroll outsourcing in India — 2026 guide for foreign employers

India payroll outsourcing services: monthly processing, statutory filings and year-end

MSA Asia runs India payroll end to end for foreign-invested companies. We calculate monthly salaries under compliant CTC structures, compute and deposit tax deducted at source on salaries, file Provident Fund and Employees' State Insurance contributions, handle state professional tax and labour welfare fund, issue payslips, file the quarterly TDS return (Form 24Q) and the annual Form 16 for every employee, and manage joiners, leavers and full and final settlements.

Beyond the monthly run, we handle the parts that create risk if missed: the new wage definition under the Labour Codes in force since 21 November 2025, employee tax-regime declarations and investment proofs, gratuity and leave provisioning, expatriate and international-worker contributions, and the state-by-state registrations that India's federal labour system demands. We operate from our Mumbai office and run payroll for staff in every Indian state.

The short version. Indian payroll is paid monthly, usually by the 7th of the following month, and every pay run triggers three statutory deadlines: TDS on salaries by the 7th, Provident Fund and ESI contributions by the 15th, and state professional tax on its own schedule. The parts that catch foreign employers out in 2026 are three: restructuring salaries so that basic pay is at least 50% of total wages under the Labour Codes, applying each employee's chosen tax regime correctly under the Income-tax Act 2025, and registering separately in every state where you have staff. We handle all three.

The four service tiers: choose the right level of support

India payroll needs scale with headcount, the number of states you operate in and how much HR administration you want to outsource. Here is how the tiers differ.

Payroll processing: the default

For most foreign subsidiaries with up to a few dozen staff, core payroll processing covers monthly salary computation, TDS on salaries, PF and ESI calculation and deposit, professional tax, payslips and a bank payment file. It is the minimum every employer needs to pay staff legally and typically runs from USD 20 to 35 per employee per month, with a minimum monthly fee for small teams.

Payroll and statutory compliance

This tier adds the filing side: monthly PF electronic challan-cum-return (ECR) and ESI returns, quarterly Form 24Q, annual Form 16 issuance, labour welfare fund, Shops and Establishments and state labour-law registers, and year-end investment-proof verification for employee tax computations. It is the standard tier for operating companies with staff in more than one state or any ESI-covered employees.

HR administration and onboarding

Adds employment contracts and offer letters compliant with the Labour Codes, onboarding and background-check coordination, leave and attendance management, reimbursement processing, gratuity and leave-encashment provisioning, exit management and full and final settlements within the statutory timeline, and employee help-desk support for tax and PF queries.

Employer of record and expatriate payroll

For companies without an Indian entity yet, or hiring a handful of staff before incorporation, our India employer of record service employs staff on your behalf and runs their payroll. For foreign nationals on Indian payroll this tier also handles international-worker PF, tax equalisation, Form 16 for expatriates and social security agreement certificates of coverage.

Quick comparison

Service tier	Description	Advantages	Disadvantages
Payroll processing	Monthly salary, TDS, PF, ESI, professional tax, payslips, bank file	Lowest cost, every pay run legally correct	Statutory returns and year-end forms not included
Payroll and statutory compliance	Adds PF/ESI returns, Form 24Q, Form 16, state registers and investment-proof checks	Removes the most penalty-prone deadlines	Higher per-employee fee
HR administration and onboarding	Contracts, onboarding, leave, reimbursements, exits and settlements	Single provider for the whole employee lifecycle	Usually bundled with compliance, not standalone
Employer of record and expatriate payroll	Hiring without an entity; international-worker PF and expatriate tax	Hire in weeks, not months; expatriate compliance covered	Highest cost per head; EOR suits small teams

Step by step India payroll setup and monthly process

Once your entity is registered, payroll must be live before the first salary falls due. Here is the realistic sequence for a newly incorporated foreign-owned company hiring its first employees.

1. Obtain the employer registrations. TAN arrives with incorporation and is used for salary TDS. Register with the Employees' Provident Fund Organisation (mandatory at 20 employees, voluntary below), the Employees' State Insurance Corporation (mandatory at 10 employees in most states) and for state professional tax and the Shops and Establishments Act in each state where you have an office or staff.
2. Design the CTC structure. Set basic pay at a minimum of 50% of total wages as the Labour Codes require, then layer house rent allowance, statutory bonus, flexible benefits and employer PF and gratuity contributions. The structure determines PF, gratuity and tax outcomes for years, so get it right before the first offer letter.
3. Issue compliant contracts and collect employee declarations. Appointment letters, PF nomination (Form 2), ESI declaration (Form 1), PAN, Aadhaar and bank details, the previous employer's Form 12B for mid-year joiners, and each employee's choice between the new and old income tax regimes.
4. Set up attendance, leave and the payroll calendar. Configure leave entitlements under the state Shops and Establishments Act, overtime rules, the monthly cut-off date and salary payment date (by the 7th of the following month under the Code on Wages for most establishments).
5. Run monthly payroll. Process attendance and variable pay, compute gross-to-net including TDS under the employee's regime, PF, ESI and professional tax, generate payslips and the bank transfer file, and post the payroll journal to the general ledger kept by your India accounting team.
6. Deposit TDS by the 7th. Salary TDS for each month is paid through the income tax portal by the 7th of the following month (30 April for March). Late deposit carries interest at 1.5% per month.
7. File PF and ESI by the 15th. Upload the PF electronic challan-cum-return and pay 24% of PF wages (12% employee, 12% employer, with 8.33% of the employer share routed to the pension scheme), and pay ESI at 4% of gross for covered employees (0.75% employee, 3.25% employer).
8. Pay state levies. Professional tax is deducted monthly and remitted on each state's schedule (monthly or annually depending on headcount); labour welfare fund is paid half-yearly or annually depending on the state.
9. File quarterly TDS returns. Form 24Q is due 31 July, 31 October, 31 January and 31 May, and must reconcile to every monthly deposit; mismatches generate automated notices.
10. Close the year. Collect investment proofs in January and February, true up TDS in March, issue Form 16 to every employee by 15 June, and review gratuity, leave and bonus provisions for the statutory audit.

A newly incorporated company typically has payroll fully operational, with registrations in place, CTC structures approved and the first pay run processed, within 3 to 4 weeks of receiving its Certificate of Incorporation, provided PF and ESI registration are started immediately.

Statutory contributions and deductions: what employers pay in India

Indian payroll adds roughly 13% to 17% on top of gross salary in employer contributions, with the exact figure depending on salary levels, ESI coverage and the state. The table below summarises the main items for a private-sector employer in 2026.

Item	Applies when	Employee share	Employer share	Due date
Provident Fund (EPF and EPS)	Establishments with 20+ employees; mandatory for wages up to INR 15,000, usually extended to all staff	12% of PF wages	12% of PF wages (8.33% to pension scheme, capped) plus 0.5% EDLI and 0.5% admin	15th of following month
Employees' State Insurance	Establishments with 10+ employees; employees earning up to INR 21,000 per month	0.75% of gross	3.25% of gross	15th of following month
Tax deducted at source on salary	All employees above the basic exemption, under the regime they elect	Per slab (new regime default)	Nil (employer deducts and deposits)	7th of following month
Professional tax	State levy in Maharashtra, Karnataka, West Bengal, Telangana, Tamil Nadu, Gujarat and others	Up to INR 2,500 per year	Nil (employer deducts), plus employer enrolment fee	State schedule
Gratuity	Establishments with 10+ employees; payable after 5 years' continuous service	Nil	Accrued at 15 days' wages per year of service (about 4.81% of basic)	On exit, within 30 days
Statutory bonus	Employees with wages up to INR 21,000; establishments with 20+ employees	Nil	8.33% to 20% of wages (calculated on up to INR 7,000 or minimum wage)	Within 8 months of year end
Labour welfare fund	State levy in around 16 states	Nominal (INR 6 to 50)	Nominal (INR 12 to 150)	Half-yearly or annual by state
Leave and maternity	Earned leave per state law (typically 15 to 21 days); 26 weeks' paid maternity leave	Nil	Paid leave and encashment provisioning	Ongoing

Required registrations and documents for India payroll

Employer registrations:

• TAN (Tax Deduction Account Number) and income tax portal access for salary TDS
• EPFO establishment code and digital signature for ECR filing
• ESIC employer code for each covered location
• Professional tax registration (employer) and enrolment (employee deductions) in each applicable state
• Shops and Establishments registration for every office, and state labour welfare fund registration where applicable

For each employee at onboarding:

• Signed appointment letter with CTC breakdown compliant with the Labour Codes
• PAN, Aadhaar, passport-size photograph, bank account details and address proof
• PF nomination and UAN details (existing Universal Account Number for previous members), ESI family declaration where covered
• Income tax regime declaration and, for mid-year joiners, Form 12B with previous-employer salary and TDS
• For foreign nationals: passport, employment visa, FRRO registration and, where available, a certificate of coverage under a social security agreement

For a handover from another provider:

• Year-to-date salary, TDS, PF and ESI registers for every employee
• Prior Form 24Q filings and acknowledgements, and last issued Form 16s
• Leave balances, gratuity and bonus provisions, and open full and final settlements
• Portal credentials for the income tax, EPFO, ESIC and state professional tax systems

The 2025 Labour Codes, the new wage definition and salary structuring

On 21 November 2025 the four Labour Codes, the Code on Wages, the Code on Social Security, the Industrial Relations Code and the Occupational Safety, Health and Working Conditions Code, came into force, replacing 29 separate central labour laws.^[1] For payroll the single biggest change is the uniform definition of wages: allowances excluded from wages (house rent allowance, overtime, bonus, commission and similar) may not exceed 50% of total remuneration, so basic pay plus dearness and retaining allowance must make up at least half of an employee's package. The typical Indian CTC design, with a small basic and large allowances, no longer works.

The practical effect is that the base for Provident Fund, gratuity, leave encashment and statutory bonus rises for most employees, increasing employer cost and reducing take-home pay unless the structure is rebalanced. The Codes also tighten the timeline for full and final settlement to two working days after an employee leaves, extend gratuity eligibility to one year for fixed-term employees, and standardise the salary payment date for most establishments at the 7th of the following month.^[1] Central and several state rules are still being finalised through 2026, so employers should treat this as a transition period and restructure now rather than wait for the last rule to be notified.

On the tax side, the Income-tax Act 2025 applies from 1 April 2026. The new regime remains the default for salaried employees (standard deduction of INR 75,000, no tax on income up to INR 12 lakh after rebate), while the old regime with exemptions and deductions remains available by election. Employers must capture each employee's choice at the start of the year, compute TDS accordingly, and reconcile investment proofs in the final quarter; our India tax team supports the annual true-up.^[2]

Costs and timeline at a glance

The cost stack for a typical foreign-owned company's India payroll:

• Payroll processing: typically USD 20 to 35 per employee per month, with a minimum fee of around USD 250 to 400 per month for small teams.
• Statutory compliance add-on: PF and ESI returns, Form 24Q, Form 16 and state registers, typically USD 5 to 10 per employee per month or a fixed quarterly fee.
• Employer contributions: budget roughly 13% to 17% on top of gross salary for PF, ESI, gratuity accrual, bonus and welfare levies, depending on salary mix and state.
• Registrations: PF, ESI, professional tax and Shops and Establishments set-up, typically USD 300 to 800 in professional fees plus nominal government charges, per state.
• Employer of record: typically USD 300 to 600 per employee per month on top of salary and statutory costs, for hiring before an entity exists.
• Expatriate payroll and tax: international-worker PF, tax equalisation and expatriate returns typically add USD 100 to 250 per expatriate per month.
• Year-end: Form 16 issuance, proof verification and gratuity and leave valuations are often included in the compliance retainer, otherwise billed as a project fee.

Budget for employer contributions from the first offer letter, not the first pay run; a CTC quoted to a candidate without PF, gratuity and bonus built in is the most common cause of payroll cost overruns we see.

Common India payroll pitfalls (and how MSA Asia helps)

A handful of issues account for most of the payroll problems we see on India engagements.

Legacy CTC structures. Salary structures with basic pay below 50% of total wages breach the Labour Codes and understate PF and gratuity. Rebalancing after the fact means renegotiating with every employee.

Treating PF as optional below 20 employees. Many foreign subsidiaries register voluntarily because candidates expect it and because crossing 20 staff later triggers retrospective questions. Once registered, coverage cannot be withdrawn.

Missing the 7th and 15th. TDS deposited late carries 1.5% interest per month and disallowance of the salary expense; PF paid late carries damages of up to 25% a year plus interest. These are the two deadlines that generate most penalties.

Ignoring state-level compliance. Professional tax, Shops and Establishments registration, labour welfare fund and leave rules differ by state. A company registered in Maharashtra with remote staff in Karnataka and Telangana needs registrations in all three.

Getting the tax regime wrong. Applying the old regime without a declaration, or ignoring a mid-year joiner's Form 12B, produces TDS shortfalls that surface as employee notices after Form 16 is issued.

Expatriates on home-country payroll. Foreign nationals working in India are "international workers" for PF, contributing on full salary with no wage ceiling unless a social security agreement applies, and are taxable in India from day one if resident. Split or offshore payroll does not remove these obligations.

Slow exits. The Code on Wages requires full and final settlement within two working days of separation; gratuity within 30 days. Companies that run exits on a monthly cycle are non-compliant from the first leaver.

How MSA Asia helps. We design Labour Code-compliant CTC structures before you hire, register you in every relevant state, run the monthly cycle against a single calendar for the 7th and 15th, maintain employee regime declarations and proofs, handle international-worker PF and expatriate tax, and process exits to the statutory timeline alongside your company secretarial and accounting compliance.

India payroll vs other APAC markets

India's payroll compliance is more layered than most of the region because labour is a concurrent subject under the constitution: central Codes set the framework, but registrations, professional tax, leave and welfare levies are administered state by state. Compared with Singapore and Hong Kong, where a single CPF or MPF contribution and an annual employer return cover most obligations, India requires monthly filings with three authorities and separate registrations per state. Compared with Vietnam and China, employer contribution rates are lower (13% to 17% versus 20% to 30%), but the tax-regime election, the 50% basic-pay rule and the state layer add administrative complexity that most groups prefer to outsource.

For most foreign companies already operating in India, the question is less about whether to outsource payroll, and more about which tier matches their headcount, state footprint and expatriate population.

Key takeaways

Five things to lock in before your first India pay run:

1. CTC structure. Basic pay at 50% or more of total wages under the Labour Codes; build PF, gratuity and bonus into every offer.
2. Registrations. TAN, EPFO, ESIC, professional tax and Shops and Establishments in every state where you have staff, before the first salary.
3. Monthly cadence. TDS by the 7th, PF and ESI by the 15th, salaries by the 7th; these three dates drive almost all penalties.
4. Tax regime. Capture each employee's new or old regime election at the start of the year and reconcile proofs in the final quarter.
5. Exits. Full and final settlement within two working days and gratuity within 30 days; design the exit process before the first leaver.

India payroll: terminology, providers, and what foreign employers actually need

Foreign employers arrive at this topic through many different search terms: India payroll outsourcing, payroll services in India, PF and ESI compliance, India salary processing, or simply how to pay employees in India as a foreign company. They are all asking the same operational question: how to pay staff accurately and on time while meeting central tax, social security and state labour obligations without an in-house payroll team.

Whether you call it India payroll outsourcing, payroll processing or HR compliance, the underlying obligations are the same. To run payroll compliantly in India, you must:

1. register as an employer for TDS, Provident Fund, ESI and state levies,
2. structure salaries with basic pay at 50% or more of total wages,
3. deposit TDS by the 7th and PF and ESI by the 15th of each following month,
4. file quarterly Form 24Q and issue annual Form 16 to every employee, and
5. maintain state-level registers, leave records and exit settlements to the statutory timelines.

Working with a payroll provider in India

Most foreign-invested companies do not run payroll in-house from day one; they retain an outsourced provider who processes salaries, files PF, ESI and TDS, maintains state registers and handles joiners and leavers, often alongside accounting and company secretarial work. Companies hiring before incorporation use an employer of record and migrate staff to their own payroll once the entity is live. MSA Asia provides full India payroll outsourcing from set-up through to year-end.

2026 specifics: Labour Code rules, the Income-tax Act 2025 and digital enforcement

What is worth knowing in 2026: the four Labour Codes have been in force since 21 November 2025 with central and state rules still being notified through the year, so CTC restructuring and settlement timelines are live issues; the Income-tax Act 2025 applies to salary TDS from 1 April 2026 with the new regime as default; and the EPFO and income tax portals now cross-match monthly deposits against Form 24Q and ECR filings automatically, so reconciliation errors generate notices within weeks rather than years.

Get your India payroll handled by MSA Asia

You have seen what India payroll involves in 2026: Labour Code-compliant salary structures, registrations in every state where you employ staff, monthly TDS, PF, ESI and professional tax, quarterly Form 24Q, annual Form 16, expatriate and international-worker rules, and exit settlements within two working days. MSA Asia handles all of it from our Mumbai office, with a fixed per-employee fee and a payroll calendar set up before your first salary falls due.

Frequently asked questions about India payroll

When must salaries be paid in India?

Under the Code on Wages, monthly wages must be paid by the 7th of the following month for most establishments (the 10th for those with more than 1,000 employees). Salary TDS for the month is also due by the 7th.

Is Provident Fund mandatory for a small foreign subsidiary?

PF registration is mandatory once an establishment has 20 or more employees, and contributions are compulsory for staff earning up to INR 15,000 per month. In practice most foreign employers register voluntarily from the first hire and extend PF to all staff, because candidates expect it and because coverage cannot be withdrawn later.

What does Indian payroll cost the employer on top of salary?

Typically 13% to 17% of gross salary: 12% PF plus EDLI and admin charges, 3.25% ESI for employees earning up to INR 21,000, gratuity accrual of about 4.81% of basic, statutory bonus for lower-paid staff, and nominal welfare fund and professional tax enrolment costs.

What changed under the Labour Codes for payroll?

From 21 November 2025, wages are defined uniformly across all four Codes and excluded allowances are capped at 50% of total remuneration, so basic pay must be at least half the package. Full and final settlement is due within two working days of exit, and gratuity eligibility extends to fixed-term employees after one year.

Which tax regime applies to my employees?

The new regime is the default under the Income-tax Act 2025, with a standard deduction of INR 75,000 and no tax on income up to INR 12 lakh after rebate. Employees may elect the old regime with exemptions and deductions; employers must capture the election at the start of the year and compute TDS accordingly.

Do foreign nationals working in India pay PF?

Yes. Foreign nationals are "international workers" and contribute PF on their full salary with no wage ceiling, unless their home country has a social security agreement with India and they hold a certificate of coverage. They are also taxable in India on salary for work performed in India.

Do I need registrations in every state?

Yes, for state-administered items. Professional tax, Shops and Establishments registration, labour welfare fund and leave rules are set by each state, so an employer with staff in three states needs registrations in all three even if the company is incorporated in one.

What is Form 16 and when is it due?

Form 16 is the annual certificate of salary paid and tax deducted that every employer must issue to each employee by 15 June following the financial year. It is generated from the quarterly Form 24Q filings, so those must be accurate and reconciled first.

Can we hire in India before our company is incorporated?

Yes, through an employer of record, which employs staff on your behalf and runs their payroll until your entity is registered. Staff then transfer to your own payroll with continuity of PF membership through their Universal Account Number.