How to Run Payroll for a Small Team in India (Without an Accountant)

Running payroll for a small Indian business sounds simple: calculate salary, deduct PF, generate a payslip. But in practice, there are enough variables that errors are common — and the consequences range from employee dissatisfaction to compliance penalties.

The variables that make payroll complicated:

Attendance-linked salary calculation. If an employee took 3 days of unpaid leave, their salary for the month needs to be pro-rated accurately. Most businesses do this in Excel — which means manual calculation every month, and a new opportunity for error every time.

Multiple deduction types. PF, ESI (if applicable), professional tax (varies by state), TDS (for employees above the tax threshold), loan repayments, advance deductions. Each has its own calculation logic.

Varying pay structures. Basic, HRA, special allowance, transport allowance, performance bonus. The ratio of basic to HRA affects PF contribution. Getting this wrong affects both the employee's take-home and the employer's compliance.

Payslip format. Employees expect a payslip that shows their earnings breakdown, deductions breakdown, and net pay clearly. A Word document or handwritten slip is increasingly unacceptable.

Before you can run payroll, you need a defined salary structure for each employee. The standard Indian structure:

• Basic salary — typically 40–50% of CTC (Cost to Company). PF is calculated on basic salary.

• HRA (House Rent Allowance) — typically 40–50% of basic. For employees living in metro cities, HRA exemption is 50% of basic; for non-metro, 40%.

• Special allowance — the remainder of CTC after basic and HRA. Fully taxable.

• Other allowances — LTA (Leave Travel Allowance), transport allowance, medical allowance, etc.

This structure should be documented in each employee's offer letter and employment contract. Changes to salary structure require a new letter and payroll reconfiguration.

Payroll accuracy starts with attendance accuracy. The two most common payroll errors in small businesses are:

1. Paying a full month's salary to an employee who took unpaid leave 2. Making wrong leave deductions because the attendance record didn't capture approved leave correctly

A digital attendance system — where employees clock in and out — eliminates both. In DeskPanda, attendance is logged automatically from employee clock-ins. Approved leave is tracked separately and excluded from absence counts. At payroll time, the system shows exactly how many days each employee worked.

If you're still using a paper register, the minimum improvement is a shared Google Sheet where employees log their own attendance and managers verify it — though this is still manual and not recommended beyond 10 employees.

Provident Fund (PF): Mandatory for organisations with 20+ employees. Employee contributes 12% of basic salary; employer contributes 12% (of which 8.33% goes to EPS and 3.67% to EPF). For smaller businesses, PF is optional unless the employee was previously a PF member.

ESI (Employee State Insurance): Mandatory for employees earning up to ₹21,000/month in organisations with 10+ employees. Employee contribution: 0.75% of gross; employer contribution: 3.25% of gross.

Professional Tax: Varies by state. Maharashtra: ₹200/month for salary above ₹10,000. Karnataka: ₹200/month for salary above ₹15,000. Other states have different slabs — check your state's schedule.

TDS (Tax Deducted at Source): Deducted from employees earning above the income tax threshold. Calculate based on the employee's annual income tax liability and deduct monthly.

Note: This guide covers payroll calculation basics. For PF/ESI registration and statutory filing, work with a CA or payroll compliance service.

A payslip should show: - Employee name, designation, department, employee ID - Pay period (month and year) - Earnings breakdown (basic, HRA, allowances, bonus) - Deductions breakdown (PF, ESI, PT, TDS, other) - Net pay - Employer's PF contribution (shown separately, not deducted)

Generating payslips in Word or Excel is manual and error-prone. DeskPanda generates PDF payslips automatically from payroll data — with the correct format, all earnings and deductions, and net pay calculated. Employees receive their payslip digitally.

For a 20-person team, manual payslip generation takes 2–3 hours per month. Automated generation takes under 10 minutes.

Before finalising payroll, it should be reviewed and approved — ideally by both the HR lead and the finance lead. This is the check that catches errors before money moves.

The review should verify: total headcount matches employee list, salary amounts match offer letters, leave deductions match approved leave records, one-time deductions (loans, advances) are correctly applied.

In DeskPanda, payroll has a multi-level approval workflow — HR prepares, finance reviews, admin approves. No payroll is finalised without the sign-off chain being completed.