What Is Payroll? Meaning, Process and Example (India, 2026)

Payroll is the process a company uses to pay its employees: working out each person’s salary for the month, deducting taxes and statutory contributions, paying the net amount into their bank accounts, and depositing the deductions with the government. The word also refers to the list of employees a company pays: someone who is “on the payroll” is an employee.

In India, payroll is more than paying salaries on time. Every month an employer has to calculate PF, ESI, Professional Tax and income tax (TDS) correctly, deposit them by their due dates, and keep records that stand up to an inspection. This guide explains how payroll works in India as of September 2026, including the changes brought in by the new Labour Codes and the Income-tax Act, 2025.

Payroll meaning in Hindi

Payroll ko Hindi mein vetan suchi ya vetan pranali kaha ja sakta hai. Company payroll ka matlab hai: company dwara apne karmachariyon ka mahine ka vetan tay karna, usmein se PF, ESI, professional tax aur income tax (TDS) kaatna, bache hue paise (net salary) unke bank khate mein bhejna, aur kaati gayi rakam sarkar ke paas samay par jama karna.

What payroll includes

Employee records: PAN, Aadhaar, bank account, UAN for PF, ESI number, date of joining, salary structure and tax regime choice.
Attendance and leave: days worked, paid and unpaid leave, overtime and holidays for the pay period.
Earnings: basic pay, dearness allowance, house rent allowance, other allowances, bonus, incentives, arrears and reimbursements.
Deductions: statutory ones (PF, ESI, Professional Tax, Labour Welfare Fund, TDS) and others such as loan repayments or advances.
Payment: transferring net salary to each employee’s bank account.
Compliance: depositing deductions and filing returns on time.
Records and payslips: a payslip for every employee, registers, and reports for your accountant.

Key payroll terms

CTC (cost to company): the total yearly cost of an employee to the company, including employer PF and ESI contributions and benefits.
Gross salary: total earnings for the month before deductions.
Net salary (take-home pay): what the employee receives after all deductions.
Wages: under the Labour Codes, basic pay plus dearness allowance plus retaining allowance. If excluded allowances such as HRA and conveyance add up to more than 50% of total pay, the excess counts as wages. This affects PF, gratuity and bonus calculations.
Pay period: the period a salary covers, usually a calendar month in India.
Payslip: the statement of earnings and deductions given to each employee every pay period.

A payroll example

An employee in Mumbai has a monthly gross salary of ₹50,000, with basic pay of ₹25,000, HRA of ₹10,000 and a special allowance of ₹15,000. Basic pay is 50% of the total, so the Labour Codes’ 50% rule adds nothing back to wages.

Item	Amount	How it is worked out
Gross salary	₹50,000	Basic + HRA + special allowance
Employee PF	−₹3,000	12% of ₹25,000 basic (within the ₹25,000 wage ceiling)
ESI	₹0	Not applicable: gross is above ₹21,000
Professional Tax	−₹200	Maharashtra rate for salaries above ₹10,000 (₹300 in February)
TDS	₹0	₹6 lakh a year, minus the ₹75,000 standard deduction, is below the ₹12 lakh rebate limit in the new regime
Net salary	₹46,800

The employer also contributes 12% (₹3,000) to PF, split between the pension scheme and the provident fund, plus small administration and insurance charges. That employer cost is part of the employee’s CTC but not part of their gross salary.

How to run payroll: step by step

Set up employee records. Collect PAN, bank details, UAN and ESI numbers, the salary structure, and the employee’s choice of tax regime and investment declarations.
Close attendance and leave. Fix a cut-off date, then finalise days worked, leave taken, loss of pay and overtime.
Calculate gross pay. Apply the salary structure, then add overtime, arrears, bonuses and reimbursements, and reduce pay for unpaid leave.
Apply statutory deductions. PF, ESI, Professional Tax, Labour Welfare Fund where it applies, and TDS on salary.
Apply other deductions such as loans or advances. Under the Code on Wages, total deductions cannot exceed 50% of wages.
Review and approve. Compare against last month and check new joiners, leavers and anyone whose pay changed.
Pay salaries. For a monthly pay period, wages must be paid by the 7th of the following month.
Issue payslips to every employee on or before payment.
Deposit dues and file returns by their due dates (see the calendar below).
Keep records. Registers must be kept for five years and may be electronic.

When an employee leaves, wages due must be paid within two working days of their exit under the Code on Wages, and gratuity within 30 days.

Statutory deductions in India

Provident Fund (EPF)

Employees and employers each contribute 12% of wages. Of the employer’s share, 8.33% goes to the Employees’ Pension Scheme and the rest to the provident fund. From 17 September 2026, the PF wage ceiling is ₹25,000 a month, up from ₹15,000, so the maximum pension contribution is now ₹2,083 a month. PF applies to establishments with 20 or more employees. Payment and the monthly return (ECR) are due by the 15th of the following month. Try our PF calculator.

Employees’ State Insurance (ESI)

Applies to employees earning up to ₹21,000 a month in establishments with 10 or more employees. The employee pays 0.75% of wages and the employer 3.25%. Due by the 15th of the following month.

Professional Tax

A state tax on employment, capped at ₹2,500 a year per person. About 20 states levy it, at different rates and due dates; Delhi, Uttar Pradesh, Haryana and Rajasthan do not. See Professional Tax by state.

Labour Welfare Fund

A small fixed contribution from both employee and employer in about 15 states, paid half-yearly or yearly. See Labour Welfare Fund by state.

Income tax (TDS on salary)

Employers must deduct tax from salaries based on the employee’s estimated income for the year. Since 1 April 2026 this is governed by the Income-tax Act, 2025: salary TDS is under section 392 (earlier section 192), the financial year is called the “tax year”, and familiar forms have new numbers. Form 16 is now Form 130 and the quarterly TDS return Form 24Q is now Form 138. In the default new regime, salaried employees with taxable income up to ₹12 lakh after the ₹75,000 standard deduction pay no tax.

Monthly and yearly payroll calendar

Due date	What
7th of each month	Pay salaries (monthly pay period); deposit TDS deducted last month (30 April for March)
15th of each month	Pay PF and file the ECR; pay ESI
Varies by state	Professional Tax payment and returns
31 July, 31 October, 31 January, 31 May	Quarterly TDS return on salaries (Form 138, earlier Form 24Q)
15 June	Issue Form 130 (earlier Form 16) to employees
Half-yearly or yearly	Labour Welfare Fund, depending on the state

Ways to process payroll

Spreadsheets. Workable for a handful of employees with simple salaries. The risk grows quickly: one wrong formula affects every employee, and rules such as the new PF ceiling have to be updated by hand.

Outsourcing to a payroll bureau or your CA. You hand over attendance and changes each month and receive payslips and challans back. Convenient, but you still own the compliance, and every change goes through someone else.

Payroll software. Attendance, leave, salary calculation, statutory deductions, payslips and reports in one place, with rule changes applied by the software provider. For most companies with more than five or ten employees, this is the cheapest option once you count the time saved. See the best payroll software in India compared.

Common payroll mistakes

Keeping basic pay too low. Under the Labour Codes, allowances above 50% of total pay are added back to wages, which changes PF and gratuity.
Missing a rule change. The PF wage ceiling changed on 17 September 2026, mid-month; September’s PF return uses the old ceiling for 1–16 September and the new one from the 17th.
Late deposits. Late PF, ESI and TDS all attract interest, and late PF and ESI attract damages as well.
Not collecting investment proofs from employees in the old tax regime, which leads to a large TDS catch-up in the last quarter.
Slow full-and-final settlements. Wages due to a leaving employee must be paid within two working days.

Frequently asked questions

What is payroll in simple words?

Payroll is how a company pays its employees: calculating salary, deducting taxes and contributions, paying the net amount, and depositing the deductions with the government.

What is the difference between payroll and salary?

Salary is what one employee earns. Payroll is the whole process of paying all employees, including the deductions, payments to the government and records.

What is company payroll?

A company’s payroll is the list of its employees and the amounts it pays them, and the process of paying them each month. An employee “on the company’s payroll” is employed directly, as opposed to a contractor or someone employed through an agency.

Who handles payroll in a company?

In small companies it is usually the owner, an accountant or an outside CA. Larger companies have an HR or payroll team, typically working with finance.

What is the PF wage ceiling in 2026?

₹25,000 a month from 17 September 2026. It was ₹15,000 before that date.

Run payroll without the spreadsheet

HivePayroll handles attendance, leave, salary calculation, PF, ESI, Professional Tax, LWF and TDS, payslips and statutory reports for Indian companies. It is free for up to 10 employees, and paid plans are priced by team size rather than per employee. See pricing or book a free demo.

This article reflects Indian law as of 26 September 2026. State rules under the Labour Codes are still being notified; check your state’s position before relying on a specific rule.