Comprehensive Payroll Preparation Guide for Pvt. Ltd. Companies in Delhi, India

Effective payroll management ensures legal compliance, accurate salary disbursement, and employee satisfaction. This guide covers the step-by-step payroll preparation process for companies operating in Delhi, considering applicable laws and state-specific requirements.

✅ Step 1: Understand Legal Framework in Delhi

In Delhi, payroll preparation must align with the following laws:

1. Code on Wages, 2019 – Governs minimum wages, timely payment, and authorized deductions.
2. Payment of Wages Act, 1936 – Mandates providing salary slips and defines payment methods.
3. Shops & Establishments Act (Delhi) – Covers working hours, leaves, and employment conditions.
4. Employee Provident Fund (EPF) Act, 1952 – Provides retirement benefits through PF contributions.
5. Employee State Insurance (ESI) Act, 1948 – Offers medical and insurance benefits.
6. Income Tax Act, 1961 – Requires deduction of TDS (Tax Deducted at Source) from employee salaries.
7. Professional Tax (Delhi) – Not applicable (Delhi does not levy professional tax).

✅ Step 2: Employee Information Collection

Gather and maintain accurate employee data to ensure payroll accuracy.

Documents Required:

1. PAN Card – For tax purposes.
2. Aadhaar Card – Identity verification.
3. Bank Account Details – For salary transfer.
4. Joining Letter & Employment Contract – Defines salary structure and benefits.
5. Attendance & Leave Records – Essential for salary calculations.
6. Investment Declarations – For tax exemptions under Section 80C and other provisions.

✅ Step 3: Salary Structure Design

Design a CTC (Cost-to-Company)-based salary structure that aligns with legal mandates.

Sample Salary Structure:

✅ Step 4: Payroll Calculation Process

1. Gross Salary Calculation:
   Formula:
   Basic + HRA + Special Allowance + Other Allowances
2. Deductions Calculation:
   a) Employee Provident Fund (EPF): 12% of Basic Salary (if monthly wages ≤ ₹15,000).
   b) Employee State Insurance (ESI): 0.75% of Gross (for wages ≤ ₹21,000/month).
   c) Tax Deducted at Source (TDS): As per Income Tax Slabs.

✅ Step 5: Payroll Compliance Checklist

1. EPF Compliance:
   • Register with EPFO – Mandatory for companies with 20+ employees.
   • Monthly Filing – File EPF Returns (Form 5, Form 10, Form 12A) by the 15th.
2. ESI Compliance:
   • Register if the company has 10+ employees with wages below ₹21,000/month.
   • ESI Contribution Payment – By the 15th of every month.
3. TDS Compliance:
   • Deduct TDS based on Section 192 of the Income Tax Act.
   • File Form 24Q quarterly and issue Form 16 annually.
4. Shops & Establishments Act:
   • Ensure compliance with working hours (max 9 hours/day, 48 hours/week).
   • Maintain leave records and provide salary slips.

✅ Step 6: Salary Payment Process

1. Approval Workflow:
   • HR calculates payroll and seeks management approval.
2. Bank Transfer:
   • Ensure salary disbursement via NEFT/RTGS/IMPS before the 7th of the month.
3. Issue Salary Slips:
   • Provide digital or printed payslips to all employees.

✅ Step 7: Record-Keeping & Audits

Maintain these records for 7 years as per legal mandates:

1. Employee-wise payroll registers.
2. EPF & ESI contribution records.
3. Tax compliance (TDS certificates).
4. Salary disbursement records.

✅ Step 8: Annual Payroll Activities

1. Form 16 Distribution: Provide Form 16 by June 15th annually.
2. Tax Proof Verification: Validate employee declarations (80C, HRA) before March 31st.
3. Audit Preparation: Ensure compliance with all labour laws through internal audits.

✅ Step 9: Key Payroll Deadlines in Delhi

✅ Step 10: Tools for Payroll Management

1. Payroll Software – Zoho Payroll, GreytHR, RazorpayX.
2. EPFO & ESIC Portals – For compliance filings.
3. Income Tax e-Filing Portal – For TDS submissions.

Let’s take an example, in which a person has worked for 24 days in a month and has taken 2 days absents or unpaid leaves as well as has worked 20 hours overtime during the month:

This detailed guide walks through the payroll calculation process in Delhi with an example, including regular salary, overtime, statutory deductions (EPF, ESI, TDS), and how to stay legally compliant.

✅ Step 1: Gather Employee Data for Payroll Calculation

For accurate payroll preparation, collect the following details:

1. Basic Salary: ₹30,000/month
2. HRA (House Rent Allowance): ₹12,000/month (40% of Basic in Delhi)
3. Other Allowances (Conveyance, Special Allowance, etc.): ₹8,000/month
4. Working Days in the Month: 26 Days (Industry standard)
5. Employee Attendance: 24 Days Worked + 2 Days Leave (Unpaid)
6. Overtime: 20 Hours Worked
7. EPF: Employer & Employee – 12% of Basic (Mandatory for companies with 20+ employees)
8. ESI: Employer – 3.25%, Employee – 0.75% (Mandatory for wages ≤ ₹21,000/month)
9. TDS: Based on Income Tax Slabs
10. Working Hours/Day: 8 Hours

✅ Step 2: Calculate Gross Salary

✅ Step 3: Calculate Statutory Deductions

B. ESI (Employee State Insurance)

Since the Gross Salary exceeds ₹21,000/month, ESI is not applicable.

C. TDS (Tax Deducted at Source)

Annual Salary Projection:

Annual Salary=₹55,769.23×12=₹6,69,230.76

For FY 2023-24, the applicable Income Tax Slab under the new regime:

1. Taxable Income Calculation:

Taxable Income=₹6,69,230.76−₹50,000(Standard Deduction)=₹6,19,230.76

2. TDS Calculation:

TDS=₹19,230.76×10%=₹1,923.08

✅ Step 4: Calculate Net Salary (In-Hand Salary)

Formula: Net Salary=Gross Salary−(EPF (Employee)+ESI (if applicable)+TDS)

Net Salary=₹55,769.23−(₹3,600+₹1,923.08)=₹50,246.15

✅ Step 5: Summary – Payroll Calculation Example

✅ Step 6: Payroll Reporting & Compliance Deadlines

✅ Step 7: Payroll Best Practices in Delhi

1. Accurate Time Tracking – Use attendance software to calculate work hours and overtime.
2. Statutory Compliance – Stay updated with changes in EPF, ESI, and Tax rules.
3. Audit Trails – Keep payroll records for at least 7 years for inspection.