The moment a business hires its first employee, it takes on a set of obligations that run every month for as long as anyone is on payroll. Most of them are not difficult. What makes employer compliance hard is that the obligations come from different laws, are run by different authorities and fall due on different dates. They are also triggered at different points: some on day one, some at 10 employees, some at 20.
This guide follows the order in which they arrive. If you would rather have the PF side handled from registration onwards, Complianto’s PF registration and compliance service covers the registration and the monthly returns.
The legal backdrop in 2026
Two changes sit behind everything below.
- Labour codes. The government made the four labour codes effective from 21 November 2025: Wages, Industrial Relations, Social Security, and Occupational Safety, Health and Working Conditions. Together they consolidate 29 older labour laws. ESIC’s implementation circular confirms the Code on Social Security, 2020 in force from that date, with the ESI Act, 1948 repealed. Central and state rules, and the PF and ESI schemes under the new Code, are being put in place in stages. Expect forms, portals and some definitions to keep shifting through 2026-27.
- Income tax. The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026. TDS on salary now falls under section 392, and the quarterly salary TDS statement is Form 138, which replaced Form 24Q.
The practical rule: the day-to-day mechanics (who registers, what is deducted, when it is paid) are largely unchanged so far. The legal references and some calculations are moving. Confirm figures on the official portal before each new financial year.
Stage 1: before or on the first hire
Shop and establishment registration
Almost every office, shop or commercial establishment must register under its state’s shops and establishments law. In many states this is required within a short window of starting operations, often whether or not you have employees yet. The registration governs working hours, leave, holidays and conditions of work at the establishment, and it is often the first document banks and landlords ask for. Rules differ by state. Complianto’s shop and establishment registration service handles the application in the state where your premises are.
Professional tax (in states that levy it)
In states with professional tax, an employer must register to deduct it from salaries. In Karnataka, for example, the state’s employer FAQ says even one employee triggers deduction, with payment by the 20th of the following month. The business itself may also have to enrol for its own annual professional tax. In Maharashtra, companies, LLPs, partners and directors are each liable for ₹2,500 a year under the state schedule.
TAN, if salaries will cross the taxable limit
If any employee’s salary will attract income tax, you need a TAN before the first deduction. Existing TANs continue to be valid under the new Act.
Appointment terms
Put each employee’s terms in writing: designation, pay structure, working hours, leave and notice. The labour codes give written appointment terms more weight. How you split pay into basic, allowances and reimbursements affects PF, gratuity and tax, so decide the salary structure before you issue the first offer letter.
Stage 2: as headcount grows
| Trigger | Obligation | Covers |
|---|---|---|
| 10 or more employees | ESI registration with ESIC | Employees earning up to ₹21,000 a month gross (₹25,000 for persons with disability) |
| 20 or more employees | PF registration with EPFO | Mandatory for employees with basic + DA up to ₹15,000 a month; optional above |
| Threshold crossed once | Coverage continues | Falling back below the number does not end coverage |
The thresholds come from ESIC’s coverage page and EPFO’s wage ceiling table. Count everyone working for the establishment, including contract and agency staff on your premises. That is where most businesses miscount.
ESI contributions are 3.25% of wages from the employer and 0.75% from the employee, as on ESIC’s contribution page. PF is 12% from each side, with part of the employer’s share going to the pension scheme. Our ESI registration and compliance service can run the ESIC side alongside PF.
Stage 3: the monthly payroll cycle
Once you are registered, each month’s payroll triggers several actions in a fixed order:
- Compute gross pay from attendance and leave records.
- Deduct the employee’s PF (12% of PF wages), ESI (0.75%), professional tax (state slab) and income tax (TDS on salary, worked out on projected annual income and the tax regime the employee has chosen).
- Pay salaries, preferably by bank transfer, and issue payslips showing every deduction.
- Deposit PF through the electronic challan-cum-return by the 15th of the following month, per EPFO’s ECR FAQ.
- Pay ESI contributions for the month on the ESIC portal.
- Deposit TDS on salary to the government by the monthly due date.
- Pay professional tax by the state’s due date, and file the state return where it is monthly.
Each of these runs on its own portal: EPFO, ESIC, the income tax portal and the state tax site. A month missed on any one of them brings interest and, for PF and ESI, damages. Employee contributions that are deducted but not deposited are treated most severely.
Stage 4: quarterly and annual
| When | What |
|---|---|
| 31 July, 31 October, 31 January, 31 May | Quarterly salary TDS statement in Form 138 (Form 138 manual) |
| After the year ends | Issue each employee their annual salary TDS certificate from TRACES |
| Each April | Re-check state professional tax slabs, the minimum wages notified for your state and sector, and employees’ tax regime choices |
| Annually or as prescribed | Any annual returns required under the state shops law or the labour codes’ rules |
The quarterly Form 138 is filed under section 397(3)(b) of the new Act, according to the official form mapping guide. It must reconcile with the challans you deposited month by month. Mismatches mean employees cannot see their TDS credit.
What the labour codes change for a small employer
For most small businesses, the codes change the foundations more than the routine. Areas to review with an adviser:
- Definition of wages. The codes use a common definition of wages that limits how much of pay can sit in excluded allowances. This can raise the base on which PF and gratuity are calculated if your structure is allowance-heavy.
- Fixed-term and contract staff. The codes give fixed-term employees parity on benefits, and gratuity on a shorter service period.
- Registrations and returns. The codes aim at fewer registrations and single returns, but the portals and forms depend on rules, some of which are still being notified state by state.
- Social security coverage. ESIC coverage is described as pan-India, no longer limited to notified areas. The codes also bring gig and platform workers into the social security framework.
Until your state’s rules are final, keep complying under the current portals and schemes, and keep records that will satisfy both the old and new formats.
Records and registers
Inspectors and auditors ask for records, not explanations. Keep, for at least the period the law prescribes:
- a register of employees, with joining date, designation, UAN and ESI number;
- attendance and working hours, and a leave register;
- a wage register showing gross pay, every deduction and net pay;
- PF and ESI challans and returns, month by month;
- TDS workings, employee tax declarations and proofs, challans and quarterly statements;
- professional tax returns and payments;
- appointment letters, and full-and-final settlement records for leavers.
Most payroll software can produce these, but only if the master data (PAN, UAN, bank details, joining dates) is correct to begin with. Fix the master data first.
Frequently asked questions
We have five employees. What applies to us right now?
Typically: shop and establishment registration; professional tax if your state levies it; TDS on salary for anyone above the taxable limit. PF and ESI come in at 20 and 10 employees, unless you opt in voluntarily.
Do consultants on retainers count as employees?
Not if they are genuinely independent contractors. Payments to them attract TDS as professional fees, not salary. But how the relationship works in practice matters more than what the contract calls it, especially under the codes’ definitions.
Can one person do all of this in-house?
Many small businesses run it with one payroll person and good software. The risk is not the workload but the dates. Set calendar reminders for the 15th, the 20th (in states like Karnataka) and the quarter-ends, and reconcile every month.
Complianto (complianto.in), operated by Mentorcorp Private Limited, is a private consultancy and is not affiliated with any government body. We do not issue official documents. We charge a professional fee for application assistance and advisory services. Applicants can apply directly to the government without our fees via the official portals: MCA (mca.gov.in), Income Tax (incometax.gov.in), GST (gst.gov.in), MSME (udyamregistration.gov.in), FSSAI (foscos.fssai.gov.in), Startup India (startupindia.gov.in), and IP India (ipindia.gov.in).
This article is general information, not legal or tax advice.
