How to Set Up Payroll for Your First 10 Employees in India

There is a specific moment in every founder's life when "paying the team" stops being a bank transfer and starts being payroll. For the first few hires, you probably wired a round number on the last working day of the month, sent a quick WhatsApp saying "done," and moved on. Then someone asked for a payslip to apply for a credit card. Someone else asked whether PF was being deducted. Your CA mentioned TDS on salary. And suddenly you realised that the way you set up payroll for your startup now will shape your compliance, your hiring credibility, and your finance hygiene for years.

This guide walks you through payroll setup for startups in India, step by step, for a team of roughly ten people. It is written for founders and first HR or finance hires who have never run a formal payroll before. It stays practical: what to register, how to design a salary structure, what to collect from employees, how to run the first payroll cycle, and what to file afterwards.

One important note before we begin. Indian payroll rules, rates, thresholds, and due dates change through notifications from the central and state governments. Everything in this article is meant to help you understand the shape of the work, not to serve as a legal or tax opinion. Where we mention a rate or threshold, treat it as illustrative and verify the currently notified figure on the relevant official portal or with your CA before you act.

Payroll setup readiness: what you need before the first cycle

Before you can set up payroll, your company needs a few foundational pieces in place. Most of these will already exist if you have incorporated and opened a bank account, but it is worth confirming each one.

Entity type matters more than you think

Payroll obligations attach to the employer, so the legal form of your business affects what you must do. A private limited company, an LLP, a partnership firm, and a sole proprietorship can all employ people, but the documentation, the signatory for filings, and the way the employer contribution is accounted for differ.

If you are a private limited company (the most common startup structure), payroll compliance is expected from day one of your first hire. If you are still operating as a proprietorship, be aware that many registrations are still applicable once you cross headcount or wage thresholds, and that investors and larger clients will expect a clean compliance record when they run diligence.

PAN, TAN, and a dedicated bank account

You will need three basics:

• Company PAN: the income-tax identity of the employer. You already have this if you are incorporated.
• TAN (Tax Deduction and Collection Account Number): required to deduct and deposit TDS on salary and to file TDS returns. Many founders forget that TAN is separate from PAN. If you do not have one yet, apply before your first payroll cycle, because you cannot deposit TDS on salary without it.
• A business bank account with bulk payment capability: paying ten people by individual NEFT every month is tedious and error-prone. Ask your bank about bulk salary upload or a corporate net-banking file format. This also becomes the basis for a clean audit trail later.

Registrations overview

Below is a general map of the registrations that typically come into play as a small Indian employer. The thresholds and applicability rules vary by state and are revised from time to time, so use this table as a checklist for questions to ask, not as a statement of the current law.

A few practical tips on registrations:

1. Do not wait for a threshold to be crossed to learn the rules. Know them in advance so that your tenth hire does not become a compliance surprise.
2. Register in every state where you have an employee on the rolls, not just where your registered office is. Remote hiring makes this a real issue even at ten people.
3. Keep every registration certificate, login credential, and registration number in one secure place. You will need them monthly.

Step 1: Decide employment types before you set up payroll

Payroll setup starts with a deceptively simple question: who is actually an employee?

At ten people, a typical startup has a mix. A couple of full-time engineers, a designer on retainer, a part-time accountant, two interns from a college programme, and maybe a sales lead on a probation contract. Each of these needs to be classified correctly because the classification decides what you deduct, what you contribute, and what documents you issue.

Full-time employees

These are people on your rolls with an employment letter, a defined CTC, and a monthly salary. They are the core of your payroll. Statutory deductions (PF, ESI, PT, TDS on salary) and benefits (leave, gratuity provision, insurance) apply to them.

Consultants and contractors

Consultants invoice you for services. They are not paid a salary; they are paid a professional fee. TDS on their fees falls under a different section from TDS on salary, they are responsible for their own taxes and GST (if applicable), and they are not part of PF or ESI. A consultant should have a contract for services, submit invoices, and not appear on your salary register.

Interns and trainees

Interns are often paid a stipend. Whether a stipend is treated as salary for tax purposes depends on the terms of engagement and the nature of the work. Some startups treat interns as fixed-term employees with a simplified structure; others engage them under a training arrangement. Talk to your CA about how to treat stipends, and put the terms in writing.

Why misclassification hurts

Founders sometimes classify a full-time person as a "consultant" to avoid PF and simplify paperwork. This creates problems that surface later:

• If the person works fixed hours, reports to a manager, uses company equipment, and has no other clients, they look like an employee regardless of what the contract says. Authorities and courts look at substance, not labels.
• Missed PF and ESI contributions can be demanded retrospectively, with interest and damages.
• The individual loses the ability to claim salary-linked tax benefits and may push back once they understand the trade-offs.
• Due diligence during a funding round will flag it, and you may be asked to regularise everyone at once.

The simple rule: if someone works like an employee, pay them like an employee. Consultants should genuinely be consultants.

Step 2: Design a simple salary structure

A salary structure is the set of components that add up to an employee's Cost to Company (CTC). For a ten-person team, keep it simple. Complexity does not make a structure more tax-efficient; it makes it harder to explain and easier to get wrong.

The components that matter at this stage

• Basic salary: the foundation. Several statutory calculations (PF, gratuity) are linked to basic pay, so how you size it has consequences.
• House Rent Allowance (HRA): relevant to employees who pay rent and choose the tax regime that allows HRA exemption.
• Special or other allowance: the balancing figure that absorbs whatever is left after fixed components.
• Employer statutory contributions: employer PF share and, where applicable, employer ESI share. These are part of CTC but not part of gross salary.
• Gratuity provision: gratuity becomes payable after a qualifying period of continuous service. Many companies include a notional provision in CTC. Whether you show it in CTC is a policy choice, but you should at least be aware of the liability accruing.
• Variable pay or bonus: keep it out of the fixed structure and pay it as a separate line when earned.

Worked example: a hypothetical ₹6 LPA CTC

The example below is entirely hypothetical. The percentages are illustrative assumptions chosen to show how the arithmetic fits together. They are not the currently notified statutory rates, and the actual rates, wage ceilings, and exemptions in force at the time you run payroll must be verified on the EPFO, ESIC, and state PT portals or confirmed with your CA.

Assumptions for illustration only:

• Annual CTC: ₹6,00,000 (₹50,000 per month)
• Basic set at 40% of CTC
• HRA set at 50% of basic
• Employer PF contribution assumed at an illustrative 12% of basic
• Employee PF contribution assumed at an illustrative 12% of basic
• Professional tax assumed at an illustrative flat ₹200 per month
• ESI assumed not applicable because the illustrative gross is above an assumed wage ceiling
• Gratuity provision assumed at an illustrative 4.81% of basic

Now the deductions from gross to arrive at net pay, again with illustrative figures:

Three lessons from the example:

1. CTC is not take-home. Employees new to the workforce often do not understand this. Explain it in the offer letter and again during onboarding.
2. Basic drives several other numbers. Setting basic too low to shrink PF outflow can conflict with minimum wage rules and with the definition of wages under the labour codes as and when they apply, so do not treat basic as a free variable.
3. TDS depends on individual facts. Two employees on the same CTC can have different TDS because of tax regime choice, declared investments, and previous employment income in the same financial year.

Keep a written salary structure policy

Even at ten people, write down how you construct CTC: the basic percentage, the HRA rule, which allowances you offer, and how you treat employer contributions. This prevents ad hoc negotiations from creating ten different structures that your payroll software or spreadsheet cannot handle consistently.

Step 3: Collect employee data and documents

Payroll runs on data. Most first-payroll errors trace back to a missing document or an unverified bank account. Build a single onboarding checklist and use it for every hire.

Onboarding checklist for payroll

Identity and tax:

• PAN (mandatory for TDS; without it, tax may need to be deducted at a higher rate)
• Aadhaar (used for PF and ESI enrolment and for e-KYC on the EPFO portal)
• Date of birth and date of joining (both feed statutory records)
• Father's or spouse's name as required by PF/ESI forms

Bank and payment:

• Bank account number, IFSC, and account holder name exactly as it appears in the bank
• A cancelled cheque or bank statement header for verification
• Confirmation that the account is in the employee's own name

Statutory:

• Universal Account Number (UAN) if the employee has an existing PF account from a previous employer, so that their PF history links rather than duplicating
• Previous PF and ESI details, if any
• Nomination details for PF, ESI, and gratuity

Employment:

• Signed offer or appointment letter with the salary structure annexed
• Employment type, designation, location (the state matters for PT and LWF)
• Previous employer's salary details for the current financial year (often captured through a Form 12B declaration) so that TDS can be computed on total income

Declarations that shape TDS on salary

Two declarations matter every year:

1. Tax regime choice: employees indicate which income-tax regime they want the employer to use for TDS computation. The default regime and the choice mechanics are set by the Income Tax Department and can change, so follow the currently notified process and record the employee's choice in writing.
2. Investment and expense declaration: for employees who opt for the regime that allows deductions and exemptions, a declaration at the start of the year of planned investments, rent paid (for HRA), and other eligible items. Actual proofs are collected later in the year, typically in the final quarter, and TDS is trued up accordingly.

Collect both at onboarding and again at the start of every financial year. A missing declaration means you must deduct tax on a default basis, which can lead to an unhappy employee and a rushed year-end correction.

Data quality habits that save you later

• Match the name on the bank account to the name on PAN. Mismatches cause failed transfers and TDS return rejections.
• Store scanned documents in a controlled folder or in your HRMS, not in personal email.
• Record the state of work for every employee, including remote ones, and update it when they move.

Step 4: Set the payroll calendar

A payroll calendar is a monthly timetable that tells everyone (founders, managers, employees, your CA) what happens when. Without one, payroll becomes a last-day scramble. With one, you can run a smooth cycle with almost no surprises.

Here is a sample calendar for a company that pays salaries on the last working day of the month. Adjust the dates to your own payout day. Statutory due dates are described in general terms; confirm the exact currently notified dates for each filing.

Some practical guidance on the calendar:

• Choose a realistic attendance cut-off. Paying for the full calendar month on the last day means the last few days are paid before they are worked. Most small companies accept this and adjust next month, which is fine as long as the policy is written down.
• Enforce the input freeze. The single biggest cause of payroll reruns is a late input. Managers will push for exceptions; hold the line and put the change in next month's arrears.
• Build in review time. Even one day between processing and payout gives you the chance to catch an error before money leaves the account.
• Map statutory windows to a shared calendar. Late statutory payments attract interest and penalties, and the amounts are small enough that forgetting is the real risk, not the cash.

Step 5: Run the first payroll

You have registrations, a salary structure, employee data, and a calendar. Now comes the first payroll. The goal for the first cycle is accuracy, not speed. Give yourself extra time.

Gather the inputs

For each employee, the inputs for the month are:

• Days payable (calendar days minus loss-of-pay days, or working days depending on your policy)
• Salary structure for the month (including any mid-month revision)
• Joining or exit date if it falls in the month (prorate accordingly)
• Approved reimbursements (with bills, where required for tax treatment)
• Arrears from previous months (for example, a salary revision effective from an earlier date)
• One-time payments such as a joining bonus or performance bonus
• Deductions such as advance recovery or notice-pay recovery
• Any change in tax regime choice or declarations

Keep a simple "payroll inputs" sheet or form that captures these items per employee per month, with an approver's name against each entry.

Handle loss of pay (LOP) consistently

LOP is where founders often make their first arithmetic mistake. Decide and document:

• Whether you prorate on calendar days (for example, 30 or 31) or working days
• Which components are subject to proration (usually all fixed components, not reimbursements)
• Whether statutory contributions are computed on prorated basic (they generally are, because contributions follow wages actually paid)

Once you pick a method, apply it identically to everyone. Changing the method between employees or months is unfair and hard to defend.

Reimbursements and arrears

Reimbursements should be paid against supporting bills where the tax treatment depends on it, and recorded separately from salary so that they do not inflate gross wages for statutory purposes. Arrears must be tagged to the period they relate to, because the tax treatment of arrears and the statutory contributions on them are computed with reference to that period.

TDS on salary: the computation approach

TDS on salary is not a flat percentage. The employer estimates each employee's taxable salary for the full financial year, computes the tax on that estimate under the regime the employee has chosen, and deducts one-twelfth (or the proportionate share for the remaining months) each month.

The practical approach for a first payroll:

1. Take the annual salary under the structure you have set.
2. Apply the exemptions and deductions the employee has declared, if applicable under their chosen regime.
3. Add any income from a previous employer in the same financial year, if declared.
4. Compute annual tax as per the slabs, rebates, and cess currently notified.
5. Divide by the number of remaining pay months in the financial year to arrive at monthly TDS.
6. Recompute whenever inputs change materially (a salary revision, a new declaration, or proof submission at year end).

Because the slabs and rebates are revised through the Finance Act, do not hard-code them from memory. Use your payroll software's currently updated tax tables or confirm with your CA.

Generate payslips

A payslip is both an employee-facing document and a compliance record. Employees use it for loans, visas, and rental agreements. Keep it clear and consistent.

Here is a sample layout for a monthly payslip:

Never round the numbers on a payslip to make them look tidy. The payslip must reconcile exactly to the bank transfer and to the statutory challans.

Process the payout

Prepare the bulk transfer file from the approved payroll register, upload it to the bank, and verify the confirmation report. Reconcile the total paid against the net pay total in the register. If any transfer bounces (usually because of a wrong IFSC or a name mismatch), correct the data at source and re-initiate that transfer only. Do not edit the bank file by hand.

Step 6: Statutory payments and filings after payout

Paying salaries is only half of payroll. The other half is depositing what you deducted or contributed, and filing the returns that prove you did.

PF: challan and ECR

The EPFO process involves preparing an Electronic Challan-cum-Return (ECR) file listing each member's wages and contributions, uploading it on the unified portal, and paying the resulting challan. The employer share, the employee share, and the associated administrative charges are all settled through this. This is typically due within a notified window in the month following the wage month; verify the current due date on the EPFO portal.

ESI: monthly contribution

Where ESI applies, contributions for covered employees are paid through the ESIC portal on a monthly basis, with a return of contributions filed for each contribution period. Applicability depends on the wage ceiling and the location being a notified area, so check both before you assume an employee is covered or exempt.

Professional tax

PT is deducted from the employee's salary based on the state's slab and deposited with the state authority, with returns filed at a frequency that varies by state (monthly, quarterly, or annually). Some states also levy an enrolment-based PT on the employer entity itself. Because PT is entirely state-driven, treat every new state of employment as a new set of rules to verify.

TDS on salary: deposit and quarterly returns

TDS deducted during a month is deposited with the central government through the designated challan within a notified window in the following month. Every quarter, a TDS return for salaries (Form 24Q) is filed, listing each employee's salary and tax deducted. The fourth-quarter return carries the annual salary details that feed Form 16. Late deposit attracts interest; late filing attracts fees. Because these run through your TAN, keep TAN credentials and the TRACES login safe and accessible.

Form 16 annually

After the financial year ends and the fourth-quarter TDS return is processed, you generate Form 16 for every employee from whose salary tax was deducted. Part A comes from TRACES; Part B carries the salary break-up and tax computation. Employees need Form 16 to file their income-tax returns, so plan to issue it within the notified deadline.

Labour welfare fund and other periodic items

In states where LWF applies, contributions are deposited on a half-yearly or annual cycle. Shops & Establishments registrations may also require periodic renewal or annual returns depending on the state. Add these to the calendar so they are not missed just because they are infrequent.

Step 7: Record-keeping, registers, and audit trail

Payroll generates records that you are required to maintain and that you will be asked for during audits, inspections, funding diligence, and employee disputes. Set up a clean system now.

What to keep

• Payroll register: month-wise, employee-wise earnings and deductions, reconciled to the bank transfer.
• Statutory challans and acknowledgements: PF ECR and payment receipts, ESI challans, PT challans and returns, TDS challans and return acknowledgements, Form 16 copies.
• Employee master records: appointment letters, salary structures and revisions, declarations, proofs, nominations, exit paperwork, and full-and-final settlement workings.
• Attendance and leave records: the basis for LOP and leave encashment.
• Registers under Shops & Establishments and other labour laws: many states prescribe registers of employees, wages, leave, and holidays. Formats vary; some states allow electronic registers.

Build an audit trail

The purpose of an audit trail is to answer a simple question months later: "Why was this person paid this amount?" You need to be able to trace every number on a payslip back to an approved input. Practical habits:

• Version every salary revision with an effective date and an approver.
• Keep the payroll inputs sheet or form for each month, with approvals.
• Lock the payroll register once payout is done; corrections go through the next month with a note.
• Store payslips and challans by month in a structured folder or, better, inside your HRMS, where they are automatically linked to employees and periods.

Retention

Retention periods for payroll and tax records are prescribed under different laws and are generally several years. Rather than deciding what to discard, keep everything indefinitely in digital form. Storage is cheap; reconstructing a payroll from five years ago is not.

Spreadsheet vs payroll software: when to switch

Almost every startup runs its first payroll on a spreadsheet, and that is fine for a month or two. The question is when the spreadsheet starts costing more than it saves.

What a spreadsheet does well

• Zero cost to start
• Full flexibility in how you structure calculations
• Easy to share with a CA

Where a spreadsheet breaks

• Tax tables and statutory rules must be maintained by hand. When a rate or slab changes, you must know about it and update every formula.
• No audit trail. A cell edited by someone in a hurry leaves no trace.
• Manual payslips. Generating ten payslips is tolerable; generating ten every month with arrears, reimbursements, and LOP is a chore that invites errors.
• No employee self-service. Every declaration, proof, and payslip request comes to you as a message.
• Filings are a separate exercise. ECR files, TDS return inputs, and PT returns must be re-keyed from the sheet.

Comparison

The hidden costs of staying on a spreadsheet

The real cost of a spreadsheet is not the file; it is what surrounds it:

• Founder hours every month spent on arithmetic instead of the business
• Late-night corrections when a payslip does not match a bank transfer
• Interest and penalties from a missed statutory date because nobody had a reminder
• Loss of employee trust when payslips arrive late or contain errors
• Reconstructing history during diligence because the file has been overwritten eleven times

When to switch

A reasonable rule: switch when any one of these is true.

• You have more than five to eight employees on the rolls
• You have employees in more than one state
• You have PF or ESI registration and monthly filings
• You have run at least one payroll with a correction or arrear
• Someone other than the founder will run payroll going forward

At ten employees, you have almost certainly hit two of these. An HRMS with integrated payroll, such as CozyHR, lets you set up the salary structure once, capture attendance and declarations from employees, run the monthly cycle in a few clicks, and generate payslips and filing outputs from the same register. The point is not automation for its own sake; it is that the software enforces the discipline (input freeze, approval, locked registers) that a spreadsheet only suggests.

Scaling from 10 to 50: what breaks and what to set up early

The payroll you build for ten people will be tested hard on the way to fifty. Knowing what breaks lets you set things up correctly now instead of rebuilding later.

Multi-state professional tax

Your first remote hire in a different state brings a new PT registration, a new slab, and a new return schedule. By fifty people you may be in four or five states. Set up your employee master with "state of work" as a mandatory field from day one, and treat every new state as a compliance project that must be complete before the first salary is paid there.

ESI coverage

As you hire for operations, support, or field roles, some salaries will fall under the ESI wage ceiling. If your location is a notified area, ESI registration and monthly contributions become applicable. Founders who have only hired engineers sometimes discover ESI for the first time at this stage. Know the rules before the hire, not after.

Policies that were "understood" but never written

At ten people, leave, working hours, reimbursements, and notice periods live in the founder's head. At thirty, that stops working. Write short policies for leave (types, accrual, carry-forward, encashment), attendance, reimbursements (what is eligible, limits, bill requirements), and exits (notice, recovery, full-and-final timeline). Configure them into your HRMS so that payroll picks them up automatically.

ESOPs

Once you grant ESOPs, payroll gains a new dimension: the perquisite tax on exercise, which is typically deducted through payroll. Even if exercises are years away, keep the grant records, vesting schedules, and valuation reports organised so that the payroll treatment is straightforward when the time comes.

Reimbursements at volume

Ten people's reimbursements can be handled over email. Fifty people's cannot. Set up a reimbursement workflow (claim, bill upload, approval, payout through payroll or separately) early, and define the tax treatment of each category with your CA.

Full-and-final settlements

Exits are inevitable. A clean full-and-final process (notice pay, leave encashment, recovery of advances, gratuity if eligible, pro-rata bonus, TDS on the final amount) prevents disputes. Template the calculation now.

What to set up early

1. A single employee master with state, employment type, and effective-dated salary history
2. Written policies for leave, attendance, and reimbursements
3. A payroll calendar that includes every state's PT and LWF dates
4. Role-based access so that only authorised people can see or change salary data
5. A monthly reconciliation of payroll register to bank to challans

Common first-payroll mistakes

Learning from other founders' errors is cheaper than making them yourself. The most common first-payroll mistakes we see:

• Paying salaries without a TAN. TDS on salary cannot be deposited or reported without it, and catching up later is painful.
• Treating CTC as gross. Employees receive a lower net than expected and lose trust on day one. Explain the structure in the offer letter.
• Misclassifying employees as consultants. Discussed above; it does not save money in the long run.
• Forgetting to collect UAN. Creating a fresh PF account for someone who already has one leads to duplicate UANs and transfer headaches.
• Ignoring state-specific rules. PT, LWF, and Shops & Establishments differ by state; a Bengaluru template does not work in Mumbai or Hyderabad.
• Hard-coding old tax rates. Slabs, rebates, and standard deductions change. Use current tables.
• No input freeze. Late changes cause reruns, reissued payslips, and reconciliation gaps.
• Skipping the second review. A single-person payroll process has no one to catch a decimal-point error.
• Paying before reconciling. The bank file total must equal the register net pay total before you upload.
• Missing statutory windows. Even when the amounts are tiny, interest and late fees accumulate and show up in diligence.
• Losing documents. Declarations and proofs scattered across email cannot be produced when the tax officer asks.
• Not issuing payslips at all. Payslips are a basic employee right and a practical necessity for their financial lives.

First payroll checklist

Use this checklist before you press "process" on your first cycle.

Entity and registrations

• Company PAN available
• TAN obtained and TRACES login working
• PF registration completed or applicability confirmed
• ESI applicability checked for location and wage levels; registration done if required
• Professional tax registration in every state of employment
• Shops & Establishments registration for each office
• Labour welfare fund applicability checked by state
• Bulk salary payment enabled on the business bank account

Employees

• Employment type decided and documented for every person
• Appointment letters signed with salary structure annexed
• PAN, Aadhaar, bank details, and UAN collected and verified
• Tax regime choice and investment declaration received
• Previous employer income for the year captured (if any)
• Nominations recorded for PF and gratuity

Structure and policy

• Salary structure rules written down (basic %, HRA rule, allowances)
• LOP proration method decided
• Reimbursement categories and bill requirements defined
• Leave policy written and configured

Calendar and process

• Attendance cut-off and input freeze dates set
• Processing, review, approval, and payout dates set
• Statutory payment and filing dates mapped for PF, ESI, PT, TDS, LWF
• Reviewer and approver named

First cycle

• Inputs collected and approved
• Payroll register generated and reviewed against inputs
• TDS computed on current tax tables
• Bank file total reconciled to register
• Payslips generated and checked for one employee end-to-end
• Register locked after payout
• Challans and filings scheduled

FAQ

Do I need to set up payroll if I have only two or three employees?

Yes, in the sense that TDS on salary, and potentially professional tax and Shops & Establishments registration, can apply from the first employee depending on salary levels and state. Formal payroll does not have to mean expensive software at this stage, but it does mean documented salary structures, payslips, and correct deductions. Setting it up early is far easier than retrofitting.

Can I pay everyone as consultants to keep things simple?

You can only pay genuine consultants as consultants. If a person works full time under your direction, they are an employee in substance, and treating them as a consultant exposes you to retrospective PF and ESI demands, interest, and diligence issues. Simplicity that unwinds later is not simplicity.

What is the difference between CTC, gross salary, and net pay?

CTC is the total cost the company bears, including employer contributions such as PF and any gratuity provision. Gross salary is what the employee earns before deductions: basic, HRA, and allowances. Net pay is gross minus deductions such as employee PF, professional tax, and TDS. Employees see net pay in their bank account.

How is TDS on salary calculated for a new joiner mid-year?

The employer estimates the employee's taxable salary for the remaining months of the financial year, adds any previous employer income declared for the same year, applies the chosen tax regime and declared deductions, computes annual tax using the currently notified slabs, and spreads it across the remaining pay months. The estimate is revisited when declarations, proofs, or salary change.

Is PF mandatory for a startup with ten employees?

PF applicability is linked to establishment headcount thresholds notified under the EPF scheme, and there is also a voluntary registration route. Many startups register voluntarily before they cross the threshold because candidates expect PF and because it simplifies later growth. Check the current threshold on the EPFO portal and confirm with your CA.

Does professional tax apply everywhere in India?

No. Professional tax is a state subject. Several states levy it with their own slabs and filing frequencies; others do not levy it at all. Applicability depends on where the employee works, which is why "state of work" should be recorded for every employee, including remote ones.

Should I include gratuity in CTC?

It is a policy choice. Some companies show a gratuity provision in CTC to reflect the true cost; others keep it outside because it is contingent on the employee completing the qualifying service period. Either way, the liability accrues and should be provided for in your accounts. Be transparent with employees about what the line means.

When should I move from a spreadsheet to payroll software?

The moment payroll has more than a handful of employees, more than one state, statutory filings, or a person other than the founder running it. At ten employees, you are typically past that point. Software gives you consistent computation, current tax tables, employee self-service, an audit trail, and filing outputs from a single register.

Conclusion

Setting up payroll for your first ten employees is less about mastering every rule and more about putting in place a repeatable process: correct classification, a simple and documented salary structure, complete employee data, a calendar that everyone follows, a disciplined monthly run, timely statutory payments, and clean records. Get those right and the compliance details, which change from year to year, become a matter of verification rather than panic.

The founders who find payroll painful are usually the ones who let it stay informal for too long. The ones who find it manageable treated the first payroll as a system to build rather than a bill to pay.

If you are at that moment now, where bank transfers no longer cut it and you want the first payroll to be right, CozyHR was designed for exactly this stage: salary structures, attendance, declarations, payslips, and statutory outputs in one place, without needing a payroll specialist on the team. Explore it with a free trial, or simply use this guide with your CA and build the process yourself. Either way, start now, before the eleventh hire arrives.