5 Things Every HR Professional Must Know About Payroll

Payroll processing looks simple from the outside — collect attendance, calculate salaries, transfer money. But anyone who's actually processed payroll for an Indian organisation knows it's anything but simple. Between EPF nominations, TDS computations, ESI wage ceilings, and the dozens of statutory filings, there's a lot that can go wrong. Here are five critical things every HR professional must know.

1. EPF e-Nomination Is Now Mandatory

EPF e-nomination allows employees to nominate family members for PF/EPS benefits online through the EPFO member portal. As of 2021, EPFO has made e-nomination mandatory for all PF members — without it, employees cannot access certain online services or claim benefits.

As an HR professional, it's your responsibility to facilitate e-nomination during onboarding and for existing employees. Ensure every employee has logged into the EPFO member portal (unifiedportal-mem.epfindia.gov.in) and submitted their nomination. Missing nominations are a compliance gap that can cause genuine hardship to employee families during claims.

• Collect UAN numbers and verify activation for all employees
• Track e-nomination status in your HR system
• Follow up with employees who haven't completed their nomination
• Make e-nomination a mandatory step in your onboarding checklist

2. The ESI Wage Ceiling Changed — Are You Still Applying the Right Figure?

Many HR teams are still deducting ESI based on the old ₹15,000 ceiling. The correct ceiling is ₹21,000 (₹25,000 for persons with disabilities), revised in December 2016. Employees earning up to ₹21,000 per month must be covered under ESI.

Once covered in a contribution period (half year), they remain covered for the entire period even if wages increase above the ceiling. Review your payroll master data to ensure all eligible employees are covered and contributions are calculated on actual gross wages.

• Employee ESI contribution: 0.75% of gross wages
• Employer ESI contribution: 3.25% of gross wages
• Review your payroll master regularly for employees crossing the ceiling
• Maintain ESI coverage through the full contribution period once enrolled

3. TDS on Salary Is Not Optional — Even for Small Employers

Section 192 of the Income Tax Act requires every employer to deduct TDS from salary payments if the projected annual income of the employee exceeds the basic exemption limit. This applies regardless of company size.

Key steps every HR and payroll team must follow:

• Collect investment declarations at the start of the financial year
• Compute estimated annual income and applicable tax slab
• Deduct TDS monthly from salaries and spread it evenly across the year
• Deposit TDS by the 7th of the following month (March deadline: 30th April)
• File quarterly TDS returns (Form 24Q)
• Issue Form 16 by June 15 after the financial year ends

Non-deduction or late deduction attracts interest under Section 201(1A) and penalties under Section 271C. These are entirely avoidable risks with the right process in place.

4. Every Payslip Must Show These Components Clearly

A payslip is a legal document. Many SMEs issue informal salary slips that don't meet the required standard — which creates disputes, loan application problems, and compliance risk. A proper payslip must include:

• Employee name, designation, and employee ID
• The month and year of salary payment
• All earnings clearly broken down: Basic, HRA, Special Allowances
• All deductions itemised: PF (employee share), ESI (employee share), Professional Tax, TDS, LWF
• Gross pay and net pay (take-home)
• Employer PF contribution shown separately
• Leave balance and days worked or absent

When employees apply for home loans, visa applications, or complete tax filings, a properly structured payslip is essential. Make it a non-negotiable standard in your payroll process.

5. The Labour Welfare Fund Is Often Overlooked

The Labour Welfare Fund (LWF) is a state-specific statutory contribution that many SMEs miss entirely. Unlike PF and ESI, LWF operates differently in each state — different rates, different contribution cycles (some annual, some semi-annual), and different covered employee categories.

In Kerala, LWF contributions are made to the Kerala Labour Welfare Fund Board. Failure to deduct and remit LWF on time attracts penalty. Review your state's LWF rules and ensure it's factored into your payroll cycle.

• Check your state's LWF Act and applicable contribution rates
• Add LWF deduction to your monthly payroll template
• Set remittance reminders aligned to your state's contribution cycle
• Maintain LWF payment receipts for inspection readiness