🇮🇳 Payroll in India: employer costs, taxes & compliance (2026)

Running payroll in India means doing quite a few things every month. Each cycle you calculate gross salary, withhold income tax and the employee side of social security contributions, add the employer's own social security contributions on top, and then file and remit everything to the relevant authorities. The whole process repeats monthly, so there is no room for a slow start once you have someone on the books.

This guide walks through what all of that costs, how the pay cycle works in practice, what leave and termination rules mean for your payroll runs, and when it makes sense to hand the whole thing to a specialist provider.

The gap between what an employee sees in their bank account and what you actually spend is wider than many foreign employers expect. On top of gross salary, you are carrying employer social security contributions that add roughly a tenth to an eighth more to your total bill, and that is before income tax withholding obligations come into the picture. The table below shows the exact rates.

It is worth thinking about the combined tax wedge, meaning the total slice of labor cost that goes to the government rather than the worker. In practice, a meaningful share of every rupee you spend on an employee never reaches them directly. That affects how you price out headcount when budgeting for an India expansion.

India runs on a monthly payroll cycle, so you process once a month and that is it. One thing to plan for early: a thirteenth-month salary payment is mandatory, meaning you are budgeting for thirteen months of pay across the year, not twelve. The statutory minimum wage sits at around INR 4,628 per month at the national floor, though in practice many roles and locations sit above that. Make sure your payroll system is set up to flag any contract that would breach that floor before you run your first cycle.

On the leave side, employees are entitled to 12 days of annual leave per year, plus 17 public holidays, and your payroll needs to track accruals accurately so that any unused balance is settled correctly when someone leaves. Maternity leave runs for 26 weeks, which is a long protected absence to account for in headcount planning. Paternity leave carries no statutory paid entitlement, so there is nothing to remit there. When employment ends, you are looking at a notice period of just over four weeks and severance that works out to roughly eleven weeks of pay, both of which become final-pay line items that need to be calculated and settled cleanly.

If you do not already have a registered legal entity in India, you cannot run payroll there yourself, which is where an employer of record steps in and takes on that legal role for you. Even if you do have an entity, keeping up with contribution rate changes, local filing requirements, and payroll rules that vary by state is genuinely time-consuming work. A global payroll provider or EOR is worth considering any time your India headcount is small but the compliance overhead is not.