How to Pay Employees in India · 2026 Guide

How to pay employees in India.

The complete playbook for paying India-based employees from a global parent. PF, ESIC, professional tax, TDS, Form 16, USD invoicing. 2026 edition, current to India's 2020 Labour Codes.

4 yrs On the books

47 Engineers paid · Apr 2026

14 US/UK companies on the entity

0 Notices since founding

Foo Falcon Pvt Ltd · CIN U72900KA2022PTC163007 · Incorporated 28 Jun 2022

Paying an India employee has twelve moving parts.

Most global founders underestimate the operational complexity of paying an India employee. The salary itself is one number. The total cost. PF, ESIC, gratuity accrual, professional tax, TDS, equipment, group benefits, Form 16 issuance, statutory compliance. is roughly 1.3-1.4× the gross. The right structure depends on whether you have an Indian entity yet, whether the engagement is full-time or contractor, and whether your audit posture requires cross-referenced documentation. This page walks through every component.

Component 1: Basic + HRA + special allowance

Salary structure in India typically separates basic (40-50% of CTC), HRA (40-50% of basic, partially tax-exempt), and special allowance (residual).

Component 2: PF / EPFO contribution

12% of basic + DA from employee, 12% from employer. Filed monthly with EPFO. Versatile runs an exempt PF Trust.

Component 3: ESIC where applicable

0.75% employee + 3.25% employer for gross under ₹21,000/month. Most senior bands sit above the threshold.

Component 4: Gratuity accrual

4.81% of basic accrued monthly. Funded via LIC group gratuity policy. Pays out at 4+ years of service.

Component 5: Professional tax (state-specific)

Karnataka: ₹200/month. Maharashtra: slab-based up to ₹2,500/year. Tamil Nadu: slab-based semi-annual. Filed monthly.

Component 6: TDS on salary

Computed monthly per New Regime or Old Regime election. Quarterly e-TDS returns filed.

Component 7: Form 16 / Form 16A

Issued by 31 May each year via TRACES portal. Cross-checked against TDS payment evidence.

Component 8: Equipment + Mac procurement

Local procurement from Bengaluru warehouse is cheaper than cross-border shipping (which adds 18% IGST).

Item	Versatile handles
Salary structure	Basic + HRA + Special Allowance + PF + Gratuity + Benefits
Total cost vs gross	~1.3-1.4× of gross (statutory + benefits + equipment)
Monthly cycle	Payslip → PF challan → TDS challan → PT challan → Form 12B updates
Annual cycle	Form 16 by 31 May · Audit packet · Form 26AS reconciliation
Statutory framework	Code on Wages, Industrial Relations Code, Social Security Code (2020)
Versatile EOR pricing	$99-$399 PEPM, all-in

Item

Versatile handles

Salary structure

Basic + HRA + Special Allowance + PF + Gratuity + Benefits

Total cost vs gross

~1.3-1.4× of gross (statutory + benefits + equipment)

Monthly cycle

Payslip → PF challan → TDS challan → PT challan → Form 12B updates

Annual cycle

Form 16 by 31 May · Audit packet · Form 26AS reconciliation

Statutory framework

Code on Wages, Industrial Relations Code, Social Security Code (2020)

Versatile EOR pricing

$99-$399 PEPM, all-in

Questions we hear most.

What is the total cost of an India employee vs the gross salary?

Typically 1.3-1.4× of gross. The multiplier covers PF (12% employer), gratuity accrual (4.81% of basic), professional tax, group health insurance, group life insurance, equipment procurement, and the Employer of Record fee (or your own entity's administrative overhead). Versatile shows the math transparently on the cost calculator.

Can I pay an India employee directly from my US/UK bank account?

You can wire INR to an Indian bank account in your name, but this requires you to be the legal employer in India, which requires either an Indian entity or an Employer of Record. The wire itself is operationally fine; the legal employment relationship is what needs structure.

How does Versatile handle monthly payroll?

Salary is computed against the employee's structure (basic + HRA + special allowance + variable). PF, ESIC, professional tax, and TDS are deducted. Salary is credited to the employee's Indian bank account on the last working day of the month. Payslip is generated and made available via the secure portal.

What about Form 16 and annual reconciliation?

Form 16 is generated via the TRACES portal by 31 May each year for the prior financial year. The TDS computation is reconciled against quarterly e-TDS returns (Form 24Q) and Form 26AS. All cross-references are maintained for audit-grade documentation.

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How to pay employees in India.

India EOR tailored to your home country.

Paying an India employee has twelve moving parts.

Component 1: Basic + HRA + special allowance

Component 2: PF / EPFO contribution

Component 3: ESIC where applicable

Component 4: Gratuity accrual

Component 5: Professional tax (state-specific)

Component 6: TDS on salary

Component 7: Form 16 / Form 16A

Component 8: Equipment + Mac procurement

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Hire in India. Without the panic.