Startup Payroll Services — Compliant, Tax-Efficient, ESOP-Ready

Pay your team correctly — from first hire to IPO-ready payroll

Payroll services for startups in India. Salary structuring, PF/ESIC compliance, TDS on salary, ESOP administration, and professional tax — handled monthly.

Getting payroll right is one of the most critical — and often most neglected — operational areas for early-stage startups. The first few employees are typically hired on ad hoc arrangements, with salary paid from the bank without PF registration, proper salary slips, or Form 16 issued at year-end. This creates significant compliance exposure as the company scales: employees lose PF credit, directors face TDS issues, and the startup's books don't accurately reflect employee costs. We set up structured, compliant payroll for startups from the first hire — with PF/ESIC registration triggered at the right thresholds, salary structured for tax efficiency, TDS computed and filed monthly (Form 24Q quarterly), and Form 16 issued to all employees by June 15 each year. For funded startups with ESOP plans, we provide ESOP grant, vesting, and exercise administration alongside payroll.

Related service: Workforce and People Governance

Key Points to Understand

• Tax-Optimised CTC Structuring: A well-structured CTC — with correct HRA, NPS employer contribution, special allowances, and LTA — meaningfully reduces employee take-home tax burden. We design the salary structure for each role level before onboarding.
• PF, ESIC, and Professional Tax Compliance: PF is mandatory at 20+ employees, ESIC at 10+ (with salary below ₹21,000). Professional tax is state-specific and varies by state. We register at the right threshold and file all statutory contributions on time.
• Monthly TDS (Form 24Q) Filing: TDS on salary must be deposited by the 7th of the following month and a quarterly return (Form 24Q) filed. Failure attracts 1.5% per month interest plus 200% penalty in extreme cases. We manage this on schedule.
• ESOP Grant and Vesting Administration: ESOP grant letters, stock option agreements, vesting schedules, exercise events, and the critical perquisite computation at vest date are managed as part of our payroll service — supporting correct TDS on vesting income.
• Form 16 Issuance to All Employees: Form 16 is a legal requirement to be issued to all employees by June 15. It's the primary document employees use for their own ITR filing. We generate Form 16 from the payroll system and deliver it digitally to each employee.
• Full-Time Equivalent Without the Overhead: A dedicated payroll team costs ₹20-30 lakh+ annually in salary and benefits. Our managed payroll service gives you full payroll infrastructure — software, compliance, filings, employee queries — at a fraction of that cost.

How It Works

1. Payroll Structure Design: CTC breakup — basic, HRA, special allowance, LTA, NPS — structured for employee tax efficiency
2. PF/ESIC and PT Registration: PF at 20+ employees, ESIC at 10+ employees, Professional Tax based on state
3. Monthly Payroll Processing: Salary computation, reimbursements, leave management, and payslip generation
4. TDS Filing (Form 24Q): Quarterly TDS returns for salary payments, with correct employer and employee details
5. Form 16 Issuance: Annual TDS certificate issued to all employees by June 15
6. ESOP Administration: Grant letters, vesting schedule tracking, exercise event coordination, and perquisite computation

Who This Is For

• First-Hire Startups: Companies with 1-5 employees setting up payroll for the first time
• Funded Startups Scaling Teams: Post-seed companies growing to 10-50 employees and crossing PF/ESIC thresholds
• Startups with ESOP Plans: Companies with employee stock option plans needing grant administration and vesting TDS
• Startups Regularising Ad Hoc Payroll: Companies that have been paying salaries informally and need to set up compliant payroll

Frequently Asked Questions

When does a startup need to register for PF?

PF (Employee Provident Fund) registration under EPFO is mandatory when you have 20 or more employees. However, voluntary registration is possible before reaching this threshold — and some startups register early when investor diligence requires it or when employees specifically ask for PF contributions.

What is the benefit of structuring salary with NPS employer contribution?

Employer contribution to NPS (National Pension System) under Section 80CCD(2) is deductible by the employer as a business expense and is tax-free in the hands of the employee — up to 10% of salary (or 14% for government employees). This effectively increases CTC without increasing the employee's taxable income.

How are ESOPs treated in payroll?

When an employee exercises ESOPs (or when RSUs vest), the Fair Market Value on the exercise/vest date minus the exercise price is a perquisite — taxable as salary. The employer must compute this perquisite, include it in payroll, and deduct TDS. Form 16 Part B must reflect the perquisite value. We handle all of this in the payroll cycle.

We have contractors (not employees) — do they fall under payroll?

Contractors paid professional fees are not under payroll — they're under TDS section 194J (10% TDS for professionals) or 194C (1-2% for contractors). They don't get Form 16 — they get Form 16A. We handle contractor TDS separately from employee payroll, helping keep both compliant.

What is professional tax and does every startup need to deduct it?

Professional Tax (PT) is a state-level levy on individuals employed in a profession or trade. It's mandatory in Maharashtra, Karnataka, Tamil Nadu, West Bengal, and several other states. The rate varies — in Karnataka, it's ₹200/month for salaries above ₹15,000. Employers are responsible for deducting PT from employees and remitting to the state.

Can a startup issue equity to employees before setting up formal ESOP?

Directly issuing shares (not through ESOP) to employees is possible but creates immediate tax events — the shares' fair value is a perquisite taxable as salary on the date of allotment. A formal ESOP plan under the Companies Act is the structured, investor-accepted approach for equity compensation — it allows vesting periods, proper valuation, and predictable TDS treatment.

You Might Also Find Useful

• Startup Compliance Services — Full compliance alongside payroll
• Startup Accounting Services — Books that integrate with payroll
• Business Registration Bangalore — Incorporate before setting up payroll

Set Up Compliant Payroll Before Your First Pay Cycle Salary structure, PF/ESIC, TDS filing, ESOP administration — complete payroll for your startup team. Book Expert Consultation or call +91 80493 67825.