Run payroll: PF, ESI and the payslip

Payroll turns a salary into a payslip: gross pay, the deductions the law requires, and the net amount paid. This lesson covers the main deductions and runs one month in the practice company.

Provident Fund (PF)

The employee contributes 12% of PF wages; the employer also pays 12%, of which 8.33% goes to the pension scheme (EPS, on wages up to Rs 15,000 a month) and the rest to the employee's PF account [EPF Scheme 1952; EPS 1995].

Example on PF wages of Rs 15,000: employee Rs 1,800; employer Rs 1,800 = EPS Rs 1,250 + EPF Rs 550.

ESI

For employees earning up to Rs 21,000 a month, ESI is 0.75% from the employee and 3.25% from the employer [ESIC, rates from 1 Jul 2019].

Wages under the labour codes

The Code on Wages, 2019 and the Code on Social Security, 2020 apply from 21 Nov 2025 [PIB, Nov 2025]. Under the definition of "wages", when allowances left out of wages are more than half of the total pay, the excess counts as wages [Code on Wages 2019, section 2(y)]. In practice, the base for these contributions is at least half of the pay.

Professional tax and TDS

Professional tax is a state tax with state-wise slabs, deducted from salary where the state levies it. Income tax on salary is deducted by the employer as TDS each month, based on the employee's estimated tax for the year.

Questions

Is this course enough to run a real payroll?

It teaches the parts and the steps. Rates, ceilings and state rules change; check them with a chartered accountant or the PF, ESI and state websites before running a real payroll.

Reviewed: 7 Nov 2026. This is general information, not advice from a chartered accountant. Rates and rules change; check the source named in brackets.