Onboarding Your First Employee in India: EPF, ESIC, Professional Tax and TDS

Paperwork on day one

Issue a written appointment letter stating designation, wages, working hours and leave; the Labour Codes, in force from 21 November 2025, make appointment letters a statutory requirement. Collect PAN, Aadhaar, bank details and the employee's declaration of previous employment and UAN if any. Register or update the establishment under the state shops and establishments law where required, and set up an employee file with signed policies and IP assignment.

• Appointment letter with wage structure
• PAN, Aadhaar, bank account and address proof
• Previous UAN and employment details
• Tax regime choice and investment declaration
• Confidentiality and IP assignment agreement

TDS on salary

The employer must hold a TAN and deduct tax every month based on the employee's estimated annual income and chosen tax regime; the new regime is the default unless the employee opts out where allowed. Deposit TDS by the 7th of the next month and file quarterly salary TDS returns. From tax year 2026-27 the salary return is Form 138 and the annual certificate is Form 130 under the Income-tax Rules 2026, replacing Forms 24Q and 16.

Professional tax

Professional tax is a state levy capped at ₹2,500 a year per person by the Constitution. States such as Maharashtra, Karnataka, West Bengal, Gujarat, Telangana and Tamil Nadu levy it; others do not. The employer registers to deduct and deposit employees' PT (in Maharashtra this is PTRC) and may also pay PT on its own enrolment (PTEC). Slabs, due dates and returns differ by state.

EPF and ESIC

Under the Code on Social Security, the provident fund chapter applies to every establishment with 20 or more employees. Employer and employee each contribute 12% of wages up to the wage ceiling, which was raised from ₹15,000 to ₹25,000 a month with effect from 17 September 2026, with part of the employer share going to the pension scheme. ESIC covers employees earning up to ₹21,000 a month in establishments with 10 or more employees; the employer pays 3.25% and the employee 0.75%. Contributions are due by the 15th of the following month.

Voluntary EPF coverage is allowed below 20 employees and is often requested by employees who had PF in earlier jobs. Once covered, an establishment stays covered even if headcount later falls.

Wage structure under the Labour Codes

The Code on Wages uses a uniform definition of wages. If excluded allowances exceed half of total remuneration, the excess is treated as wages, which affects PF, gratuity and bonus calculations. Design salary structures with basic pay and dearness allowance at a reasonable share of CTC. Fixed-term employees become eligible for gratuity after one year of continuous service under the Code on Social Security, compared with five years for permanent staff.

Common mistakes

Startups often pay the first hires as consultants to avoid payroll, which creates misclassification risk, skip TDS on salary in the first months, or forget professional tax registration. Others ignore EPF until a due diligence finding forces back-payment with interest and damages.

Step by step

1. 1Issue appointment letter

   State wages, role, hours and leave in writing.

2. 2Collect KYC

   Get PAN, Aadhaar, bank details and UAN.

3. 3Get TAN

   Apply for TAN if the company does not have one.

4. 4Register for PT

   Register in states that levy professional tax.

5. 5Plan EPF and ESIC

   Register on reaching thresholds, or voluntarily earlier.

6. 6Run first payroll

   Deduct TDS, PT, PF and ESI as applicable.

7. 7Deposit dues

   Pay TDS by the 7th and PF/ESI by the 15th.

8. 8File returns

   File quarterly TDS and periodic PF, ESI and PT returns.