How to run international payroll for employees in India (Updated 2023)

Published

Apr 6, 2023

Running payroll for remote employees in India for the first time? Get it right, and you can hit the ground running with your employees in India. But if you miss a step, you could rack up thousands of dollars in penalties—or even risk legal action.

Here’s a step-by-step guide to running payroll in India, with everything you need to get it right every time. 

Table of Contents

  • Step #1: Decide whether or not to create your own entity in India
  • Step #2: Pick a global payroll software solution
  • Step #3: Determine your workers’ employment status
  • Step #4: Capture your new hires’ Indian payroll information
  • Step #5: Understand the implications of paying in Indian rupees
  • Step #6: Run payroll
  • Step #7: File your taxes in India
  • FAQs about running payroll in India

Step #1: Decide whether or not to create your own entity in India or use an Employer of Record (EOR)

To hire and pay employees in India, first you need to establish a business entity in India. You can do this by either creating your own local entity, or by using what’s known as an “Employer of Record” (EOR).  

EORs allow you to hire and pay employees through their own entities. They’re responsible for calculating and withholding the appropriate taxes (more on that below), and for paying your taxes to the Indian government. 

When, why, and how do companies use an EOR? 

When companies expand their operations to India—and around the world—they typically use EORs like Deel, Papaya Global, and Rippling to run payroll, issue benefits, and navigate international compliance issues. 

This is because EORs can take months to set up, depending on how you apply, and how long Indian authorities take to review your registration. It’s a significant administrative load, and most smaller companies don’t have the time or resources to spare.

See Rippling

When, why, and how do companies create their own entity?

If you create your own entity, that replaces the EOR as the legal entity hiring employees and running payroll. Companies typically create their own entities once the costs of an EOR outweigh the costs of creating their own entities.

In most cases, you have to switch systems when you scale—except with Rippling. Rippling’s EOR is built on top of our native payroll rails, which means that when the time comes, you can move from our EOR to Global Payroll through your own entities—in minutes.  

To set up your own entity, you should register your company online with India’s Ministry of Corporate Affairs (MCA) by collecting e-signatures from your directors. Those signees each obtain a Director Identification Number (DIN) and fill out a SPICe form where they submit proposed names and provide company details. 

The Registrar of Companies office reviews the application. If approved, the applicant entity is issued a certificate of incorporation. Once the entity is registered, you can proceed to set up payroll for your Indian employees. 

With Rippling, you can hire and pay Indian employees with either method:

  • Rippling offers a native global payroll system, which allows you to pay employees who work in India—and around the world—in a single pay run. 
  • We also have our own native EOR service, which allows you to hire and pay employees in India even if you haven’t set up an entity there.

Step #2: Pick a global payroll software solution

First, it’s vital to understand the two kinds of international payroll management solutions: global payroll processors and global payroll aggregators. You can learn about both in our guide.

Remember: Payroll aggregators can’t process payroll through companies that use their own entities. But with native global payroll providers, like Rippling, you won’t have to switch systems as you scale. You can move employees from our EOR to your own local entity, without ripping out and replacing systems to accomplish this.

Step #3: Determine your workers’ employment status

Before onboarding your workers, and certainly before you run payroll, it’s crucial to understand who you’re paying in the eyes of Indian law: Are your workers employees or contractors? 

It’s essential to classify them correctly to avoid big fines. Also, if they’re employees, there are payroll deductions you’re responsible for, including tax obligations and provident fund contributions—see the tables below for the full list.

While no single factor is determinative, the Indian authorities use certain criteria to gauge whether a worker is an employee or a contractor, including:

  • The level of control the employer has over the worker's activities
  • Who owns their tools and equipment
  • Whether they work on an ongoing or per-project basis
  • Exclusivity of service
  • Degree of integration into your company
  • Whether the company can take disciplinary action for misconduct

Step #4: Capture your new hires’ Indian payroll information

Once you’ve decided whether to use an EOR or your own entity, picked a payroll solution, and ensured that your employees are correctly classified, you should be able to automatically collect (and then pay) your team in India. Just make sure you’re adhering to statutory requirements when calculating each full-time employee’s payroll deductions.

Here’s the information you need to collect:

  • Name (matching the account where you’ll deposit their pay).
  • Date of birth and date of hire.
  • Contact information, including their mailing address in India.
  • Bank account information.
  • Amount to be paid in INR (including any bonuses).
  • Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN).
  • An account number for the Employee Provident Fund (EPF)

Step #5: Pay in Indian rupees (INR) 

You have to pay India-based employees in Indian rupees (INR).

Of course, there are challenges for companies based outside India that need to pay India-based employees in INR: The exchange rate between your local currency and INR can vary (see exchange rates here). If the rate is unfavorable, you’ll end up paying more USD to cover your employee’s wages. You may also need to account for fluctuations in the exchange rate when calculating your financial statements, which can create accounting complexities.

With Rippling, you can pay everyone in rupees, in minutes, without waiting on transfers or conversion.

Step #6: Run payroll

  • You have an entity (either your own or via an EOR), you’ve set up your global payroll system, and you’ve ensured your employees are correctly classified under Indian law.
  • Time to run payroll! Here’s a preview of how Rippling’s global payroll system works:

Step #7: File your taxes in India

Once you’re up and running paying your employees in India, you have to withhold a certain amount of taxes. Individual income tax rates vary depending on income. India’s tax slabs are shown below:

Income Range (INR)

Income Tax Rate

0-300,000

0%

300,000-600,000

5%

600,000-900,000

10%

900,000-12 million

15%

12 million to 15 million

20%

Above 15 million

30%

Note that taxes on some expenses like salary payments, commissions, rent, interest, and some professional fees are immediately deducted, in a process known as Tax Deducted at Source (TDS). Whoever receives payment has the liability to pay tax to the Income Tax Department.

Rippling can reduce your busy work by automatically calculating and filing your taxes in India.

Frequently asked questions about running payroll in India

What are the employer costs for full-time employees in India?

Employers are usually responsible for deducting the following from their full-time employees’ salaries. The provident fund, pension scheme, and state insurance make up India’s social security system. This covers retirement, health insurance, disability, and other entitlements. An employee pays a portion of their salary for these contributions in addition to the employer costs.  

Employee State Insurance (ESI) contributions are mandatory if you have more than 10 employees. 

Employees Pension Scheme

8.33%

Employee Provident Fund

3.67%

Employee State Insurance

4.75%

What is the average salary for employees in India?

The average annual salary for employees in India is INR 387,000, according to data from Jobted—but this varies widely by industry and occupation. 

For example, on average, data scientists make more than twice that at INR 793,400 a year, while security guards make INR 197,400.

Average annual salaries in India's major industries

Industry

Median Weekly Earnings (INR)

Area Sales Manager

736,800

Air Steward

518,700

Software Engineer

517,000

Digital Marketing Executive

338,700

Web Designer

287,600

Waiter

204,200

What are the minimum wages in India?

There is no minimum wage for Indian organizations in the private sector. The regulated “factory” sector has its own set of minimum wage requirements. Some states set their own wages, often dependent upon the industry and level of skill required. 

What information is needed from employees to run payroll in India?

Here’s the information you need from salaried employees for payroll processing:

  • Name (matching the account where you’ll deposit their pay).
  • Date of birth and date of hire.
  • Contact information, including their mailing address in India.
  • Bank account information.
  • Amount to be paid in INR (including any bonuses).
  • Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN).
  • An account number for the Employee Provident Fund (EPF)

How much does it cost to run payroll in India?

Most payroll software is priced on a per-employee basis, or per pay run. Payroll service pricing varies according to:

  • Payroll frequency.
  • The number of employees on your payroll.
  • The number of provinces and territories where you employ Indian workers.
  • How often you add and remove payees.
  • Any additional services you need, such as year-end processing or mailing out pay stubs.

Can I manually run payroll for workers in India?

Some small business owners choose to run payroll themselves, using a payroll calculator and making a direct deposit to employee accounts, in an attempt to cut costs. But running payroll can be a time-consuming process, especially as your business grows. If you go this route, there are potential risks to keep in mind:

  • Compliance: Running payroll manually in India, without using native global payroll software, puts you at risk of manual errors and omissions. Rippling handles your compliance work for you—enforcing Indian minimum wages and overtime rules, which can save you from heavy fines.
  • Security: Processing payroll manually can pose security risks, especially if you are using spreadsheets or paper records. This increases the risk of sensitive employee information being lost, stolen, or misused.

Rippling syncs all your business’s HR data with payroll so you never have to use a calculator or manually enter data, like hours and payroll deductions. Rippling also handles your tax and compliance work, from work authorization to tax returns, plus we’re an authorized payroll provider for employees in India. 

What are payroll taxes in India?

Employers are responsible for deducting certain costs from their full-time employees’ paychecks, income taxes, provident fund contributions, and social insurance premiums—see our employer cost tables

Rippling can automatically sync tax deductions to payroll, and handles your tax and compliance work for you.

What are the late tax filing penalties in India?

  • Late filing fees: Employees who miss filing an income tax return by the due date (generally the last day of July) are subject to fees of INR 1,000 to INR 5,000, depending on their taxable income.
  • Interest fees: Those late on their taxes are also subject to interest fees of 1% per month until they’re filed. 
  • Other tax penalties: If you fail to file a tax return after repeated warnings, you’re subject to additional fines and 3 to 24 months imprisonment. 

How do you pay contractors in India?

  • First, ensure you’re correctly classifying your workers as a contractor (you can use Rippling’s free Worker Classification Analyzer).
  • Next, agree on the payment terms with the contractor: the hourly or project rate, the payment cadence, and the method of payment. 
  • Collect their payroll information, including their name, date of birth, contact information, and bank account information.
  • Use your chosen payroll software to pay the contractor in INR. With Rippling, you can pay both contractors and employees in Indian rupees, in a single pay run, without waiting on transfers or conversion.

Remember, when hiring Indian contractors, employers are not responsible for deducting taxes from their paychecks. Instead, the contractor is responsible for tax remittance to the Income Tax Department. But employers must still keep an accurate record of employment and payroll information for each worker. 

Rippling and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advise. You should consult your own tax, legal and accounting advisors before engaging in any related activities or transactions.

last edited: July 25, 2023

The Author

The Rippling Team

Global HR, IT, and Finance know-how directly from the Rippling team.