A practical monthly process for founders and office managers running payroll for a 10-50 person team.
Payroll feels intimidating mostly because it's unfamiliar, not because it's complicated. For most small teams, the core calculation is a handful of numbers repeated every month. This guide walks through exactly what payroll needs, how the calculation works, the deductions that apply in India, and the monthly routine that keeps it boring — in the good way.
Notice what's not on that list: tax law expertise. The monthly run is arithmetic on numbers you already have. The specialist knowledge only becomes necessary when you file statutory returns — a separate, less frequent job we come back to below.
Payroll is really two steps: build the gross, then subtract deductions to reach net (take-home) pay.
Cost to company (CTC) is the total annual figure. Monthly gross is usually broken into components — commonly Basic, House Rent Allowance (HRA), and other allowances. A typical small-business split is Basic ~50% of gross, HRA ~20%, and other allowances the remainder, though the exact ratio is a policy choice. Basic matters because several statutory contributions are calculated as a percentage of it, so the split isn't cosmetic — it changes the numbers downstream.
Gross is the full-month figure. If someone had unpaid days, you pro-rate: paid days ÷ total days in the month × monthly gross. Present days, paid leave, weekly offs and holidays all count as paid; only absent days, unpaid leave, and the unpaid half of a half-day reduce the figure. This is why accurate attendance is non-negotiable — it's the multiplier on everyone's salary.
Gross pay − (statutory deductions + loss of pay for unpaid days) = net pay. Everything else is detail.
These are the common ones for a small business in India. Thresholds and rates change and some vary by state, so treat this as an orientation, not tax advice — confirm current rules or ask an advisor before you file.
Not all of these apply to every business — a five-person team below the PF/ESI thresholds may have only PT (if their state levies it) and TDS for higher earners. Knowing which apply to you is the first thing to settle; the compliance checklist lays this out.
Confirm the month's attendance and leave are accurate before calculating pay — this is the input everything else depends on. Chase the missing marks now, not after payslips are out.
Make sure any salary revision is applied from its correct effective month, not retroactively guessed at payday. A hike applied a month late (or early) is one of the most common — and most visible — payroll errors.
Gross pay minus deductions (statutory + unpaid leave) equals net pay. This should be a repeatable formula, not a manual recalculation each month. If you're doing it by hand, build one spreadsheet template and never rebuild it — but a system that reads attendance directly removes the transcription step entirely.
Every employee should receive a clear payslip showing how their number was reached — gross, each deduction, and net — see what a payslip should contain. A transparent payslip prevents most "why is my salary different this month?" conversations before they start.
Consistency is a feature. A fixed pay date builds trust and makes your own cash-flow planning predictable.
Say an employee's monthly gross is ₹30,000, the month has 30 days, and they took 2 unpaid days. Paid days = 28. Pro-rated gross = 28 ÷ 30 × ₹30,000 = ₹28,000. Subtract applicable deductions — say PF on Basic and a small PT amount — and the remainder is net pay. The structure never changes month to month; only the inputs (days worked, any hike) do. Once you've done it once, every subsequent month is the same shape.
You don't need an accountant to calculate net pay from attendance and CTC. You do want professional input once statutory filings (PF and ESI returns, TDS returns and Form 16) enter the picture — these have deadlines and formats that are easy to get wrong. Many teams keep the monthly calculation in-house (or automated) and bring in a compliance advisor for the periodic filings, often somewhere between 20 and 50 employees. See the compliance checklist for what that involves.
Yes, for the core monthly calculation — gross pay, deductions and net pay from attendance and CTC — a founder or office manager can run this themselves with the right process or software. Statutory filings and tax advice still benefit from professional input as the team grows.
Confirm attendance and leave for the month, apply each employee's CTC (and any hikes), calculate gross pay minus deductions, generate a payslip, and pay on a consistent date each month.
There's no fixed number, but as statutory complexity grows (PF, ESI, multi-state professional tax) many businesses bring in a compliance advisor or payroll specialist somewhere between 20 and 50 employees, even if the calculation itself stays automated.
Split the CTC into a monthly gross (typically Basic, HRA and allowances), pro-rate it for the days actually worked (paid days divided by total days times gross), then subtract statutory deductions and any loss of pay for unpaid days. The remainder is net take-home pay.
Common ones are Provident Fund (EPF, usually mandatory at 20+ employees), Employees' State Insurance (ESI, for employees under the wage limit in covered establishments), state Professional Tax where levied, and TDS for employees above the income-tax exemption limit. Thresholds and rates change and some vary by state, so confirm current rules before filing.
Merik automates the repeatable part: it reads attendance and leave, applies each employee's current CTC (including a hike from its correct effective month), splits the salary structure, and calculates gross, deductions and net pay every month — then generates a payslip for each person. Running payroll becomes reviewing numbers, not recalculating them. Avoid the common payroll mistakes that come from doing this by hand, and see how attendance flows into payroll.
Two companions: generating the slips and the dates each month has to hit.
Every monthly, quarterly and annual statutory date, with the thresholds that apply.
The recurring errors that cost time, money and employee trust.
How connecting attendance and leave directly to payroll removes errors.