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Payroll & Salary · Glossary

Payroll Processing

Also called: payroll run, salary processing cycle

Definition

Payroll processing is the sequence of steps that converts a month's attendance and salary data into paid salaries and statutory remittances: gather inputs, compute gross pay, apply deductions, arrive at net pay, disburse through the bank, and file EPF, ESI, TDS and professional tax within their due dates.

The six steps of a payroll run

Step one is inputs: locked attendance with paid days, LOP and overtime hours, approved leave, joiners and leavers with their dates, and any salary revisions or one-time payments. Step two is gross computation: pro-rate fixed components for paid days, add overtime at the applicable rate, add arrears and incentives.

Step three is deductions: employee EPF, ESI, professional tax, TDS based on the annual projection, LWF, advances and loans. Step four is net pay and validation, comparing against last month for unexplained swings. Step five is disbursement through a NEFT file or salary account transfer. Step six is remittance and filing: EPF ECR, ESI contribution, TDS challan and quarterly 24Q, PT return.

  • Attendance cut-off (often the 25th or 26th) so payroll can close before month-end
  • Gross pay computed on paid days using a fixed divisor (26 or calendar days) written into policy
  • Deductions checked against current ceilings: EPF ₹25,000 from 17 Sep 2026, ESI ₹21,000
  • Salary paid by the 7th of the following month for monthly-paid workers under the Code on Wages
  • EPF and ESI paid by the 15th, TDS deposited by the 7th

Controls that prevent the usual errors

The most common payroll defects are attendance mismatches, wrong divisors, stale statutory rates and missed exits. A maker-checker step, where one person prepares and another approves against the attendance register, catches most of them. A variance report that flags any employee whose net pay moved more than a set percentage is the second control.

The third control is a statutory master that is reviewed on a calendar: EPF ceiling, ESI ceiling, PT slabs for each state you operate in, minimum wage and VDA revisions in April and October, and the income-tax regime declarations collected at the start of the financial year.

Timelines to plan around

Working backwards from the 7th, most SMEs lock attendance around the 26th, compute and approve payroll by the 1st or 2nd, and release bank files by the 5th. Statutory payments follow: TDS by the 7th, EPF and ESI by the 15th. Professional tax and LWF follow state schedules that can be monthly, half-yearly or annual.

Split-month events need a rule. For September 2026 the EPF ceiling itself changes mid-month, applying at ₹15,000 for 1–16 September and ₹25,000 for 17–30 September, so the ECR for that month needs a split computation.

Processing one employee after the attendance lock

A store supervisor on ₹22,000 gross (basic ₹11,000, HRA ₹5,500, other ₹5,500) had 28 paid days out of 30 in September in a company that uses calendar-day pro-rating. Gross earned is ₹22,000 × 28 ÷ 30 = ₹20,533. Employee EPF is 12% of pro-rated basic ₹10,267, which is ₹1,232. Gross is below ₹21,000, so ESI at 0.75% is ₹154. Professional tax in Maharashtra is ₹200. Net pay is ₹18,947.

How Attend Mitra handles this

In Attend Mitra the attendance lock, regularization approvals and LOP derivation happen before the payroll run, so the payroll executive starts from confirmed paid days rather than reconciling a register. The run produces payslips, a salary register and a NEFT file, and can export to another payroll system if the company uses one for filings.

Frequently asked questions

What are the steps in payroll processing?
Collect and lock inputs (attendance, leave, overtime, joiners, exits, revisions); compute gross pay on paid days; apply statutory and voluntary deductions; validate net pay against the previous month; disburse through the bank; then remit EPF, ESI, TDS and PT and file the returns by their due dates.
When should salary be paid in India?
Under the Code on Wages, employees paid monthly must receive wages by the 7th of the following month. Weekly and fortnightly wage periods have shorter deadlines. Final settlement on exit also has a defined timeline, so exits need to be processed promptly rather than held to the next cycle.
What is the attendance cut-off in payroll?
It is the date after which attendance for the pay period is frozen so payroll can be computed. Many companies cut off around the 25th or 26th and carry the last few days into the next month as adjustments. The cut-off must be written into the attendance policy and applied consistently.
What controls should a small company have on payroll?
At minimum: a maker-checker approval, a variance report comparing each employee's net pay with last month, a statutory master reviewed whenever EPF, ESI, PT or minimum-wage rates change, and a reconciliation of the bank file total to the salary register before release.

Related terms

Payroll
Payroll is the end-to-end process of calculating what each employee has earned in a pay period, deducting statutory and voluntary amounts, paying the net salary, and recording and remitting the deductions. In India it covers wages, overtime, LOP, EPF, ESI, professional tax, TDS and the monthly filings that follow.
Loss of Pay (LOP)
Loss of pay is the salary deduction for days an employee was absent without paid leave to cover them. Payroll counts LOP days from the attendance and leave records and deducts one day's pay for each, using the company's divisor (26 or calendar days). LOP reduces gross, and therefore EPF, ESI and other proportional deductions for the month, and is shown as a separate line on the payslip.
EPF (Employees' Provident Fund)
The Employees' Provident Fund is India's mandatory retirement savings scheme administered by EPFO. Employee and employer each contribute 12% of basic plus DA, with the employer's share split between the pension scheme (8.33%) and the provident fund (3.67%). The statutory wage ceiling rose from ₹15,000 to ₹25,000 per month on 17 September 2026, and monthly ECR filing and payment are due by the 15th.
ESI / ESIC (Employees' State Insurance)
Employees' State Insurance is a statutory health and social-security scheme run by ESIC. It applies to establishments with 10 or more employees (20 in some states) in implemented areas, covering employees whose gross wages are up to ₹21,000 per month. The employee contributes 0.75% and the employer 3.25% of gross wages, payable by the 15th of the following month.
TDS on Salary (Section 192)
TDS on salary is the income tax an employer must deduct every month under section 192 of the Income-tax Act, based on the employee's estimated annual taxable salary and chosen tax regime. The deducted amount is deposited by the 7th of the following month (30 April for March), reported quarterly in Form 24Q, and certified to the employee in Form 16 by 15 June.
Payroll Register (Wage Register)
A payroll register, also called a wage register or salary register, is the employer's month-wise record of every employee's paid days, earnings by component, deductions, employer contributions and net pay. It is a statutory register under the Code on Wages and the contract-labour rules, the source from which payslips and EPF, ESI and TDS returns are prepared, and the first record an inspector or auditor asks to see.

Go deeper

Payroll process steps in IndiaHow to prepare attendance for payrollPayroll automation guideTimesheet calculator

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