Payroll Compliance Checklist for 2026

Payroll in India is never just "pay salaries on time". Every month you're calculating Provident Fund, ESI, Professional Tax and TDS, depositing them by different due dates, filing returns on different portals and keeping records that may be inspected years later. Get one piece wrong and you're looking at interest, penalties and unhappy employees.

2026 adds two big shifts. The four Labour Codes came into effect in November 2025, with state rules still being notified, and the Income-tax Act, 2025 replaces the Income-tax Act, 1961 from 1 April 2026. This checklist walks through what to review, month by month and year by year.

1. Before you start: get your registrations right

• EPFO registration once your establishment reaches the applicable employee threshold under the PF law (voluntary coverage is also possible below it).
• ESIC registration if you have the applicable number of employees in an area where ESI is implemented.
• Professional Tax registration (employer registration and, in many states, enrolment) in every state where you have employees and PT is levied.
• TAN for deducting and depositing TDS on salaries.
• Shops and Establishments registration (or the equivalent under your state's rules) for each office or location.
• Labour Welfare Fund registration in states that levy it.

Keep a simple register of every registration number, the state, the login owner and the renewal date, if any.

2. Labour Codes: what to review in 2026

The Code on Wages, the Industrial Relations Code, the Code on Social Security and the Occupational Safety, Health and Working Conditions Code consolidate many older labour laws. Several changes directly affect payroll:

• The definition of "wages". Under the Codes, basic pay, dearness allowance and retaining allowance generally need to make up at least half of total remuneration; if excluded allowances exceed the permitted share, the excess is added back to wages. This affects PF, gratuity and other wage-linked calculations. Review your salary structures, especially where basic pay is a small fraction of CTC.
• Timely payment of wages. The Code on Wages sets time limits for paying wages and for settling dues when someone leaves. Check that your payroll calendar and full-and-final settlement process meet them.
• Gratuity for fixed-term employees. Fixed-term employees become eligible for gratuity on a pro-rata basis after a shorter period than permanent employees. Identify fixed-term contracts and provision accordingly.
• Appointment letters and records. Issuing appointment letters and maintaining registers in the prescribed (often electronic) format are part of the new framework.
• State rules. Many operational details come from rules framed by the central and state governments. Track notifications for every state you operate in.

3. Monthly payroll compliance checklist

4. Provident Fund (PF)

• Calculate contributions on PF wages as defined under the applicable law, which may change with the Labour Codes' wage definition.
• Both employer and employee contribute a percentage of PF wages; part of the employer share goes to the Employees' Pension Scheme, which has its own wage ceiling. Check the current notified rate and ceiling.
• Generate a UAN for every new member and link KYC (Aadhaar, PAN, bank) so withdrawals and transfers don't get stuck.
• File the Electronic Challan cum Return (ECR) and pay on time. Late payment attracts interest and damages.
• Decide, in writing, whether you contribute on actual wages or capped at the statutory ceiling, and apply it consistently.

5. Employees' State Insurance (ESI)

• Identify employees whose wages fall within the ESI wage ceiling. Check the current notified ceiling and contribution rates.
• Register new eligible employees on the ESIC portal promptly so they're covered from day one.
• Remember that ESI eligibility is assessed by contribution period; an employee who crosses the ceiling mid-period usually continues to contribute until the period ends.
• Keep accident reports and records as required.

6. Professional Tax (PT)

• PT is a state levy, so slabs, exemptions and due dates differ by state. Some states don't levy it at all.
• The Constitution caps the total PT per person per year, which is why some states charge a higher amount in one month to balance the annual total.
• Apply the slab of the state where the employee works, not where your head office is.
• File returns per each state's schedule and keep challans organised by state.

7. TDS on salary under the new Income-tax Act

• From 1 April 2026, TDS on salary is governed by the Income-tax Act, 2025. Section numbers and form names may differ from the 1961 Act. Update your templates, payslip labels and employee communication.
• The new tax regime is the default. Employees who want the old regime need to tell you; collect that choice at the start of the year.
• Collect investment and rent declarations early in the year, and proofs before the final quarter, so you're not over- or under-deducting in March.
• Deposit TDS by the due date and file the quarterly TDS return for salaries.
• Issue the annual TDS certificate to employees (Form 16 or its replacement under the new Act) within the prescribed time.
• For mid-year joiners, collect details of salary and TDS from the previous employer.

8. Annual and periodic tasks

• Statutory bonus: calculate and pay for eligible employees within the prescribed time. Check the current eligibility ceiling and minimum and maximum percentages.
• Gratuity: review eligibility, provision liability and check the current ceiling.
• Labour Welfare Fund: pay in states that levy it, usually half-yearly or annually.
• Leave encashment: settle per policy and law, and apply the correct tax treatment.
• Minimum wages: check revisions for every state and skill category, including variable dearness allowance updates, typically notified twice a year.
• Salary structure review: re-check against the Labour Codes' wage definition after any appraisal cycle.

9. Full and final settlement

Exits are where compliance slips most often. For every leaver, confirm:

1. Last working day and notice period recovery or waiver are recorded.
2. Pending salary, leave encashment, bonus and gratuity (if eligible) are calculated.
3. Recoveries (advances, assets, notice shortfall) are documented and agreed.
4. TDS is computed on the final settlement.
5. Settlement is paid within the time limit under the Code on Wages.
6. Exit is marked on the PF and ESI portals, and relieving and experience letters are issued.

10. Records and audit readiness

• Keep wage registers, attendance, leave and deduction records in the prescribed format, ideally electronically.
• Save every challan, return acknowledgement and payment proof by month and by state.
• Keep a change log for salary revisions with approvals.
• Reconcile statutory deposits against payroll registers every month, not just at year end.

Make it repeatable

The best payroll teams don't rely on memory. They run the same checklist every month, with attendance and leave locked before processing and every statutory figure reconciled before payment. Qrew HR Payroll & Compliance handles PF, ESI, Professional Tax and TDS calculations alongside payslips and reports, so your team can focus on checking, not computing.

This article is general guidance, not legal or tax advice. Laws, rates and due dates change, and state rules vary. Confirm current requirements with official sources or a qualified advisor.