Payroll Process (SOP) for Startups

The payroll process is the monthly cycle that turns employee inputs into paid salaries and deposited statutory dues, leaving a record at every step. In a lean startup it runs as: collect inputs (attendance, new joiners and exits, variable pay, approved reimbursements), run payroll in a tool like Zoho Payroll, have the founder review the run before it goes out, approve it, disburse salaries through bank maker-checker, deposit statutory dues (TDS, PF, ESI, PT) by their due dates, issue payslips, and record everything in the accounting books. The whole point is that payroll is reviewed and approved by a second person before any money leaves, and every step lives in a tool with an audit trail.

Four main statutory deductions ride on Indian payroll. TDS on salary under Section 192 of the Income Tax Act is deducted based on each employee’s tax regime and deposited by the 7th of the next month. Provident Fund (PF) is deducted where the EPF Act applies and deposited by the 15th of the next month. Employees’ State Insurance (ESI) applies to employees earning up to the wage threshold and is also deposited by the 15th. Professional Tax (PT) is a state levy with state-specific slabs and due dates. You deduct the employee’s share, add the employer’s share where applicable, and deposit the total by each due date, then file the related returns.

Payroll should be reviewed and approved by a second person before any salary is disbursed, and in a lean startup that second person is usually the founder. Finance prepares the payroll run and the founder scans it before it goes out: total payroll cost, headcount, any new joiners or exits, and especially any salary changes, because a salary or compensation change always needs founder approval. This is the same two-person control used everywhere in the finance function: finance does the work, one other person approves. It means no single person can quietly add a name, inflate a salary, or change a bank account and pay it out unnoticed.

Salaries are disbursed through bank maker-checker, the same control used for every other payment. One person uploads the salary payment file into the bank (the maker) and a second person approves and releases it (the checker). The bank logs both actions, so the release itself becomes your approval evidence. Before release, reconcile the payment file total to the approved payroll run so the amount leaving the bank matches what was signed off. Any change to an employee’s bank details is a sensitive item that needs founder confirmation, ideally through a second channel, before finance updates the record, because a bank-detail change is a common route for payroll fraud.

For salary paid in a given month, TDS under Section 192 is deposited by the 7th of the following month (with a March-specific date for the year-end month). PF and ESI are both deposited by the 15th of the following month. Professional Tax due dates vary by state. Missing a due date triggers interest and penalties and, for TDS, can lead to disallowance of the expense, so the safest practice is to set calendar reminders a few days ahead of each date and to treat the statutory deposit as part of the payroll run, not a separate afterthought. Always verify the current dates, as rules change.

Keep the whole process inside tools that carry their own audit trail. Run payroll in Zoho Payroll, which logs the run, the register and the payslips; disburse through bank maker-checker, which logs the maker and checker; and post the payroll entry and the statutory deposits in your accounting software, which under India’s MCA rules must keep an edit log switched on. The records an auditor or diligence team asks for are the monthly payroll register, the salary payment proof, the approval of the run, the challans for TDS, PF, ESI and PT, and the filed returns. If a salary change or an exit was approved over email or chat, save that back into the record. Run this way and the documentation is a byproduct of paying people, not extra work later.

The simplest lean practice is to reimburse approved expense claims monthly, together with the payroll cycle, rather than running a separate off-cycle payment. Every claim needs a receipt and must sit within its category limit before it is approved, and only approved claims are picked up as a payroll input for that month. Paying reimbursements with salary keeps one payment run, one approval, and one clean record instead of scattered ad hoc transfers, and it keeps the reimbursement inside the same audit trail as the rest of payroll.