Hiring your first employee in India: the admin basics
Guides · · 3 min read · By Vikram Shah, Solutions, LogAI
The first hire is the moment a business stops being one person's hustle. It is also the moment a pile of admin appears: letters, registrations, leave rules, a payslip every month. None of it is hard, but it is easy to get wrong when nobody tells you the order.
This is the plain-language version of what a small business in India needs when it hires its first employee. Thresholds and rules change and vary by state, so treat this as the map and confirm the details with your CA or a labour consultant.
Before they start
- Offer letter, then an appointment letter. Role, start date, salary and how it is split, working hours, probation period, notice period, leave entitlement. Both of you sign.
- Documents: PAN, Aadhaar, bank account details, a passport-size photo, education and previous employment proof if relevant, and an emergency contact.
- Shops and Establishments registration under your state's Act, if you have not done it already. Most states require it within 30 days of opening and it governs working hours, weekly offs and leave.
- A professional tax registration if your state levies it (Kerala, Karnataka, Maharashtra, Tamil Nadu and others do).
PF and ESI: when they apply
The Employees' Provident Fund becomes mandatory once an establishment has 20 or more employees; below that you can register voluntarily, and some employees arriving from a PF-covered job will want you to. Employees' State Insurance applies once you have 10 or more employees (20 in some states) and covers staff earning up to ₹21,000 a month. For your first few hires neither is usually compulsory, but check the headcount rule for your state and plan for the day you cross it.
Write the leave policy down
Your state's Shops and Establishments Act sets the minimum: typically casual leave, sick leave and earned leave that accrues with service, plus paid national holidays. Write your policy in one page: how many days of each, how leave is requested and approved, whether it carries over, and what happens on notice. A policy that exists only in your head becomes a dispute the first time two people compare notes.
Attendance without a register
You do not need a biometric machine for a team of three, but you do need a record. A daily check-in on a phone, a shift roster if hours vary, and a simple way to fix a missed punch keep payroll honest and arguments short. The record matters most at month end, when attendance decides the salary.
What goes on a payslip
| Line | What it is |
|---|---|
| Basic | The core salary; PF and some leave encashment are calculated on it |
| HRA | House rent allowance, partly tax-free for employees who pay rent |
| Other allowances | Conveyance, special allowance and so on |
| Gross | Everything above added up |
| Deductions | Employee PF share, ESI, professional tax and TDS where applicable |
| Net pay | What reaches the bank account |
Deduct TDS once the employee's salary crosses the taxable threshold for the year, deposit it monthly and give them Form 16 after year end. Keep a copy of every payslip; employees need them for loans, visas and their next job.
The monthly routine
- Last working day: close attendance, approve pending leave and regularisations.
- Run payroll: attendance-based salary, deductions, net pay.
- Pay salaries and deposit PF, ESI, professional tax and TDS by their due dates.
- Send payslips. Keep the register.
LogAI's HR module covers this routine for small teams: employee records with documents, login access for each person, leave balances and policies, holidays and shifts, phone check-in with regularisation requests, monthly payroll runs on attendance, PDF payslips and expense claims, all inside the same app the rest of the business runs on. The statutory filings themselves still go through the government portals or your CA.
The first payslip took us a full day. By the third month it was twenty minutes.
Frequently asked questions
Is PF mandatory for my first employee?
Not usually. EPF becomes mandatory once an establishment has 20 or more employees. Below that you can register voluntarily, which some employees joining from a PF-covered job will ask for.
When does ESI apply to a small business?
Generally once you have 10 or more employees (20 in some states), for staff earning up to ₹21,000 a month. Confirm the threshold for your state.
What documents do I need from a new employee in India?
PAN, Aadhaar, bank details, a photo, education and previous employment proof where relevant, and an emergency contact, along with a signed offer and appointment letter.
What must a payslip show?
Basic salary, allowances such as HRA, gross pay, deductions (employee PF, ESI, professional tax, TDS) and net pay, with the month and attendance days.
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