10 Questions Every Small Business Owner Asks About Payroll in India — Answered Simply
Running a small business in India means you wear many hats. You handle sales, manage customers, supervise operations, and somewhere in between, you also have to figure out how to pay your employees correctly every month.
Payroll sounds like it should be simple. Calculate the salary, transfer the money, done. But the moment you start digging into PF contributions, ESI deductions, TDS calculations, and compliance deadlines, it gets overwhelming fast.
If you have ever typed “how does payroll work in India” into Google or asked ChatGPT to explain salary processing, you are not alone. These are the 10 most common payroll questions that small business owners across India ask, answered in plain language with real numbers.
Question 1: What Exactly Is Payroll, and What Does It Include?
Payroll is the complete process of calculating employee compensation and making sure every rupee reaches the right place, whether that is the employee’s bank account, the government’s PF portal, or the income tax department.
It is not just “sending salary.” Here is everything payroll includes:
| Payroll Component | What It Means |
|---|---|
| Salary Calculation | Computing gross pay, deductions, and net pay for each employee |
| Attendance Tracking | Recording working days, leaves, overtime, and half days |
| Statutory Deductions | Calculating PF, ESI, Professional Tax, and TDS amounts |
| Employer Contributions | Adding employer’s share of PF (13%), ESI (3.25%), and gratuity |
| Payslip Generation | Creating salary slips with earnings and deductions breakdown |
| Bank Transfer | Disbursing net salary to employee bank accounts |
| Government Filing | Depositing PF, ESI, TDS with respective departments |
| Return Filing | Submitting monthly and quarterly compliance returns |
| Year End Processing | Generating Form 16, computing final tax liability |
The simple way to think about it: Payroll is everything between “this person worked X days this month” and “their correct salary is in their bank account and all government dues are filed.”
For a detailed walkthrough of the entire process, read our complete guide to payroll processing in India.
Question 2: What Is the Difference Between CTC, Gross Salary, and In Hand Salary?
This is probably the single most confusing topic for both employers and employees. When you offer someone a “₹6 lakh package,” they expect ₹50,000 per month in their bank account. But that is not how it works.
Here is the breakdown:
| Term | What It Means | What’s Included |
|---|---|---|
| CTC (Cost to Company) | Total amount the company spends on an employee per year | Everything: salary + employer PF + employer ESI + gratuity + insurance + any other benefits |
| Gross Salary | The salary before any deductions are taken out | Basic + HRA + DA + Special Allowance + all other allowances |
| Net Salary (In Hand) | The amount actually credited to the employee’s bank account | Gross Salary minus employee PF, ESI, Professional Tax, and TDS |
Real example with numbers:
| Component | Monthly Amount (₹) |
|---|---|
| CTC | 50,000 |
| Minus: Employer PF (12% of ₹15,000 basic) | 1,800 |
| Minus: Employer ESI (3.25% of gross, if applicable) | 0 (not applicable above ₹21,000 gross) |
| Minus: Gratuity provision (4.81% of basic) | 722 |
| Gross Salary | 47,478 |
| Minus: Employee PF (12% of ₹15,000 basic) | 1,800 |
| Minus: Professional Tax | 200 |
| Minus: TDS (estimated) | 1,500 |
| Net Salary (In Hand) | 43,978 |
That is a gap of ₹6,022 between what the company pays (₹50,000) and what the employee receives (₹43,978). For a detailed explanation of every component, see our guide on decoding CTC.
Why this matters for you as a business owner: When you are budgeting for a new hire, always think in terms of CTC, not in hand salary. Your actual cost is always 20% to 30% higher than what the employee sees in their bank account.
Question 3: Do I Have to Deduct PF and ESI? What Are the Rules?
This is where most small business owners get confused. The rules depend on how many employees you have and how much they earn.
Provident Fund (PF) Rules:
| Rule | Detail |
|---|---|
| Mandatory for | Establishments with 20 or more employees |
| Voluntary for | Smaller establishments (can opt in voluntarily) |
| Employee contribution | 12% of basic salary (capped at ₹15,000 basic per month) |
| Employer contribution | 12% of basic salary (3.67% to EPF + 8.33% to EPS, capped) |
| Maximum monthly deduction | ₹1,800 each from employee and employer (on ₹15,000 cap) |
| Admin charges (employer) | 0.50% of basic wages |
| EDLI charges (employer) | 0.50% of basic wages |
ESI (Employee State Insurance) Rules:
| Rule | Detail |
|---|---|
| Mandatory for | Establishments with 10 or more employees (some states: 20+) |
| Applicable to employees earning | Gross salary up to ₹21,000 per month |
| Employee contribution | 0.75% of gross salary |
| Employer contribution | 3.25% of gross salary |
| Total ESI | 4% of gross salary |
Quick decision table for small businesses:
| Your Situation | PF Required? | ESI Required? |
|---|---|---|
| 5 employees, all earning above ₹21,000 | No (below 20 threshold) | No (below 10 threshold + salary above limit) |
| 15 employees, some earning below ₹21,000 | No (below 20 threshold) | Yes (10+ employees, ESI applies to those below ₹21,000) |
| 25 employees | Yes (20+ threshold crossed) | Yes (10+ threshold crossed, applies to eligible employees) |
| 8 employees, all earning above ₹21,000 | No | No (even if 10+ in some states, salary exceeds ₹21,000) |
Once you cross the threshold, PF registration is mandatory. Not registering can lead to penalties, prosecution, and even arrest warrants. Read more in our detailed guide on PF and ESI compliance.
Question 4: What Is TDS on Salary and How Do I Calculate It?
TDS (Tax Deducted at Source) is the income tax you deduct from your employee’s salary every month and deposit with the government on their behalf.
Who needs to deduct TDS:
Any employer paying salary above the basic exemption limit must deduct TDS. Under the new tax regime (default from AY 2024-25), the exemption limit is ₹4,00,000 per year.
How TDS on salary works (step by step):
| Step | What You Do |
|---|---|
| 1 | Estimate the employee’s total annual taxable income |
| 2 | Subtract standard deduction (₹75,000 under new regime) |
| 3 | Apply the applicable tax slab rates |
| 4 | Divide annual tax by 12 to get monthly TDS |
| 5 | Deduct this amount from salary every month |
| 6 | Deposit TDS with the government by 7th of next month |
New Tax Regime Slabs (AY 2026-27):
| Annual Income | Tax Rate |
|---|---|
| Up to ₹4,00,000 | 0% |
| ₹4,00,001 to ₹8,00,000 | 5% |
| ₹8,00,001 to ₹12,00,000 | 10% |
| ₹12,00,001 to ₹16,00,000 | 15% |
| ₹16,00,001 to ₹20,00,000 | 20% |
| ₹20,00,001 to ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Example: An employee earning ₹10,00,000 per year under the new regime:
| Calculation Step | Amount (₹) |
|---|---|
| Gross salary | 10,00,000 |
| Minus: Standard deduction | 75,000 |
| Taxable income | 9,25,000 |
| Tax on first ₹4,00,000 | 0 |
| Tax on ₹4,00,001 to ₹8,00,000 (5%) | 20,000 |
| Tax on ₹8,00,001 to ₹9,25,000 (10%) | 12,500 |
| Total tax | 32,500 |
| Plus: 4% cess | 1,300 |
| Total annual TDS | 33,800 |
| Monthly TDS deduction | 2,817 |
Important: Under the new regime, income up to approximately ₹12,75,000 is effectively tax free due to the Section 87A rebate of ₹60,000. Employees earning up to this level will have zero TDS.
For a complete TDS guide, read our article on TDS on salaries for employers.
Question 5: When Must I Pay Salaries? Is There a Legal Deadline?
Yes. The Payment of Wages Act, 1936 sets clear deadlines, and missing them can result in penalties.
Legal salary payment deadlines:
| Company Size | Salary Must Be Paid By |
|---|---|
| Fewer than 1,000 employees | 7th of the following month |
| 1,000 or more employees | 10th of the following month |
What this means practically: If your employee worked in September 2026, their September salary must reach their bank account by October 7th (for most small businesses).
Monthly compliance calendar:
| Date | What’s Due |
|---|---|
| 1st to 5th | Collect attendance data, process leave, calculate overtime |
| 5th to 6th | Run payroll calculations, verify salary figures |
| 7th | Deposit TDS for previous month (government deadline) |
| 7th | Pay salaries to employees (legal deadline for most SMEs) |
| 15th | File PF ECR (Electronic Challan cum Return) and deposit PF |
| 15th | Deposit ESI contribution |
| Varies by state | Deposit Professional Tax |
| End of month | Generate payslips and distribute to employees |
Penalties for late salary payment:
| Violation | Penalty |
|---|---|
| First offence (delayed salary) | Fine of ₹1,500 to ₹7,500 |
| Repeat offence | Fine up to ₹22,500 or imprisonment up to 6 months, or both |
| Late PF deposit | 12% annual interest + damages of 1% per month |
| Late ESI deposit | 12% annual interest on delayed amount |
| Late TDS deposit | Interest at 1.5% per month of delay |
Pro tip: Set up your payroll process so calculations happen between the 1st and 5th, verification on the 6th, and payments go out on the 7th. This gives you a buffer while staying within the legal deadline. Our payroll compliance checklist covers every due date.
Question 6: What Is Professional Tax and Do I Have to Deduct It?
Professional Tax (PT) is a state level tax that employers must deduct from employee salaries and deposit with the state government. Despite the name, it applies to all salaried employees, not just “professionals.”
Key facts about Professional Tax:
| Detail | Information |
|---|---|
| Maximum amount | ₹2,500 per year (constitutional cap under Article 276) |
| Who pays | Both the employer (for registration) and employees (deducted from salary) |
| Applicability | Varies by state. Not all states levy Professional Tax |
| Payment frequency | Monthly (most states) or annual |
States that levy Professional Tax:
| State/UT | Monthly PT for Salary Above ₹15,000 | Annual Maximum |
|---|---|---|
| Maharashtra | ₹200 per month (₹300 in February) | ₹2,500 |
| Karnataka | ₹200 per month | ₹2,400 |
| West Bengal | ₹200 per month | ₹2,400 |
| Andhra Pradesh | ₹200 per month | ₹2,400 |
| Telangana | ₹200 per month | ₹2,400 |
| Tamil Nadu | ₹208 per month (approx.) | ₹2,500 |
| Gujarat | ₹200 per month | ₹2,400 |
| Madhya Pradesh | ₹208 per month (approx.) | ₹2,500 |
| Kerala | ₹208 per month (approx.) | ₹2,500 |
| Bihar | ₹208 per month (approx.) | ₹2,500 |
| Odisha | Abolished from April 2024 | ₹0 |
States with NO Professional Tax: Delhi, Haryana, Uttar Pradesh, Rajasthan, Punjab, Uttarakhand, Himachal Pradesh, Jammu & Kashmir, and others.
What you must do as an employer:
- Register for Professional Tax in your state (if applicable)
- Deduct PT from employee salaries based on the state’s slab rates
- Deposit PT with the state government by the due date (usually 15th or end of month)
- File monthly or annual PT returns as required by your state
Learn more about all statutory compliance obligations.
Question 7: How Do I Calculate Salary for an Employee Who Joins or Leaves Mid Month?
This is one of the most common practical payroll questions, and getting it wrong leads to employee disputes.
Two methods for calculating pro rata salary:
Method 1: Calendar Day Basis (Most Common)
Formula: (Monthly Salary ÷ Total Calendar Days in Month) × Days Worked
Method 2: Fixed 30 Day Basis
Formula: (Monthly Salary ÷ 30) × Days Worked
Example: An employee with ₹30,000 monthly salary joins on September 16th.
| Method | Calculation | Salary Payable (₹) |
|---|---|---|
| Calendar Day Basis | (₹30,000 ÷ 30 days in September) × 15 days worked | ₹15,000 |
| Fixed 30 Day Basis | (₹30,000 ÷ 30) × 15 days worked | ₹15,000 |
In this case, both methods give the same result. But look at what happens in February (28 days) for an employee who joins on February 15th:
| Method | Calculation | Salary Payable (₹) |
|---|---|---|
| Calendar Day Basis | (₹30,000 ÷ 28) × 14 days worked | ₹15,000 |
| Fixed 30 Day Basis | (₹30,000 ÷ 30) × 14 days worked | ₹14,000 |
The difference is ₹1,000. For a team of 10 employees, these small differences add up. Most companies use the calendar day method because it is more accurate and fairer to employees.
What about deductions for pro rata months?
| Deduction | How to Handle Mid Month Joining/Leaving |
|---|---|
| PF | Calculated on actual basic salary earned (pro rated) |
| ESI | Calculated on actual gross salary earned (pro rated) |
| Professional Tax | Most states: full month PT if employee works even one day |
| TDS | Recalculate annual projection based on actual months remaining |
For employees leaving mid month (last working day):
| Item | What to Pay |
|---|---|
| Pro rata salary | Salary for days worked in the final month |
| Leave encashment | Payment for unused earned/privilege leave |
| Bonus | Pro rata bonus if applicable under Payment of Bonus Act |
| Gratuity | If the employee has completed 5+ years of service |
| Notice period recovery | Deduct if the employee has not served full notice |
| Full and final settlement | Complete all payments within 2 working days (under new labour codes) |
For a detailed understanding of salary components that go into these calculations, see our guide on salary structure in India.
Question 8: What Records and Documents Must I Maintain for Payroll?
Indian labour laws require employers to maintain specific payroll records. During an inspection by a PF, ESI, or labour department officer, you must produce these documents. Not having them can result in penalties.
Mandatory payroll records:
| Record | What It Contains | Retention Period |
|---|---|---|
| Muster Roll / Attendance Register | Daily attendance of every employee | 3 years after last entry |
| Wage Register | Salary details, deductions, net pay for each employee | 3 years after last entry |
| Payslips / Salary Slips | Monthly earnings and deductions breakdown | 3 years minimum |
| PF Records | ECR filings, contribution details, employee UAN | Permanent |
| ESI Records | Contribution challans, IP numbers | 5 years |
| TDS Records | Form 16, Form 24Q filings, challan receipts | 7 years (per Income Tax Act) |
| Leave Records | Leave applications, approvals, leave balance | 3 years |
| Employment Contracts | Appointment letters, salary revision letters | Duration of employment + 3 years |
| Full and Final Settlement | Final payment records for exited employees | 3 years after exit |
| Bonus Register | Bonus calculation sheets, payment records | 3 years |
| Professional Tax Receipts | PT challans, return acknowledgements | 5 years |
Documents you must give employees:
| Document | When to Provide |
|---|---|
| Appointment Letter | On joining |
| Salary Slip / Payslip | Every month (mandatory) |
| Form 16 / TDS Certificate | By June 15th every year |
| PF Account Statement | On request (or guide employee to check on EPFO portal) |
| Experience Letter | On exit from the company |
| Full and Final Settlement Statement | Within 2 working days of last working day |
| Relieving Letter | On exit from the company |
Pro tip: Maintaining all these records manually in Excel spreadsheets is technically possible, but it becomes unmanageable beyond 10 employees. Even simple record keeping errors during a PF or ESI inspection can lead to penalties. That is why most businesses switch to payroll software once they cross 5 to 10 employees.
Question 9: Should I Use Excel or Payroll Software for My Small Business?
This is the practical question every growing business faces. Here is an honest comparison:
Excel vs Payroll Software: Side by Side
| Factor | Excel / Manual | Payroll Software (like SalaryBox) |
|---|---|---|
| Setup cost | Free (if you already have Excel) | Free to ₹5,000+ per month depending on features |
| Time per payroll cycle | 2 to 5 days for 15 to 20 employees | 30 minutes to 2 hours for the same size |
| Compliance calculations | You must know and apply every PF, ESI, TDS rule manually | Automatic calculation with updated rules |
| Error rate | High (formula mistakes, copy paste errors, missed updates) | Very low (system validates before processing) |
| Payslip generation | Manual formatting for each employee | One click for all employees |
| Statutory filing | You manually fill online portals (EPFO, TRACES, ESIC) | Direct filing or auto generated challans |
| Audit trail | Difficult to track who changed what | Complete change history |
| Scalability | Becomes painful beyond 15 to 20 employees | Handles 5 to 5,000+ employees |
| Legal compliance | You bear full responsibility for staying updated | Software updates rules automatically |
| Data security | Stored on local computer (vulnerable to crashes, theft) | Cloud storage with encryption and backups |
When Excel is fine:
| Situation | Why Excel Works |
|---|---|
| 1 to 5 employees | Volume is low enough to manage manually |
| All employees on the same salary | No complex calculations needed |
| No PF/ESI obligations | Fewer compliance requirements |
| Owner personally handles payroll | You know every detail yourself |
When you should switch to payroll software:
| Trigger | Why Software Is Better |
|---|---|
| More than 10 employees | Manual tracking becomes error prone |
| PF and ESI registration needed | Compliance calculations are complex |
| Employees in multiple states | Professional Tax varies by state |
| You have hired an accountant just for payroll | Software costs less than an extra salary |
| You missed a compliance deadline | The penalty alone is more than a year’s software cost |
| Employees complain about salary discrepancies | Software eliminates calculation errors |
For a detailed comparison of the two approaches, read our analysis on payroll management: Excel vs Software.
Question 10: What Are the Most Common Payroll Mistakes and How Do I Avoid Them?
After helping thousands of Indian small businesses manage payroll, these are the mistakes we see most often:
Top 10 payroll mistakes small businesses make:
| # | Mistake | What Goes Wrong | How to Fix It |
|---|---|---|---|
| 1 | Not registering for PF when you cross 20 employees | Penalty up to ₹5,000 per day + prosecution. EPFO officers can issue arrest warrants. | Register within 30 days of crossing the threshold |
| 2 | Paying salary in cash without records | No audit trail. Violates Income Tax Act for amounts above ₹10,000. | Always use bank transfers. Maintain wage register. |
| 3 | Not deducting TDS from salaries | You become liable for the tax amount plus interest (1.5% per month) | Deduct TDS every month and deposit by the 7th |
| 4 | Using the wrong PF wage base | Over deducting or under deducting PF. Employee complaints and PF department notices. | PF applies on basic + DA. Use ₹15,000 cap correctly. |
| 5 | Missing ESI for eligible employees | ESI department penalties, 12% interest on delayed contributions | Check gross salary every month. If below ₹21,000, ESI applies. |
| 6 | Not issuing payslips | Violation of Payment of Wages Act. Employee disputes during exits. | Generate and share payslips every month without fail. |
| 7 | Wrong leave balance calculations | Overpaying or underpaying during leave encashment at exit | Track leaves in a system, not on paper or memory |
| 8 | Ignoring Professional Tax | State government notices and penalties for non compliance | Check if your state levies PT. Register and deduct accordingly. |
| 9 | Late salary payments | Legal penalty of ₹1,500 to ₹7,500 for first offence. Employee morale drops. | Process payroll by 5th, pay by 7th every month. |
| 10 | Not maintaining records for 3+ years | Cannot produce documents during labour inspection. Adverse orders. | Keep digital and physical copies. Use cloud based storage. |
The cost of payroll mistakes:
| Mistake Type | Potential Financial Impact |
|---|---|
| Late PF deposit (₹50,000 PF amount, 3 months late) | Interest: ₹1,500 + Damages: ₹1,500 = ₹3,000 penalty |
| Non registration of PF (25 employees, 1 year) | Back payment of contributions + interest + prosecution |
| Late TDS deposit (₹1,00,000 TDS, 2 months late) | Interest: ₹3,000 + late filing fee: ₹200/day |
| Missing one employee’s ESI coverage | Back contribution + 12% interest + potential prosecution |
| No payslips for 12 months | Fine during inspection + adverse order |
Read our complete article on payroll mistakes that can haunt your business for more real world examples.
Bonus: Quick Reference Card for Indian Small Business Payroll
Here is a single table you can save or print. It covers the essential numbers every small business owner should know:
| Item | Rate / Limit | Your Action |
|---|---|---|
| PF employee contribution | 12% of basic (capped at ₹15,000) | Deduct from salary |
| PF employer contribution | 12% of basic (3.67% EPF + 8.33% EPS) | Pay from company funds |
| ESI employee contribution | 0.75% of gross | Deduct from salary (if gross ≤ ₹21,000) |
| ESI employer contribution | 3.25% of gross | Pay from company funds (if gross ≤ ₹21,000) |
| Professional Tax | ₹200/month (varies by state) | Deduct from salary (if your state levies PT) |
| TDS on salary | Based on income tax slab | Deduct monthly, deposit by 7th |
| Salary payment deadline | 7th of the following month | For businesses with fewer than 1,000 employees |
| PF deposit deadline | 15th of the following month | File ECR and make payment |
| ESI deposit deadline | 15th of the following month | Make online payment through ESIC portal |
| Gratuity eligibility | 5 years of continuous service | Provision 4.81% of basic monthly |
| Statutory Bonus | 8.33% to 20% of salary | For employees earning up to ₹21,000/month |
| Minimum basic salary | 50% of total remuneration | Under Code on Wages, 2019 (effective November 2025) |
For more on Indian payroll tax structure and how all these components work together, we have a comprehensive guide.
How SalaryBox Makes All of This Simple
If you have read through all 10 questions and thought “this is a lot to manage every month,” you are right. It is. And that is exactly why over 1,00,000 Indian businesses use SalaryBox to handle payroll.
Here is what SalaryBox handles for you automatically:
| Payroll Task | How SalaryBox Handles It |
|---|---|
| CTC to in hand calculation | Enter CTC once. The system splits it into basic, HRA, PF, ESI, and all other components. |
| PF and ESI calculations | Automatic calculation based on current rules. Handles threshold logic for you. |
| TDS computation | Auto calculates based on the employee’s tax regime choice and investment declarations. |
| Professional Tax | State wise PT slabs built in. Deducts the correct amount based on work location. |
| Payslip generation | One tap payslips for all employees, ready to share on WhatsApp or email. |
| Attendance tracking | GPS based attendance, face recognition, or manual entry. Your choice. |
| Compliance reminders | Get notified before PF, ESI, and TDS deadlines so you never miss a date. |
| Record keeping | All payroll data stored securely in the cloud with full audit trail. |
| Salary disbursement | Direct bank transfer to all employees in one click. |
You focus on growing your business. SalaryBox handles the payroll math, compliance, and deadlines.
Frequently Asked Questions (FAQs)
Q1: What is the minimum number of employees to start formal payroll in India?
There is no minimum number. Even if you have one employee, you must maintain proper salary records, issue payslips, and deduct TDS if their income exceeds the exemption limit. PF becomes mandatory at 20 employees, and ESI at 10 employees (varies by state). But good payroll practices should start from your very first hire.
Q2: Can I pay my employees in cash?
The Income Tax Act restricts cash salary payments exceeding ₹10,000 in a single day. Any payment above this limit must be made through banking channels (bank transfer, cheque, or NEFT/RTGS/UPI). Even for amounts below ₹10,000, bank transfers are strongly recommended for maintaining proper audit trails and simplifying compliance.
Q3: What happens if I deduct PF but do not deposit it with the government?
This is a criminal offence under Section 405/406 of the Indian Penal Code (criminal breach of trust). The EPFO can initiate prosecution, issue arrest warrants, and impose damages of 1% per month on the delayed amount. Courts have repeatedly treated PF non remittance as a serious crime because the money belongs to the employee.
Q4: Do I need to generate payslips for all employees?
Yes. Under the Payment of Wages Act, 1936, every employer must provide a salary slip showing all earnings and deductions. This is not optional. Even for daily wage workers or contract employees, a record of payment must be maintained. Payslips also serve as proof during PF, ESI, or income tax inspections.
Q5: How do I decide the salary structure (basic, HRA, allowances) for my employees?
Under the Code on Wages, 2019 (effective from November 2025), basic salary plus dearness allowance must be at least 50% of the total remuneration. Within this rule, most companies set basic at 40% to 50% of CTC, HRA at 40% to 50% of basic, and the rest as allowances like special allowance, conveyance, and medical. The structure affects PF contributions, gratuity, and tax calculations.
Q6: When should I issue Form 16 to my employees?
Form 16 must be issued by June 15th of the assessment year. For FY 2025-26, the deadline is June 15, 2026. Form 16 is the TDS certificate that employees need to file their income tax returns. You generate it after filing your quarterly TDS returns (Form 24Q) on the TRACES portal. Not issuing Form 16 can attract a penalty of ₹100 per day per employee.
Q7: My employee’s gross salary crossed ₹21,000 after a raise. Do I stop ESI deductions?
Yes. ESI applies only to employees whose gross monthly salary is ₹21,000 or below. Once an employee’s gross crosses this threshold (after a salary revision or increment), ESI deductions stop from the next contribution period. However, the employee remains covered for medical benefits until the end of the contribution period in which the salary crossed the limit.
Q8: Is gratuity applicable for small businesses with fewer than 10 employees?
The Payment of Gratuity Act, 1972 applies to establishments with 10 or more employees. If your business has fewer than 10 employees, you are not legally required to pay gratuity. However, once you cross 10 employees, the Act becomes applicable, and it continues to apply even if your employee count later drops below 10. An employee must complete 5 years of continuous service to become eligible for gratuity.
