Third Party Payroll Service Provider in India
Third party payroll in India means handing salary calculation, tax deduction and statutory filings to an outside provider while the company stays the legal employer. A missed PF or TDS date brings interest and penalties, and a wrong payslip hurts trust faster than most HR errors. A provider that files on time and shows proof each month removes most of that risk.
What a Third Party Payroll Provider Does
| Area | What the provider handles |
| Salary processing | Gross to net pay, bonuses, overtime, incentives and arrears |
| Income tax | TDS calculation, deposit, quarterly returns, Form 16 |
| PF and ESIC | Registration, deduction, monthly remittance and returns |
| Professional tax | State wise deduction and filing where applicable |
| Benefits | Gratuity, leave encashment and insurance records |
| Payslips and reports | Payslips, payroll registers, cost reports and audit support |
| Employee queries | Answers on pay, deductions and tax declarations |
Payroll services are explained on the payroll services in India page.
Monthly and Yearly Payroll Calendar
| Obligation | Due date |
| PF and ESIC deposit | 15th of the following month |
| Salary TDS deposit | 7th of the following month; for March, up to 30 April |
| TDS return, Q1 to Q4 | 31 July, 31 October, 31 January and 31 May |
| Form 16 | By 15 June after the financial year ends |
PF and ESIC dates are from CorpReady, and the EPF wage ceiling is from SCC Online. TDS dates are from TaxAJ. Dates can be changed by government notice, so the provider should confirm the current calendar each year.
Statutory Rates to Build Into Payroll
| Item | Rate or rule |
| Employer EPF | 12% of wages (3.67% EPF and 8.33% EPS), plus 0.5% EDLI and 0.5% admin charges |
| Employee EPF | 12% of wages |
| EPF wage ceiling | ₹25,000 a month for mandatory coverage from 17 September 2026 (earlier ₹15,000) |
| Employer ESIC | 3.25% of wages for employees earning up to ₹21,000 a month |
| Employee ESIC | 0.75% |
| Final settlement | Within two working days of an exit under the labour codes |
| Fixed term gratuity | Payable after one year of service |
The four labour codes took effect on 21 November 2025, and some central and state rules were still being finalised as of early 2026 (DLA Piper). Payroll settings, contracts and exit calculations should follow the current rules.
Payroll Provider, PEO or Employer of Record
| Factor | Third party payroll | PEO | Employer of Record |
| Legal employer | The company | The company | The EOR |
| Indian entity needed | Yes | Yes | No |
| Scope | Payroll and related filings | Payroll, HR and compliance support | Employment, payroll, compliance and exit |
| Best for | Companies with an entity that need accurate payroll | Companies with an entity that need wider HR support | Companies hiring before an entity exists |
A company with no Indian entity cannot use payroll outsourcing alone, because someone must be the employer. In that case an Employer of Record in India is the route. A company with an entity that wants more than payroll can look at PEO services in India.
How Onboarding to a Payroll Provider Works
- Share headcount, locations, salary structures and special cases such as contractors or expatriates
- Transfer employee data, PF and ESIC numbers, tax details and past payroll records securely
- Run a parallel month, comparing the provider’s payroll with the current one
- Fix differences, then go live on the agreed pay date
- Receive monthly registers, filing proof and payslips
How to Choose a Payroll Provider
| Check | What a good answer looks like |
| Filing proof | PF, ESIC and TDS challans shared every month |
| Error handling | A review step before pay is released and a clear process for corrections |
| State coverage | Professional tax and local rules handled for each state |
| Data security | Stated storage location, access controls and backup practice |
| Fee clarity | Per employee fee with extras listed in writing |
| Service levels | Written deadlines for payroll input, processing and queries |
| Exit support | Final settlement calculations under the labour codes |
Common hiring and payroll questions are answered in the hiring in India FAQ.
Questions About Third Party Payroll in India
What is a third party payroll provider?
An outside firm that calculates salaries, deducts tax, files statutory returns and issues payslips for a company that remains the employer.
Does the company still carry compliance liability?
Yes, because it is the employer. The provider carries out the filings, and the contract should state who bears penalties for provider errors.
Can a foreign company use payroll outsourcing without an Indian entity?
No. Someone must be the legal employer. Without an entity, an Employer of Record employs the staff.
When are PF and TDS due?
PF and ESIC are due by the 15th of the next month. Salary TDS is due by the 7th of the next month.
What is the difference between payroll outsourcing and an EOR?
Payroll outsourcing handles salary and filings for the company’s own employees. An EOR becomes the employer and handles everything from contract to exit.