Hiring Your First Employee in India — Complete Checklist (2026)

Hiring your first employee is a milestone for any founder. In this guide, we cover everything you need to do — from offer letter to PF / ESI / payroll / TDS.

Pre-Hiring Checklist

• Define the role: job description, responsibilities, qualifications, experience, CTC
• Decide employment type: full-time / part-time / contract / internship
• Set up payroll: Tally, Zoho Payroll, Razorpay Payroll, KredX, or similar
• Set up PF + ESI registration (if applicable, see below)
• Prepare offer letter + appointment letter templates
• Set up bank account for salary payments
• Open salary account in employee's name

PF / ESI Registration

• PF registration if 20+ employees (or 10+ in some states)
• ESI registration if 10+ employees (or 20+ in some states)
• Allocate UAN for all employees (UAN activation)
• IP number (ESI) for all eligible employees

Offer Letter + Appointment Letter

Issue an offer letter first, then an appointment letter on joining. Must include: name, designation, CTC, salary structure, working hours, leave policy, probation, termination, confidentiality, non-compete (where allowed).

On Joining

• Collect: PAN, Aadhaar, address proof, education certificates, experience letters, bank details, photo
• Run background check (employment, education, criminal, reference)
• Sign appointment letter + NDA + non-compete
• Activate UAN (if PF applicable)
• Enrol in ESI (if applicable)
• Add to payroll (Tally, Zoho, Razorpay, etc.)
• Open salary account (if bank-issued)
• Set up email + system access
• Orient + train (HR + manager + team)

Monthly Payroll

• Compute gross salary + deductions (employee PF, ESI, PT, TDS)
• Compute net salary
• Generate payslip
• Bank transfer (or cheque) for net salary
• Pay employee PF (12% of basic, max ₹1,800 basic) + employer PF (12%)
• Pay employee ESI (0.75% of gross) + employer ESI (3.25%)
• Pay Professional Tax (state-wise, ₹200/month in most states)
• Deduct + deposit TDS on salary (if applicable, > ₹2.5L net basic)
• File monthly PF return (ECR)
• File monthly ESI return
• Issue Form 16 (by 15 June of next FY)

TDS on Salary

TDS on salary is deducted at slab rate. Threshold: net taxable income > basic exemption (₹2.5L old / ₹3L new). Employer must consider: employee's investment declarations, regime choice, HRA, LTA, etc. Deposit TDS by 7th of next month. Issue Form 16 by 15 June.

Termination + Exit

• Resignation letter (employee)
• Acceptance letter (employer)
• Notice period (per appointment letter, typically 1-3 months)
• FnF (Full and Final) settlement: salary, leave encashment, gratuity (if applicable), bonus
• TDS on FnF
• Experience letter + relieving letter
• No-dues form (return of company assets)
• Exit interview (optional but recommended)
• Deactivate UAN (optional, if employee has no other EPF account)
• Update Form 5 (if applicable)

Common Mistakes to Avoid

• Not registering for PF / ESI when threshold is crossed
• Not collecting proper documents on joining
• Not having a proper appointment letter (informal hiring)
• Late salary payment (illegal in some states)
• Wrong TDS calculation (employee has refund / additional tax issues)
• Not issuing Form 16 (employee cannot file ITR)
• Not depositing PF / ESI on time (penalty + interest)
• Wrong classification of employees (full-time vs contract)
• Not maintaining attendance + leave records

Frequently Asked Questions