For a fast-growing startup, every hour is dedicated to building the product, acquiring users, and delighting customers. In the rush to scale, critical back-office functions like payroll are often handled hastily with spreadsheets, viewed as a simple task of transferring salaries. However, this approach is filled with hidden risks. Simple, overlooked payroll mistakes can silently drain your budget, create serious compliance issues, and damage team morale.
Here are five of the most common—and costly—payroll mistakes that Indian tech startups make, and how to avoid them.
1. Incorrect Provident Fund (PF) Calculation
The Problem: One of the most frequent errors is calculating the employee’s PF contribution based on their total salary (Cost to Company or CTC) instead of the correct components. According to the law, PF should be calculated at 12% of the employee’s ‘Basic Salary + Dearness Allowance’. Including other allowances inflates the contribution, reduces the employee’s take-home pay, and complicates compliance.
2. Mismanaging Tax Deducted at Source (TDS)
The Problem: At the beginning of the financial year, employees are required to submit investment declarations to help calculate their tax liability. Startups often fail to collect these proofs on time or don’t account for them correctly. This forces them to deduct a higher TDS amount from the employee’s salary, leading to smaller paychecks, unhappy team members, and a scramble for corrections at the end of the year.
3. Forgetting State-Specific Professional Tax (PT)
The Problem: Professional Tax is a small tax on employment, but it’s a major compliance headache because the rules and deduction slabs are different in every single state. It’s an easy detail to miss, but failing to deduct and remit PT on time can lead to penalties and notices from state authorities.
4. Not Having a Clear Reimbursement Policy
The Problem: “My phone bill is a business expense, right?” “Is there a limit on my internet reimbursement?” Without a clear, documented policy, these questions create confusion and inconsistency. This not only wastes HR’s time but can also lead to unfair treatment and disputes within the team, hurting the company culture you’ve worked so hard to build.
5. Poor Record-Keeping for Compliance
The Problem: By law, Indian companies are required to maintain accurate payroll records for several years. Relying on scattered spreadsheets makes this nearly impossible. During an audit or inspection, failing to produce clean, organized records like digital payslips, salary registers, and proof of compliance can result in significant legal trouble and financial penalties.
Conclusion: The Path to Error-Free Payroll
These five mistakes are incredibly common, but they are also completely avoidable. The key is to build a reliable system instead of relying on manual, error-prone spreadsheets that put your growing business at risk.
Ready to eliminate these errors for good? Schedule a free demo with InPursuit Solutions today.
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