Cost Examples, TCO and Selection Checklists
Multi-state payroll for a 45-person services firm: professional tax, LWF, TDS and costs worked through
A worked example of payroll software for an Indian services firm with staff in four states: PT and LWF by location, TDS under both regimes, EPF and an illustrative cost comparison.
A services firm with people in several states needs payroll software that applies professional tax and labour welfare fund by work location, handles mid-year transfers, projects TDS under both regimes for well-paid staff, and keeps EPF right at the new ₹25,000 ceiling. Most employees earn above the ESI limit, so ESI matters only for a few junior staff. In the illustrative example below, software costs about ₹81,000 a year for 45 people, against about ₹2.16 lakh for a bureau. The firm, figures and prices are illustrative.
This guide belongs to the best-fit selection method.
The firm
| Item | Illustrative profile |
|---|---|
| Business | IT and consulting services, one company |
| Staff | 45: 20 in State A, 12 in State B, 8 in State C, 5 in State D |
| Salaries | ₹25,000 to ₹2,50,000 a month; median about ₹65,000 |
| Payroll today | A bureau at ₹400 per employee per month |
| Extra needs | Reimbursements, remote attendance, self-service tax declarations |
The states are labelled A to D because PT and LWF rules differ and change; take actual rules from each state's department.
State rules to configure (illustrative)
| State | Professional tax | Labour welfare fund | Other |
|---|---|---|---|
| A | Monthly slab, higher amount in one month | Half-yearly employee + employer contribution | Shops and establishments rules on leave |
| B | Monthly slab | Annual contribution | |
| C | No PT levied | No LWF | |
| D | Half-yearly PT | No LWF |
The pattern matters more than the numbers: four states can mean four PT schedules, two LWF calendars and separate employer registrations. Software that supports only one or two of your states leaves the rest to spreadsheets. See ESI, PT and LWF.
Transfers mid-year
An employee moves from State A to State C in October. From October:
- PT stops in A (after the last deduction for September) and nothing is deducted in C;
- LWF for A is due only if the employee is on the rolls there on the contribution date;
- TDS continues unchanged, because income tax is national;
- leave rules may change if state shops and establishments rules differ.
Ask the vendor to process this transfer in the demo.
TDS for well-paid staff
Illustrative example, new regime. Salary ₹18,00,000 a year. Taxable after ₹75,000 standard deduction = ₹17,25,000. Tax: ₹20,000 (4–8 lakh) + ₹40,000 (8–12 lakh) + ₹60,000 (12–16 lakh at 15%) + ₹25,000 (16–17.25 lakh at 20%) = ₹1,45,000; with 4% cess = ₹1,50,800, about ₹12,567 a month.
Same person, old regime declared on Form 124, with HRA exemption, home loan interest and the old 80C-type deductions totalling, say, ₹4,50,000: the software must apply the old slabs and ₹50,000 standard deduction and compare. Whether the old regime is better depends on the deductions; the software should show both estimates and leave the choice to the employee. See TDS on salary under the 2025 Act.
EPF for higher salaries
Most staff have code wages above ₹25,000. Mandatory PF is 12% of ₹25,000 = ₹3,000 each for employee and employer from 17 September 2026. If the firm's policy was to contribute on full basic, the excess is voluntary and must be shown separately. For a consultant with code wages of ₹60,000, contributing on full wages would be 12% × ₹60,000 = ₹7,200 each side, of which ₹4,200 would be voluntary. Decide the policy, configure it per employee, and communicate it. See EPF after the ₹25,000 ceiling.
Illustrative cost comparison
| Option | Calculation | Annual, before GST |
|---|---|---|
| Payroll-only SaaS with multi-state PT and LWF | 45 × ₹150 × 12 | ₹81,000 |
| Payroll + HR suite with reimbursements | 45 × ₹250 × 12 | ₹1,35,000 |
| Current bureau | 45 × ₹400 × 12 | ₹2,16,000 |
Extra in-house time with software: about 8 hours a month at ₹700 = ₹67,200 a year. Software total ≈ ₹1,48,200 (payroll-only) or ₹2,02,200 (suite), against ₹2,16,000 for the bureau plus the time spent sending inputs. One-time setup of, say, ₹45,000 pays back in well under a year with the payroll-only option: saving = ₹2,16,000 − ₹1,48,200 = ₹67,800; ₹45,000 ÷ ₹67,800 ≈ 0.66 years. Try it in the payback calculator.
What to test
- One employee in each state, including a PT special month and an LWF month.
- The October transfer from A to C.
- A senior employee choosing the old regime with HRA and home loan claims.
- Voluntary PF above the ceiling for one employee.
- A reimbursement claim with bills, and its tax treatment.
- Form 138 return data for a quarter, with all 45 employees.
Frequently asked questions
Do we need separate PT registrations in each state?
Usually yes where PT applies, for the employer and sometimes for enrolment. Check each state's PT department.
Is income tax different across states?
No, salary TDS is national under the Income-tax Act, 2025. Only state levies such as PT and LWF differ.
Do remote employees count in the state where they live?
PT and LWF generally follow the place of work or establishment. For remote staff, take advice on which state's rules apply.
Are these state rules real?
No. States A to D are illustrations of the patterns you will meet.
Sources
- Income Tax Department — salary TDS and regime rules
- EPFO — PF ceiling and voluntary contributions
- ESIC — ESI for junior staff
- Ministry of Labour and Employment — labour codes
- India Code — state PT and LWF Acts
