What you must do at employee one, and what only kicks in as you grow
Your first employee triggers a specific, manageable set of obligations: you need a TAN to deduct salary TDS under Section 192 (where the salary is taxable), you register under your state's Shops and Establishments Act, and you account for professional tax where your state levies it. Crucially, the heavier registrations do not apply yet: EPF generally applies from 20 employees, and ESI from 10 (for employees within the wage ceiling). Knowing the difference stops a first hire from feeling overwhelming.
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What you must do at your first employee
A small, clear set of steps.
Apply for a TAN (Tax Deduction Account Number) if you will deduct TDS
Deduct salary TDS under Section 192 where the employee's pay is taxable, and file quarterly TDS returns
Register under your state's Shops and Establishments Act
Register and deduct professional tax where your state levies it (PTRC for employees, PTEC for yourself)
Issue Form 16 to the employee after year-end
What does not apply yet (and when it will)
The heavier social-security registrations are threshold-based, so a first hire usually does not trigger them.
Headcount and wage thresholds
Obligation
Applies from
Note
EPF (provident fund)
20 employees
Voluntary coverage possible earlier
ESI (medical/sickness)
10 employees
For employees within the wage ceiling (around Rs 21,000/month)
Gratuity
10 employees
Payable after 5 years of service
Bonus (Payment of Bonus Act)
20 employees
For eligible employees within the wage limit
tipYou can register your employee on e-Shram, and offer voluntary EPF, before you hit the thresholds. But you are not legally obliged to run EPF/ESI for a single hire below the headcount.
The Labour Codes are coming
India's four consolidated Labour Codes (on wages, social security, industrial relations and occupational safety) are legislated but their full implementation has been phased and partly pending. They will eventually reshape some of these thresholds and definitions. Build your payroll on the current rules, but keep an eye on the Codes' rollout, this is forward reform, so treat any change as 'proposed to be' until it is actually in force in your state.
EPF and MP Act 1952; ESI Act 1948; Payment of Gratuity Act 1972; Payment of Bonus Act 1965
State Shops and Establishments Acts; state professional-tax Acts
Frequently asked questions
Do I have to run PF and ESI for my first employee?+
Generally no. EPF applies from 20 employees and ESI from 10 (for employees within the wage ceiling), so a single hire usually does not trigger either. You can offer voluntary EPF coverage earlier if you wish, but you are not legally obliged to for one employee below the thresholds.
What must I actually do at employee one?+
Get a TAN, deduct salary TDS under Section 192 where the pay is taxable and file quarterly TDS returns, register under your state's Shops and Establishments Act, and handle professional tax where your state levies it. Issue Form 16 after year-end. That is the core; the heavier registrations come later with headcount.
When does gratuity become payable?+
The Payment of Gratuity Act applies from 10 employees, and gratuity becomes payable to an employee who completes 5 years of continuous service (with exceptions for death or disablement). So a new, small employer with a recent first hire is not yet in gratuity territory, but should plan for it as the team grows.
Is there a tax benefit for hiring?+
Yes, Section 80JJAA gives a deduction for additional employee cost, an extra 30% of the additional wages paid to new eligible employees, for three years, subject to conditions. It is available to business taxpayers and survives under the new regime, so it is worth checking when you start hiring.