# Payroll Outsourcing Scope of Services: Deliverables, Exclusions, Employer Responsibilities

Published: 04 Nov 2026
Author: Treelife
Practice area: Finance
Tags: employer responsibilities in payroll outsourcing, payroll compliance India 2026, payroll outsourcing agreement India, payroll outsourcing deliverables, payroll outsourcing exclusions, payroll outsourcing scope of services, payroll vendor scope of work India, what is included in payroll outsourcing
Source: https://treelife.in/finance/payroll-outsourcing-scope-of-services/

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Blog Content Overview

- [0.1 What is included in the scope of payroll outsourcing services in India?](#What_is_included_in_the_scope_of_payroll_outsourcing_services_in_India)

- [1 What should a payroll outsourcing scope of services include each month?](#What_should_a_payroll_outsourcing_scope_of_services_include_each_month)
[1.1 What filing authority should the vendor hold?](#What_filing_authority_should_the_vendor_hold)
- [1.2 Which annual and event-based deliverables belong in the scope?](#Which_annual_and_event-based_deliverables_belong_in_the_scope)

- [2 What do payroll outsourcing exclusions usually cover?](#What_do_payroll_outsourcing_exclusions_usually_cover)
[2.1 How does payroll outsourcing differ from an employer of record arrangement?](#How_does_payroll_outsourcing_differ_from_an_employer_of_record_arrangement)
[2.1.1 Want your exclusions and owners written into the schedule? 
Let’s Talk](#Want_your_exclusions_and_owners_written_into_the_schedule_Let8217s_Talk)

- [3 Which employer responsibilities in payroll outsourcing cannot be delegated?](#Which_employer_responsibilities_in_payroll_outsourcing_cannot_be_delegated)
[3.1 Does outsourcing payroll shift legal liability to the vendor?](#Does_outsourcing_payroll_shift_legal_liability_to_the_vendor)

- [4 What changed in 2026 that a payroll outsourcing scope of services must reflect?](#What_changed_in_2026_that_a_payroll_outsourcing_scope_of_services_must_reflect)
- [5 How should service levels and acceptance tests be written?](#How_should_service_levels_and_acceptance_tests_be_written)
[5.1 How long should a parallel run last before go-live?](#How_long_should_a_parallel_run_last_before_go-live)

- [6 How should onboarding, exits and employee data be scoped?](#How_should_onboarding_exits_and_employee_data_be_scoped)
[6.1 Who owns payroll data and statutory logins after exit?](#Who_owns_payroll_data_and_statutory_logins_after_exit)

- [7 Common mistakes that cost time and money in payroll outsourcing](#Common_mistakes_that_cost_time_and_money_in_payroll_outsourcing)
- [8 FAQs on Payroll Outsourcing Scope of Services](#FAQs_on_Payroll_Outsourcing_Scope_of_Services)
- [9 Writing your payroll outsourcing scope of services before you sign](#Writing_your_payroll_outsourcing_scope_of_services_before_you_sign)

[9.0.0.1 Regulatory references](#Regulatory_references)

A payroll outsourcing scope of services decides who is accountable when a PF challan is missed, a payslip is wrong or a notice reaches the company. Most Indian proposals list processing, filings and payslips, then say little about approvals, data, exits and liability. Three changes make that gap costly in FY 2026-27: the Labour Codes in force since 21/11/2025, the Income-tax Act 2025 from 01/04/2026 and the PF wage ceiling of ₹25,000 from 17/09/2026. This article sets out what a vendor should deliver, what stays outside the engagement and what remains with the employer.

### What is included in the scope of payroll outsourcing services in India?

A payroll outsourcing scope in India covers monthly gross-to-net computation, payslips, salary disbursement files, statutory deductions for PF, ESI and professional tax, salary TDS under Section 392 of the Income-tax Act 2025, returns, full and final settlements and year-end tax certificates. Approvals, salary decisions, registrations in the employer’s name and statutory liability stay with the employer.

## What should a payroll outsourcing scope of services include each month?

A complete monthly scope covers input collection, gross-to-net computation, a reviewed payroll register, payslips, a bank disbursement file, statutory deposits and returns, accounting journals and a reconciliation pack. Each deliverable needs a named output, a due date and an owner for approval. A line that says “payroll processing” without these three attributes is a heading, not a scope.

Scope fails at the level of the single line item. A proposal that lists “payroll processing, statutory compliance and payslips” reads as complete, yet each phrase hides at least five tasks, and the employer and the vendor often count a different five. For a company with 90 employees across Maharashtra and Karnataka, the monthly cycle has eleven stages, shown in Table 1. Each stage has a deliverable, a piece of evidence and an input only the employer can supply.

**Table 1: Monthly payroll deliverables, evidence and employer input**

StageVendor deliverableEvidence you should receiveEmployer inputInputsCollect and validate joiners, leavers, attendance, leave, variable pay and reimbursements, through the HRMS or attendance feed where one existsInput checklist with an exceptions listSigned-off input file by the cut-off dateComputationGross-to-net for every employee, including PF, ESI, professional tax, Labour Welfare Fund and salary TDSDraft payroll register with variance against the previous monthReview of variances above an agreed thresholdApprovalFinal register after employer sign-offDated approval recordWritten approval by an authorised signatoryPayslipsPayslips in the prescribed format, published to employeesPayslip dispatch logSalary structure and policy changes notified in timeDisbursementBank upload file for salary creditFile with control totalsPayment release from the company’s bank accountStatutory depositsPF and ESI contribution files, professional tax and Labour Welfare Fund payments, TDS challanChallan copies and acknowledgementsFunding of the statutory amount before the due dateReturnsMonthly ECR, ESI contribution file, state professional tax returns, quarterly Form 138Filing acknowledgementsDigital signature or authorisation where a portal needs oneBooks and recordsPayroll journal, liability schedule and statutory registers kept in the prescribed formJournal with ledger mapping and register extractsChart of accounts and cost-centre mappingReportingPayroll cost report by department and cost centre, variance report, statutory dashboard, headcount movementMonthly MIS packReport format and cost-centre mapping approved onceReconciliationTie-out of register to challan to ledgerSigned reconciliationReview and query response within agreed daysEmployee supportPayslip portal access, tax declaration collection and a payroll query helpdesk with workingsQuery log with turnaround timePolicy answers for queries the vendor cannot decide

The evidence column matters more than the deliverable column. A filing acknowledgement, a dated approval and a signed reconciliation are what an auditor, an investor or a labour inspector will ask for later. Write them into the scope as outputs the vendor hands over every month, not as documents available on request. The TDS controls behind the returns row are covered in our note on [virtual CFO payroll and TDS compliance](https://treelife.in/finance/virtual-cfo-payroll-tds-compliance/).

### What filing authority should the vendor hold?

State the vendor’s authority for each filing as one of three levels: prepare, file under delegated access, or sign. Under all three the company is the deductor and the contributing employer, so keep the digital signature certificate and the portal registrations in the company’s custody and ask for a usage log.

- **Prepare:** the vendor prepares challans and return files, and the company’s authorised signatory uploads and signs them.

- **File under delegated access:** the vendor files through delegated portal access, and the authorised signatory approves in the system before submission.

- **Sign:** the vendor uses the company’s digital signature certificate on a written authority, with a log of every use.

### Which annual and event-based deliverables belong in the scope?

Annual and event-based work needs its own lines because it does not repeat monthly. It includes year-end tax certificates, declaration cycles, bonus and gratuity runs, off-cycle payments and full and final settlements. Price and schedule each one, otherwise it arrives as an unplanned request in the busiest weeks of the year.

- **Tax certificates:** Form 130 for tax year 2026-27, and Form 16 for FY 2025-26, which stays under the Income-tax Act 1961.

- **Declaration cycle:** collection of each employee’s tax regime choice and investment proofs, with dates set before the year-end run.

- **Statutory bonus:** computed under Chapter IV of the Code on Wages, 2019, which replaced the Payment of Bonus Act, 1965. For the Central sphere, notifications S.O. 4711(E) and S.O. 4710(E) of 25/08/2026, deemed effective from 21/11/2025, set eligibility at wages up to ₹21,000 a month and the calculation wage at ₹7,000 or the Central minimum wage, whichever is higher. Bonus for FY 2025-26 is payable within eight months of the year end, which is 30/11/2026. State notifications can differ, so the vendor needs a state-by-state ceiling table.

- **Gratuity:** computed on the wages definition in Section 2(y) of the Code on Wages, 2019, under Section 53 of the Code on Social Security, 2020.

- **Off-cycle runs:** late joiners, arrears and reversals, with a stated turnaround.

- **Full and final settlements:** wages, leave encashment, notice pay and recoveries inside the two working day limit in Section 17 of the Code on Wages, 2019, with gratuity paid within 30 days of becoming payable under the Code on Social Security, 2020.

- **State matrix:** professional tax slabs (capped at ₹2,500 a year by Article 276 of the Constitution) and Labour Welfare Fund contributions for each state of employment, kept current by the vendor and reviewed each quarter.

- **Letters and certificates:** salary certificates and employment verification letters.

## What do payroll outsourcing exclusions usually cover?

Payroll outsourcing exclusions are tasks that depend on the employer’s decisions, registrations or legal judgement, so a processing vendor does not take them on by default. They include [salary structuring](https://treelife.in/startups/salary-structuring-for-tax-saving-in-indian-startups/), offer letter terms, registrations in the employer’s name, ESOP valuation, gratuity provisioning, consultant payments and liability for penalties caused by late or wrong inputs. Write them down. Silence is read as inclusion by the employer and as exclusion by the vendor.

The pattern behind most exclusions is simple: the vendor can compute what the employer decides, but cannot decide for the employer. Table 2 lists the exclusions we see most often and where each one surfaces if nobody owns it.

**Table 2: Common exclusions, owners and failure points**

Excluded itemWhy it sits outside processingOwnerWhere it surfacesSalary structure and the 50% wages testNeeds a commercial decision on take-home versus employer costEmployer, with advisorPayslips that fail the wages definitionOffer and appointment lettersContract terms are legal documentsEmployer, HRDisputes on pay componentsPF, ESIC, professional tax and Labour Welfare Fund registrationsRegistrations are in the employer’s name and need authorised signatoriesEmployer, unless bought as a one-time serviceFirst filing delayedESOP perquisite valuationNeeds fair market value and vesting data from the cap tableEmployer, financeTDS short deducted on exerciseGratuity and leave encashment provisioningNeeds actuarial and accounting judgementEmployer, financeAudit adjustmentsConsultant and vendor paymentsNot salary; TDS falls under Section 393 of the Income-tax Act 2025Employer, accounts payableWrong TDS streamNotices and inspectionsResponse needs employer authority and factsEmployer, with advisorReply deadline missedPayroll policy questionsVendor explains the computation, not the policyEmployer, HREscalations to the founderPenalties from late inputsCaused by the employer’s own delayEmployerInterest and damages

Two drafting habits close most of these gaps. First, list every exclusion in the schedule with a named owner, not in a general carve-out clause. Second, separate exclusions from optional services. Registrations, ESOP perquisite workings and rerun requests can be bought from the vendor at a stated rate, which is different from being included. If the price card has no line for an item and the schedule has no owner for it, the item belongs to nobody and gets done late. For the registrations themselves, our guides on [PF compliance](https://treelife.in/compliance/pf-compliance-in-india/), ESI compliance and professional tax compliance set out who must register and when.

### How does payroll outsourcing differ from an employer of record arrangement?

Payroll outsourcing processes pay for people the company already employs, and the company stays the employer. An employer of record becomes the legal employer and carries the employment contract, which is a different engagement with different liability. This scope covers payroll outsourcing only. If a proposal mentions co-employment, treat it as a separate contract.

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Want your exclusions and owners written into the schedule? 
[Let’s Talk](javascript:void(0))

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## Which employer responsibilities in payroll outsourcing cannot be delegated?

The employer stays legally responsible for deducting and depositing tax, paying wages on time, contributing to PF and ESI, applying the wages definition and protecting employee data, whoever runs the payroll software. A vendor can perform the task. It cannot take over the statutory duty. Contract damages come from the vendor agreement, while penalties, interest and prosecution come from the statute and fall on the employer.

### Does outsourcing payroll shift legal liability to the vendor?

No. Section 392 of the Income-tax Act 2025 puts the duty to deduct tax on the person paying the salary, and the Code on Social Security, 2020 treats the establishment as the contributing employer. The vendor’s exposure is contractual and is usually capped at fees. Check the cap, the indemnity for vendor errors and whether interest and damages are recoverable.

The duties that stay with you, whichever vendor you appoint:

- **Wage payment timelines:** monthly salary before the end of the seventh day of the following month, and leaver dues within two working days of exit (Section 17, Code on Wages, 2019).

- **Deductions within limits:** total deductions from wages cannot exceed 50% of wages (Section 18, Code on Wages, 2019).

- **Salary TDS:** deduct under Section 392, Income-tax Act 2025, deposit the tax, file the quarterly statement on Form 138 and issue Form 130.

- **PF and ESI contributions:** pay the employer share and file the monthly return, with the ECR and ESI contribution due by the 15th (Code on Social Security, 2020).

- **Wages definition:** decide how pay is structured so that it meets the 50% test in Section 2(y), Code on Wages, 2019.

- **Registrations and credentials:** hold the PF, ESIC, professional tax, TAN and portal registrations in the company’s name and authorise each user.

- **Employee data:** remain the Data Fiduciary under Section 8(1) of the Digital Personal Data Protection Act, 2023, and engage the vendor as a Data Processor only under a valid contract (Section 8(2)). These duties commence on 13/05/2027, so write the processor terms into the agreement now.

- **Oversight of deposits and notices:** check each month on the TRACES, EPFO and ESIC portals that deposits have posted, and have statutory notices sent to a company mailbox and not the vendor’s.

- **Approval of the register:** no pay run leaves without a dated approval from an authorised signatory.

For the wider picture of what an employer carries for its people, see our note on company liabilities for employees.

## What changed in 2026 that a payroll outsourcing scope of services must reflect?

Six changes in force during FY 2026-27 touch payroll scope: the four Labour Codes with their single wages definition, the Code on Wages (Central) Rules, 2026, the move of salary TDS to Section 392 with Form 138 and Form 130, the 2026 EPF, EPS and EDLI Schemes, the statutory bonus ceilings notified on 25/08/2026, and the PF wage ceiling of ₹25,000 from 17/09/2026. A template drafted before 2026 may cite repealed sections and old form numbers.

**Table 3: 2026 changes and what each adds to payroll scope**

ChangeEffective dateAuthorityWhat to add to the scopeFour Labour Codes in force, 29 central laws repealed21/11/2025Ministry of Labour and Employment notificationMap payroll to the Code on Wages and the Code on Social Security; update payslip and register formatsCentral rules under the Codes08/05/2026Code on Wages (Central) Rules, 2026, G.S.R. 343(E)Registers and timelines kept as the Rules require; state rules tracked separately for professional tax and Labour Welfare FundEmployees’ Provident Fund Scheme, 2026, Employees’ Pension Scheme, 2026 and Employees’ Deposit Linked Insurance Scheme, 2026 replace the 1952, 1995 and 1976 schemes29/06/2026G.S.R. 525(E), 527(E) and 526(E) under Section 15, Code on Social Security, 2020Scheme references, returns and contribution heads in the vendor’s configuration updated to the 2026 SchemesStatutory bonus ceilings notified; bonus now under the Code on Wages25/08/2026, deemed effective from 21/11/2025S.O. 4711(E) and S.O. 4710(E), Section 26, Code on Wages, 2019Bonus run for FY 2025-26 scheduled before 30/11/2026, with the ₹21,000 eligibility and ₹7,000 calculation ceilings loadedWages definition with the 50% test21/11/2025Section 2(y), Code on Wages, 2019Structure review before the next run; PF base, bonus and gratuity recomputedSalary TDS under the new Act01/04/2026Section 392, Income-tax Act 2025Form 138 for quarterly statements and Form 130 for certificates for tax year 2026-27PF wage ceiling raised to ₹25,00017/09/2026Notification S.O. 5109(E), Ministry of Labour and EmploymentReconfigured contribution base, enrolment of newly covered employees, split-month computation for September 2026Update of establishment details on the Shram Suvidha portal by employers registered under older central labour lawsBy 08/11/2026Central Rules, 2026, six months from 08/05/2026Owner and date for the update, since registrations stay in the employer’s nameSeptember 2026 ECR date extended31/10/2026, September wage month onlyEPFO circular dated 13/10/2026A named owner who tracks circular-driven due date changes

Check the vendor’s templates against this table. Salary statements for periods from 01/04/2026 go on Form 138, and Form 24Q applies only to earlier periods, so a vendor whose paper still says 24Q has not updated its configuration.

The wages definition changes the arithmetic under every other row. Section 2(y) of the Code on Wages, 2019 adds back to wages any part of the excluded components that exceeds 50% of total remuneration. Take monthly remuneration of ₹80,000 with basic pay and dearness allowance of ₹28,000. The exclusions are ₹52,000, which is 65%, so ₹12,000 is added back and wages become ₹40,000. Gratuity for one year of service moves from ₹16,154 to ₹23,077 on the 15/26 formula (Section 53, Code on Social Security, 2020). The Ministry of Labour and Employment’s FAQs state that the revised definition applies from 21/11/2025. A vendor can compute this only after the employer decides whether to raise basic pay or accept the fold-back. Our note on salary structuring sets out the trade-offs, and the [Labour Code changes](https://treelife.in/legal/new-labour-law-in-india-2025/) explainer covers the other three Codes.

The PF change is mechanical but touches the whole month. From 17/09/2026 the ceiling is ₹25,000, so at the ceiling the employee’s 12% rises from ₹1,800 to ₹3,000, and the employer’s 12% rises by the same amount, before EDLI and administration charges of 0.5% each. September 2026 was a split month, with the old ceiling up to 16/09/2026 and the new one from 17/09/2026, and EPFO extended the September due date to 31/10/2026 for that month only. The ESI wage ceiling stays at ₹21,000 a month. A scope that does not say who identifies newly covered employees and who enrols them leaves a gap on exactly this kind of change.

Write a change-in-law clause for the next one. It should state:

- **Notice:** the vendor flags a notification within a set number of working days of its publication on the official portal.

- **Implementation:** the vendor reconfigures and tests before the next cycle, inside the monthly fee, unless the change adds a new return or a new service.

- **Approval:** the employer approves the configuration and any structure change in writing before the first run.

## How should service levels and acceptance tests be written?

Service levels turn a scope into dates. Each one needs a measure, an example shape and a consequence, and the set should be short enough to review every quarter. Three matter most: the input cut-off, the draft register turnaround and the correction window. Without them, a late joiner or a changed bonus sheet becomes an argument about whose delay it was. A vendor’s cut-off is an operational date and does not extend the seventh-day rule in Section 17 of the Code on Wages, 2019, so set it early enough to pay on time.

**Table 4: Service level schedule for a payroll outsourcing agreement**

Service levelWhat it measuresExample shapeConsequence if missedInput cut-offLast date for employer inputsThe 20th of each month, later inputs moved to an off-cycle runOff-cycle run charged at the price card rateDraft registerVendor turnaround after cut-offDelivered within a stated number of working daysEmployer review window extended by the delayCorrection windowDays in which inputs can change without a rerun chargeA fixed number of days after the draftRerun charged per runFiling bufferInternal deadline before each statutory dateA stated number of days before the due dateVendor bears the cost of late filing it causedQuery responseTime to answer employee and auditor queries with workingsA stated number of working daysEscalation to the account ownerAccuracy measureCorrections per runCounted and reviewed each quarterReview meeting and a remediation planCorrection communicationWho tells an employee about delayed or corrected payVendor drafts the note, employer sends it, within one working day of the correctionEmployee queries escalate to the employerPayday continuityFallback if the vendor’s system or portal is down on paydayA documented fallback that still pays salaries by the 7thAgreed manual fallback file, approved by the employer before releaseEvidence packMonthly handover of proofsDelivered with each closeTreated as an open deliverable, not a closed run

The figures in the example column show shape, not benchmarks. For the split between founder, [virtual CFO](https://treelife.in/services/virtual-cfo/), HR and external CA on TDS tasks, our responsibility matrix for payroll and TDS covers it, and this article does not repeat it.

### How long should a parallel run last before go-live?

One full cycle at minimum, with the vendor’s register compared line by line to the previous payroll. Use the run to settle every difference in basic pay, allowances, PF base and TDS, and record the agreed treatment in the scope schedule. Go live only when the net pay variance is explained for every employee.

## How should onboarding, exits and employee data be scoped?

Scope the edges as carefully as the monthly run: the data migration at the start, the full and final settlement for each leaver and the return of records when the contract ends. Under Section 17 of the Code on Wages, 2019, a leaver’s dues must be paid within two working days, so the exit workflow cannot wait for the next monthly cycle.

Onboarding is where scope errors enter. A mid-year switch needs opening balances for year-to-date salary, TDS, PF and ESI, and for employees who joined during the year, income from the previous employer. If these are not listed as employer inputs with a date, the vendor computes TDS on the wrong base from the first run. Validate PAN, UAN, ESIC numbers and bank details against source documents before the first run, because a mismatch can reject a PF or bank file. Exits need the same care: leave encashment and gratuity now run on the revised wages definition, so the settlement template must be updated before the first leaver after the change.

Data scope sits under the Digital Personal Data Protection Act, 2023, whose operative duties for Data Fiduciaries commence on 13/05/2027 under the [DPDP Rules, 2025](https://treelife.in/compliance/digital-personal-data-protection-dpdp-rules-2025/). The company is the Data Fiduciary and the vendor is its Data Processor, so the agreement must say what data the vendor holds, where it is stored, who can access it and when it is deleted. Section 8(6) of the Act will require the Data Fiduciary to report a personal data breach to the Data Protection Board and to each affected person, so set the vendor’s notice period to the company well inside that. List the vendor’s security evidence, such as an ISO 27001 certificate or an independent controls report, as a deliverable you receive each year. The wider vendor question list sits in our payroll outsourcing decision guide.

### Who owns payroll data and statutory logins after exit?

The employer owns both. The scope should require the vendor to return registers, year-to-date data and portal access in a defined format within a stated number of days of exit, and to delete its copies after the employer confirms receipt. A vendor that registered the logins in its own name is holding the company’s compliance record.

On exit, the return pack should contain:

- **Registers:** monthly payroll registers and payslips for the whole engagement.

- **Statutory proofs:** challans, ECR and ESI acknowledgements, and Form 138 acknowledgements.

- **TDS workings:** employee-wise computation sheets and declarations.

- **Member data:** PF and ESI member lists with UAN and ESIC numbers.

- **Access:** a list of every portal user, with logins moved to the company.

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## Common mistakes that cost time and money in payroll outsourcing

Five mistakes account for most payroll scope disputes we see: undefined employee categories, missing correction rules, a misplaced belief about liability, no change-in-law clause and vendor-held logins. Each is cheap to fix before signing and expensive to fix after the first missed filing, because the cost lands on the employer.

- **Scoping by headcount without defining an employee.** Proposals price per employee and never say whether directors, interns, consultants and seconded staff count. Define each category in the schedule. Consultants belong under Section 393, not on the payroll register.

- **Leaving corrections undefined.** Inputs that arrive after the cut-off are the largest source of off-cycle runs. Set a correction window and a unit price for each off-cycle run, so nobody argues about it mid-month.

- **Treating the vendor’s filing as the vendor’s liability.** Late deposit of deducted tax attracts interest at 1.5% a month (Section 201(1A), Income-tax Act 1961, and the corresponding provision of the Income-tax Act 2025), and the employer pays it. Late PF deposits attract interest and damages. Negotiate the liability cap and an indemnity for vendor error, and ask for a monthly evidence pack.

- **Having no change-in-law clause.** The PF ceiling moved on 17/09/2026, in the middle of a payroll month. Vendors without a clause either charge extra or delay the reconfiguration. State who implements, by when and at whose cost.

- **Letting the vendor hold the logins.** It speeds up onboarding and costs more at exit. Register portals in the company’s name and give the vendor delegated access. Who should hold the TRACES login is covered in our note on virtual CFO payroll and TDS compliance.

## FAQs on Payroll Outsourcing Scope of Services

**Q:** Which section governs salary TDS from 01/04/2026, and which forms apply? 
**A:** Section 392 of the Income-tax Act 2025. Form 138 is the quarterly statement and Form 130 is the annual certificate for tax year 2026-27, replacing Form 24Q and Form 16. Form 16 continues for FY 2025-26 because that year sits under the Income-tax Act 1961, so a vendor needs both templates in the 2026 filing season.

**Q:** Does outsourcing payroll change who is liable for a TDS default? 
**A:** No. The employer is the deductor and stays liable for tax, interest and late fees. Late deposit attracts interest at 1.5% a month (Section 201(1A), Income-tax Act 1961, and the corresponding provision of the 2025 Act). Recovery from the vendor depends on the indemnity and the liability cap in the agreement.

**Q:** How are payroll outsourcing fees usually structured? 
**A:** Four models are common: a per-employee monthly rate, a per-run fee, a flat monthly fee and tiered bands, often with a one-time setup fee. Rates vary with headcount, the number of states and the services in scope. Check where a tier threshold falls, because a small rise in headcount can move you up a band, and ask for a price card that lists every add-on with a unit rate.

**Q:** Which services are usually charged on top of the monthly fee? 
**A:** Off-cycle runs, arrears, corrections after the cut-off, new state registrations, ESOP perquisite workings and full and final settlements are commonly priced separately. List each one in the schedule with a unit rate, so the monthly invoice holds no surprises.

**Q:** Can payroll be outsourced in parts, such as filings only? 
**A:** Yes. A filings-only or computation-only scope is common, but every split adds a handoff. A filings-only vendor depends on a correct register from the employer, so name each handoff, its owner and its due date, and confirm who answers when the register and the challan do not match.

**Q:** What reports and employee support should be in scope? 
**A:** At minimum, the monthly payroll register, a variance report, a cost report by department, a statutory dashboard and headcount movement, plus a payslip portal, tax declaration collection and a query log with turnaround times. List them as deliverables, because reporting and helpdesk work are the lines most often assumed and least often written.

**Q:** How long does onboarding take before the first live payroll? 
**A:** Plan for one full parallel cycle plus the time to migrate year-to-date data. The vendor cannot go live until opening balances, registrations and portal access are in place. Data readiness on the employer side, not vendor setup, usually decides the date.

**Q:** By when must salary and full and final dues be paid under the Labour Codes? 
**A:** Monthly salary before the end of the seventh day of the following month, and a leaver’s dues within two working days of exit (Section 17, Code on Wages, 2019). A payroll that closes after the 7th needs a new calendar, and exits need an off-cycle path.

**Q:** Which documents does a vendor need to start? 
**A:** The employee master with PAN, UAN, ESIC number and bank details, offer letters and salary structures, year-to-date salary and TDS for a mid-year switch, registrations and portal access, attendance and leave records, and tax declarations with proofs. Missing opening balances are the most common cause of a wrong first TDS run.

**Q:** Can seconded or foreign employees be included in the scope? 
**A:** Yes, but scope them separately. Indian payroll covers salary paid by the Indian employer. Shadow payroll and home-country payroll sit outside unless written in. A cost recharge to the foreign parent is a payment governed by the Foreign Exchange Management Act, 1999 and transfer pricing rules, not a payroll task. Foreign nationals may be treated as international workers for PF, so settle their coverage before configuring the system.

**Q:** Can founders and family members on payroll be processed like other staff? 
**A:** Yes, once the remuneration is approved as the Companies Act, 2013 and the articles require. The vendor processes what the board approves and does not judge it. Family members on payroll need a genuine role and documented duties, because the tax treatment of their pay depends on it.

**Q:** Does DPIIT recognition change payroll scope? 
**A:** Not for PF, ESI or salary TDS. The relevant item is the deferral of tax on ESOP perquisite for eligible startups (Section 192(1C) and Section 17(2)(vi), Income-tax Act 1961, and the corresponding provisions of the 2025 Act). Give the vendor the eligibility documents and the deferral schedule, because payroll must track the event that ends the deferral.

**Q:** What happens if the vendor misses a deadline or the engagement ends mid-year? 
**A:** The employer remains liable to the authority and recovers from the vendor under the agreement. For a mid-year exit, require the return pack in the scope: registers, challans, Form 138 acknowledgements, TDS workings and portal access. The incoming vendor needs year-to-date figures to compute the rest of the year correctly.

**Q:** What payroll evidence do investors ask for in due diligence? 
**A:** Monthly proof of PF, ESI and TDS filings, the register-to-ledger reconciliation, the classification of contractors and employees, and TDS on ESOP perquisite. A vendor evidence pack indexed by month answers most of it. Our note on payroll compliance and investor due diligence lists what diligence teams review.

**Q:** How are ESOP holders, interns and consultants treated in payroll? 
**A:** An ESOP perquisite on exercise is salary, so TDS runs under Section 392 (Section 17(2)(vi), Income-tax Act 1961, for earlier years). Consultants are paid under Section 393 and stay off the payroll register. An intern’s stipend is salary if there is an employment relationship and a fee if there is not, so the scope should state the category.

## Writing your payroll outsourcing scope of services before you sign

Start with Table 1 as the deliverables schedule, add Table 2 as the exclusions schedule with named owners, and attach Table 4 as the service level schedule. Then add the change-in-law clause, the service levels and the return pack. A payroll outsourcing scope of services written this way can be tested in the parallel run and audited every month, which is the point of putting it in writing. For a view of how payroll fits inside a wider finance engagement, see the scope of virtual CFO services.

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##### **Regulatory references**

- Code on Wages, 2019: Section 2(y) (wages), Section 17 (time of payment), Section 18 (deductions)

- Code on Wages (Central) Rules, 2026: G.S.R. 343(E), 08/05/2026; Social Security (Central) Rules, 2026 and Occupational Safety, Health and Working Conditions (Central) Rules, 2026, notified 08/05/2026 and 09/05/2026

- Code on Social Security, 2020: Section 53 (gratuity); Chapter III provident fund wage ceiling notified by S.O. 5109(E), 17/09/2026

- Ministry of Labour and Employment notification bringing the four Labour Codes into force, 21/11/2025

- Employees’ Provident Fund Scheme, 2026 (G.S.R. 525(E)), Employees’ Deposit Linked Insurance Scheme, 2026 (G.S.R. 526(E)) and Employees’ Pension Scheme, 2026 (G.S.R. 527(E)), all dated 29/06/2026

- EPFO circular dated 13/10/2026 extending the September 2026 ECR and contribution due date to 31/10/2026

- Code on Wages, 2019: Chapter IV (bonus); notifications S.O. 4710(E) and S.O. 4711(E), 25/08/2026

- Income-tax Act 2025: Section 392 (salary TDS), Section 393 (other TDS); Income-tax Rules, 2026 (Form 130, Form 138)

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