Payroll and Statutory Compliance Workflow (PF, ESI, Professional Tax) for a Modelled 40-Employee Bengaluru Firm

Payroll is where bookkeeping meets the labour inspectorate. For a small firm, every month ends with the same chain: attendance to gross pay, gross pay to net pay, and net pay to a set of statutory payments — Provident Fund, ESI, Professional Tax and TDS on salaries — each with its own rate, wage base, threshold and due date. Get one link wrong and the consequences are employee complaints, interest and damages, or an inspection.

This intermediate project designs and evaluates a complete payroll and statutory-compliance workflow for "Sujala Foods Private Limited", a modelled 40-employee food-processing unit in Bengaluru that is explicitly fictional, with all practice data generated for the project. The deliverable is a Payroll & Compliance Register in Excel (employee master, attendance, computation sheet, statutory registers, payslips, ECR-ready PF summary) plus a Tally Prime payroll configuration (pay heads, attendance types, payroll vouchers) covering the same firm, and a documented compliance calendar (PF and ESI by the 15th of the following month, TDS deposit by the 7th, quarterly Form 24Q, annual Form 16).

Because the slot is the BCU course 5.6 Survey Project (Semester 5, 4 credits; 100 marks = report 60 + viva-voce 20 + log book 20), the study also administers a short practitioner questionnaire (n = 25) on how small firms actually run payroll and where they err, and analyses both the modelled benchmark (task time and error counts, manual vs workbook vs Tally) and the survey responses with t-tests and chi-square in Excel/SPSS.

A small firm's payroll must simultaneously satisfy four statutes with different wage bases, rates, thresholds and due dates, and the rules themselves move — the EPF wage ceiling's rise from ₹15,000 to ₹25,000 in September 2026 is the latest example. Practitioners in small firms typically handle this in a free-form spreadsheet with formulas nobody audits, so wage-base mistakes (deducting EPF on gross, or ESI on basic), missed ceiling changes, late challans and wrong PT slabs are common, and each carries interest, damages or employee grievance as its price.

There is little accessible, tested material that shows a complete, correct workflow — attendance to payslip to ECR and challans — built with the tools a B.Com graduate actually knows, together with evidence of how small-firm payroll handlers really work and where the process breaks. This project supplies both: a benchmarked Excel-and-Tally workflow for a modelled 40-employee firm, and a 25-respondent practitioner survey analysed with standard statistical tests.

Abstract

Small firms run payroll under four statutory regimes at once — EPF, ESI, Karnataka Professional Tax and TDS on salaries — often with a spreadsheet and a memory. This project builds and benchmarks a compliant payroll workflow for a modelled 40-employee firm: an Excel Payroll & Compliance Register and a matching Tally Prime payroll setup, bound by a monthly compliance calendar. A 25-respondent practitioner questionnaire measures how such firms actually operate and which steps they miss. Task-time and error-count comparisons (manual, workbook, Tally) and survey associations are tested statistically. The result is both a working tool and evidence about practice.

Introduction

Payroll is taught in the B.Com syllabus in fragments: EPF here, ESI there. In a real firm they arrive together. EPF applies at 12% employee and 12% employer contribution (the employer share split 8.33% to EPS and the balance to EPF, plus 0.5% EDLI and admin charges), with the statutory wage ceiling raised from ₹15,000 to ₹25,000 per month with effect from September 2026. ESI applies at 0.75% employee and 3.25% employer on gross wages up to ₹21,000 a month (₹25,000 for employees with disability). Karnataka Professional Tax is ₹200 per month for employees drawing ₹25,000 or more, with notified amounts for lower slabs. TDS on salaries under section 192 must be deposited by the 7th of the following month, reported in quarterly Form 24Q, with Form 16 issued by 15 June. The definitions differ too: EPF wages are basic wages plus DA, while ESI wages are near-gross — a difference that causes most of the real-world errors.

Existing system (as observed in practitioner responses and public audit commentary)

• Payroll in a free-form spreadsheet with no locked wage-base definitions.
• Deductions computed from memory; ceiling changes discovered late.
• PF ECR prepared in a rush on the 15th; ESI and PT chased by reminders.
• No register linking attendance, computation, payment and return dates.

Proposed workflow

1. Employee master with EPF/ESI applicability flags, UAN/ESIC numbers stored as references only, and salary structure (basic, DA, HRA, conveyance).
2. Attendance sheet feeding paid days and loss-of-pay into the computation.
3. Computation sheet with locked formulas: gross → EPF wages → EPF → ESI wages → ESI → PT slab → TDS estimate → net pay.
4. Statutory registers — PF (ECR-ready), ESI, PT and TDS — plus a challan and due-date tracker (the compliance calendar).
5. Tally Prime payroll configuration reproducing the same computation through pay heads and payroll vouchers, with payroll reports.
6. Benchmark evaluation of the three routes (manual, workbook, Tally) on task time and seeded errors, plus the practitioner survey.

Feasibility

• Time: 12 weeks inside Semester 5; modelled data removes dependence on any real firm's confidential records.
• Cost: nil; Tally Prime's educational mode covers payroll for learning.
• Ethics: no real employees' data; the questionnaire is anonymous and collects no identifiers.
• Skill fit: payroll accounting, income-tax basics, Tally payroll and hypothesis testing are all syllabus topics.

In scope

• One modelled private limited firm (40 employees) in Bengaluru with salary structures spanning the EPF and ESI thresholds — the firm and all its data are fictional.
• Monthly payroll cycle: attendance, computation, payslips, statutory registers, challan/ECR summaries and the compliance calendar.
• Four statutes: EPF & MP Act (EPF/EPS/EDLI), ESI Act, Karnataka Professional Tax, and TDS on salaries under section 192 (Forms 24Q and 16).
• A 12-item anonymous practitioner questionnaire (n = 25) and a three-route benchmark evaluation.

Out of scope

• Actual filing of returns or challans on government portals; the project prepares ECR-ready summaries only.
• Gratuity, bonus, leave-encashment valuation and shops-and-establishments registers.
• Payroll outsourcing contracts and HRMS software comparisons beyond Tally Prime.
• Real employees' or firms' data; UAN/ESIC numbers appear only as masked examples.

Research design

A hybrid design: (i) a system-development component — build and configure the workflow for the modelled firm; (ii) a benchmark evaluation of three processing routes; and (iii) a descriptive survey (n = 25) of small-firm payroll practitioners. The slot's survey requirement is met by (iii), while (i)–(ii) make the project demonstrable in the viva.

Phase plan (12 weeks)

Questionnaire (12 items)

Profile (firm size, sector, who runs payroll); tools used (manual/Excel/Tally/other); who computes deductions; awareness of the wage-base difference between EPF and ESI; awareness of the 2026 EPF ceiling change; PF and ESI due-date knowledge; error experienced in the last year (type); time taken for a 40-employee month; checklist use; training source.

Hypotheses (α = 0.05)

• H1₀: software use for payroll is not associated with firm size — chi-square on survey data.
• H2₀: there is no difference in mean task time between the manual route and the Excel register on the benchmark month — paired t-test (and a second pair vs Tally).
• H3₀: error-detection rate does not differ between the three routes — chi-square on seeded-error outcomes.
• H4₀: awareness of the September 2026 EPF ceiling change is not associated with the handler's years of experience — chi-square.

Tools of analysis

Excel: AVERAGE/STDEV, T.TEST (paired, type 1), CHISQ.TEST, pivot tables; SPSS/Jamovi for confirmation; weighted-mean ranking of questionnaire pain points.

The workflow is a monthly pipeline from attendance to statutory payment, with the compliance calendar acting as the control layer.

flowchart TD
  EM["Employee master (40 staff, thresholds flagged)"] --> AT["Attendance sheet: paid days, LOP"]
  AT --> GC["Computation: gross pay"]
  GC --> PFW{"EPF wages? basic + DA within ceiling"}
  PFW -->|yes| PFC["PF register: 12% + 12% (EPS 8.33%), EDLI 0.5%"]
  GC --> ESIW{"ESI wages? gross up to 21,000"}
  ESIW -->|yes| ESC["ESI register: 0.75% employee, 3.25% employer"]
  GC --> PTC["PT slab: 200 for >= 25,000 (Karnataka)"]
  GC --> TDS["TDS estimate u/s 192 from declarations"]
  PFC --> NP["Net pay and payslips"]
  ESC --> NP
  PTC --> NP
  TDS --> NP
  PFC --> ECR["ECR-ready summary -> due 15th"]
  ESC --> ECR2["ESI contribution -> due 15th"]
  TDS --> TDSD["TDS deposit -> due 7th; 24Q quarterly"]
  ECR --> CC["Compliance calendar tracker"]
  ECR2 --> CC
  TDSD --> CC
  CC --> AUD["Month-end review: register vs Tally reports"]

The three benchmark routes

• Manual: calculator and a blank sheet, the way many firms still work.
• Excel register: the bundled workbook with locked wage-base formulas and validation.
• Tally Prime: pay heads (earnings, PF, ESI, PT, TDS), attendance types and payroll vouchers generating the same outputs.

Wage-base discipline (the core design rule)

Every deduction block reads its own defined wage base: EPF from basic-plus-DA capped at the statutory ceiling, ESI from gross wages under the ₹21,000 limit, PT from the Karnataka slab table, and TDS from projected annual salary with declarations. The formulas encode the definitions, so a rate or ceiling change is a one-cell edit with an audit note.

• Add Form 16 generation from the register using the latest income-tax slabs and a declaration sheet.
• Extend the benchmark to a real (consenting) firm as a follow-up internship, comparing predicted and observed times.
• Build an ECR file-format checker that validates the PF summary against the portal's expected columns before upload.
• Study payroll outsourcing decisions in small firms: cost versus control, using a larger practitioner sample.
• Track the effect of future statutory changes (new wage codes) on small-firm payroll error rates.