Startup HR gets treated as something you deal with later, somewhere after product and funding. That works until it does not, and the point at which it stops working is rarely dramatic. It is a notice, a resignation that turns into a dispute, or a due diligence process where an investor asks for documents that were never created.
The useful thing about Indian HR compliance for a small company is that most of it is triggered by headcount rather than by revenue or stage. Four numbers do most of the work: 1, 10, 20 and 50. If you know where you are against those, you know what you owe.
Before the first hire
Some of this the company already has from incorporation. The rest is specifically about becoming an employer, and it is due within weeks of starting rather than when someone gets around to it.
- TAN, separately from PAN, because you cannot deduct and deposit TDS on salary without it
- Shops and establishment registration for each premises, generally within 30 days of opening, and per office rather than per company
- Professional tax registration in each state where you have staff, both the enrolment certificate for the company and the registration certificate that lets you deduct from employees
- A bank account and a payroll process that can produce payslips and a salary register, even if that is a provider rather than software
- An offer letter and appointment letter template that you are willing to still be using at fifty people
- A decision about the salary structure, since it is far easier to set basic pay sensibly now than to restructure it later
The thing founders most often skip here is the appointment letter. An offer email confirming salary and a start date is not the same document, and it does not contain notice, confidentiality or intellectual property assignment. The last of those matters enormously in a startup, because the code, designs and content your early employees produce need to belong to the company in writing.
The headcount triggers that decide everything
Put this table somewhere you will see it, and check it whenever you make an offer that crosses a threshold. Crossing one without noticing is the single most common compliance failure in a growing company, because nothing announces it.
| Headcount | What kicks in | What to do |
|---|---|---|
| First employee | TDS on salary, shops and establishment registration, professional tax, minimum wages | Register, run payroll properly from month one, and issue a signed appointment letter |
| 10 employees | ESI in most states, a POSH internal committee, the Payment of Gratuity Act | Register with ESIC, constitute the committee with an external member, start provisioning gratuity |
| 20 employees | Provident fund becomes mandatory | Register with EPFO, enrol eligible employees, file the monthly ECR |
| 50 employees | Creche facility under the Maternity Benefit Act | Plan for it before you cross the line, since it needs space or an arrangement |
| Larger, varies by state | Standing orders under the Industrial Employment Act, where applicable | Check whether your establishment type and state threshold bring you in scope |
Two cautions on that table. Contract workers, part-timers and consultants who are really employees count towards these thresholds, so a company with twelve people on payroll and eight on invoices is probably not at twelve. And a few states set different numbers, particularly for shops and establishments, so confirm your own state rather than assuming the common figure.
The first ten hires
At this size HR is not a function, it is a set of things a founder or an operations person does badly in the gaps. That is fine. What is not fine is skipping the parts that create liabilities.
- Payroll running monthly with PF where applicable, ESI, professional tax and TDS deducted and deposited on their separate due dates
- An employee file per person: signed appointment letter, PAN, bank details, ID and address proof, education and experience documents, and nomination forms
- A leave policy in writing, with the year defined, carry-forward stated and the holiday list published per location
- Working hours and the weekly off, which come from the state Act rather than from what feels reasonable
- Group health insurance, which is not a statutory requirement for most companies but is close to an expectation in the market you are hiring from
- An offer-to-joining process that keeps in touch with the candidate, because a 60 to 90 day notice period is a long time for someone to change their mind
Outsource payroll early. A payroll provider for ten people costs less than the interest and damages on one missed PF quarter, and considerably less than a founder's attention. This is the first thing to hand off and the last thing anybody regrets handing off.
At ten people: POSH, ESI and gratuity
Ten is the busiest threshold, and one part of it gets missed far more than the others.
The Sexual Harassment of Women at Workplace Act requires an internal committee once you have ten or more employees. It has a specific composition, including a presiding officer who is a woman, at least half the members being women, and an external member from an NGO or with relevant legal or social work background. There is a policy to publish, awareness sessions to run, and an annual report to file with the District Officer. This is not a formality that can be arranged after an incident, because the moment you need it is the moment its absence becomes the story.
ESI applies at ten in most states, covering employees with gross wages up to ₹21,000, with contributions of 0.75 per cent from the employee and 3.25 per cent from the employer.
The Payment of Gratuity Act also applies at ten or more employees. Nobody is entitled to gratuity until they complete five years, which feels far away in a two-year-old company, but the liability accrues from the start and it is worth provisioning rather than discovering as a cash cost in year six.
What to write down, and what can wait
Startups tend to do one of two things: write no policies at all, or copy a fifty-page handbook from a company four hundred times their size. Both are avoidable.
Write these early, because each one prevents a specific argument: leave, working hours and the holiday list, expense and reimbursement, notice period and exit, code of conduct, POSH, and how company assets and data are handled. Each can be a page.
These can wait until there is a reason: detailed travel grades, formal performance ratings, promotion frameworks, a learning budget policy, and anything describing a situation that has not yet happened to you. A policy written for a hypothetical is usually wrong when the real version arrives.
The test for whether something needs writing down is simple. If two managers would answer the same employee question differently, write it down. If nobody has asked yet, wait.
At twenty and beyond
Provident fund becomes mandatory at twenty employees, and there is a detail worth knowing before you get there. Registering voluntarily below the threshold is possible and permanent: once covered, you cannot exit later because headcount fell. That is a reasonable choice if you are hiring people who expect PF, and it should be a decision rather than something that happens by accident.
Past twenty, the things that break are process rather than registration. Leave balances nobody trusts, salary revisions applied from the wrong month, three versions of the offer letter in circulation, and no consistent record of who approved what. None of that is a compliance failure yet, and all of it becomes one eventually.
At fifty, the Maternity Benefit Act adds a creche requirement, which needs planning rather than a same-week response. Maternity benefit itself, 26 weeks for the first two children, applies well below that and applies from the first eligible employee.
When to hire your first HR person
The common answer is between thirty and fifty people. The more useful answer is when the work has become continuous rather than occasional, which happens earlier if you are hiring fast, operating in several states, or running a workforce with shifts and attendance.
Hire a generalist rather than a specialist. At this size the job is hiring, onboarding, payroll coordination, compliance, policy and the manager questions that arrive daily, and someone who only recruits leaves half of it undone. Look for judgement over process design, because the systems will be small and the calls will be unfamiliar.
What not to do is make the office manager the HR person by default and then hold them responsible for statutory compliance nobody trained them on. If that is your situation, and it often is, be explicit about what is theirs and buy in the compliance piece.
When a spreadsheet stops working
A spreadsheet is genuinely the right tool for the first fifteen or twenty people. Somewhere around twenty-five to thirty it stops being the cheap option, and the signs are consistent.
- Nobody is certain whose leave balance is correct, and two people are maintaining separate versions
- Someone spends more than a day a month assembling payroll inputs
- You cannot answer "how many people joined and left last quarter" without rebuilding it
- Salary revisions and their effective dates live in email threads
- A document request from an investor or an auditor takes a week to satisfy
When you do buy something, buy for the statutory handling rather than the feature list. An Indian HRMS that gets PF, ESI, professional tax and Form 16 right natively is worth more than one with a better engagement module and a spreadsheet bolted to the side for compliance.
What founders get wrong most often
- Paying full-time people as consultants to avoid PF and ESI, which is decided on how the work is actually controlled and creates retrospective liability with interest
- No signed appointment letters, discovered during due diligence or when someone disputes their notice period
- Intellectual property assignment missing from early contracts, which is the one that can actually threaten a funding round
- No POSH committee at ten or more employees, and no policy published
- Professional tax deducted on the head office state rather than where each person works
- Interns and trainees paid below minimum wage, or unpaid while doing the work of an employee
- ESOP promises made verbally and documented much later, on terms nobody agreed at the time
- Exits handled informally, with no relieving letter, no final settlement record and no PF exit date marked
The pattern is that each one saved a small amount of effort at the time and created a liability that grows quietly. None of them are dramatic on the day, which is exactly why they accumulate.
Frequently asked questions
What HR compliance does a startup need in India?
TAN and TDS on salary, shops and establishment registration per premises, and professional tax registration in each state from the first employee. Then ESI, a POSH internal committee and the Gratuity Act at ten employees, provident fund at twenty, and a creche under the Maternity Benefit Act at fifty.
When does PF become mandatory for a startup?
At twenty or more employees, counting contract and part-time staff. You can register voluntarily below that, but the coverage is permanent once taken, so it should be a deliberate decision.
Is a POSH committee mandatory for startups?
Yes, once you have ten or more employees. It needs a woman presiding officer, at least half the members women, and an external member, along with a published policy and an annual report to the District Officer.
When should a startup hire its first HR person?
Usually between thirty and fifty employees, earlier if you are hiring quickly or operating across several states. Hire a generalist rather than a recruiter, and outsource payroll well before that point.
Do startups need appointment letters for every employee?
Yes, from the first hire. An offer email is not the same document. The appointment letter carries notice period, confidentiality and intellectual property assignment, and the last of those is what protects the work your early employees produce.
Can a startup hire people as consultants instead of employees?
Only where the arrangement is genuinely independent. Classification is judged on how the work is controlled rather than on the contract label, and getting it wrong creates retrospective PF and ESI liability with interest and damages.
What HR policies does a small company actually need?
Leave, working hours and holidays, expenses, notice and exit, code of conduct, POSH, and how company assets and data are handled. One page each is enough. Write anything else when a real situation calls for it.
When should a startup move from spreadsheets to an HRMS?
Around twenty-five to thirty people, or sooner if leave balances are disputed, payroll inputs take more than a day a month, or you cannot answer basic headcount questions without rebuilding the sheet.
If you do three things this month, do these: check your headcount against the four thresholds and fix anything you have already crossed, make sure every person on the team has a signed appointment letter with intellectual property assignment in it, and move payroll to someone whose job it is. The rest of this page can be worked through over a quarter. Those three are the ones that get expensive while you are not looking.
