Payroll Tax
What is payroll tax?
Payroll tax covers the various taxes calculated based on wages, some withheld from an employee's paycheck, others paid directly by the employer on top of salary. Together they fund government programs ranging from social security to unemployment insurance, and the specific mix depends entirely on which country's system you're operating under.
A company hiring its first international employee often assumes payroll tax works roughly the same everywhere, just with different numbers plugged in. It doesn't. The whole structure can look completely different from one country to the next.
What payroll tax actually includes in India
Indian payroll tax obligations include employer contributions to the Employees' Provident Fund, typically 12 percent of basic salary, along with Employees' State Insurance contributions for eligible lower-wage employees, and professional tax in states that levy it. None of these map cleanly onto US concepts like FICA or unemployment tax. They're separate programs with their own contribution rates, eligibility thresholds, and filing requirements.
This is exactly where companies underestimate the true cost of hiring in India. A quoted salary figure doesn't include these mandatory employer contributions, and a company that forgets to budget for them ends up with a real cost that's noticeably higher than what they initially planned.
How kaam.work handles this
Every payroll tax obligation tied to hiring in India, provident fund, state insurance, professional tax where applicable, gets calculated and paid correctly through kaam.work's EOR service. The total cost of employment we quote already accounts for these, so there's no surprise gap between what you expected to pay and what actually shows up.
Frequently asked questions
- Is payroll tax in India the same as US payroll tax like FICA?
- No. India's payroll tax obligations, primarily Provident Fund and State Insurance contributions, are structured completely differently from US Social Security and Medicare taxes.
- Who pays payroll tax in India, the employer or the employee?
- Both, generally. Employees contribute a percentage to Provident Fund from their own salary, while employers pay a separate matching and sometimes larger contribution on top.
- Does payroll tax in India apply to contractors?
- Generally no, these obligations typically apply to employees rather than independent contractors, which is one more reason correct worker classification matters.
- How much does payroll tax typically add to the cost of hiring in India?
- Employer-side Provident Fund contributions alone typically run around 12 percent of basic salary, before factoring in other applicable contributions.
