Episode 3: Payroll in India

Luisa Rollenhagen  00:04

Hi there. I’m Luisa Rollenhagen, and you’re listening to ADP Payroll Around the World. We’ve created this audio series to explore the truly local side of payroll by taking you around the world, one country at a time, to talk to experts on the ground and find out what payroll there is really like. After all, payroll can only really be global when it’s informed by local expertise. So we’re going to explore what makes payroll unique in each country, get insight into the work culture, and hear from both payroll experts and locals who will share their experiences with us.

Today, we’re going to India. It’s the most populous country in the world, with over 1.4 billion people. It’s a vital economic player, well on its way to becoming the world’s fourth largest economy, with a big emphasis on digitalization as India’s youth begins taking over the workforce. So what does the world of work actually look like in India?

Ramesh Dayalan  01:02

In India, the compensation structures are not standardized. Each company has their own compensation structure.

Rahul Goyal  01:08

What I’ve seen employers do is personalize the pay structure. In other words, provide a flexible benefit system. And this is like a bouquet of pay components that an employee can choose from.

Luisa Rollenhagen  01:26

That’s Ramesh Dayalan and Rahul Goyal, two ADP experts who live and work in Chennai, southern India. They’re going to be sharing their experiences on what it’s like to run payroll in this South Asian country.

Running payroll in India has some unique challenges. The country’s population is incredibly young. In fact, more than 40% of the people in India are under the age of 25. As you can imagine, this really affects the labor market there.

Rahul Goyal  01:57

Most of the organizations these days have a 30 to 40% young workforce, which means that most of the folks are… this is their first job, and they’re fresh out of college, and their expectation is greater transparency.

Luisa Rollenhagen  02:10

Rahul is going to tell us what he means when he says greater transparency in the moment. But speaking of…

Ramesh Dayalan  02:17

The other thing which we see in India and most of the companies now looking at is gender pay equality.

Luisa Rollenhagen  02:23

In a country where over a quarter of the female population is in the workforce—a figure that’s continuing to grow— creating more opportunities for women, including mothers returning to work, is key, as Sindhu, a sales and marketing specialist in Chennai, tells us.

Sindhu  02:39

It’s a 50/50 thing. While it definitely is doing… bringing a lot of women back into the workforce. I know a lot of friends who have taken a break who are now, you know, they’re confidently taking steps to upskill and get back to work because they’ve seen me, they’ve seen me and a couple of friends who are doing well after returning to work from a break.

Luisa Rollenhagen  03:00

But don’t take it from me. Instead, I’d like to formally introduce our payroll experts for this episode. Rahul Goyal has over 12 years of experience as the Managing Director of ADP India and Southeast Asia. Ramesh Dayalan is the Vice President of Services in India and Southeast Asia at ADP, and he’s been with ADP for 21 years.

Rahul Goyal  03:23

Hello, everyone! I’m Rahul Goyal. I’m the General Manager and Managing Director for India and Southeast Asia. I’m based in Chennai, and I love meeting clients, and I love talking to payroll professionals.

Ramesh Dayalan  03:35

Hey everyone. My name is Ramesh Dayalan. I head the Services Organization for ADP India, and we operate from Chennai.

Luisa Rollenhagen  03:43

So I’d like to kick us off by asking you to share some fast facts about doing payroll in India before we dive into the juicier bits.

I’m curious: What do you find exciting about payroll in India?

Ramesh Dayalan  03:56

From my view, what is exciting is the government is taking last three, four years post-Covid, they have taken this e-governance and digitization as a key priority. So as part of this initiative, the government is moving most of the paper-based activities and the compliances into a digital form. So it’s been a great learning experience for the government and also for practitioners like ADP and also for the companies, because there are a lot of administrative procedures getting changed every day, and we need to be on top of it and look forward for the changes and adapt to this requirement.

So these changing compliances and administrative practices, it actually keeps us always busy. There are a lot of procedural things which the government is making changes based on the learning curve they go through this digitization journey. And these are some of the fundamental things that are always being reviewed by the government and wanting to look forward to changing it because of this simple thing of e-governance and digital initiatives. So that’s keeping us busy.

Rahul Goyal  05:08

You know, complexity is the excitement, right? So there is never a dull day, either there are employee queries or vouchers and bills to validate, or new tax laws and new changes coming through. So it’s 12 months. It’s all very busy.

Luisa Rollenhagen  05:28

Ramesh, you just mentioned this push for more digitization. How specifically does e-governance come into play in the Indian world of payroll, especially when we’re talking about compliance?

Ramesh Dayalan  05:38

So if I have to talk about, specifically from payroll, there are three, four items which are very critical and also an important governance and compliance requirement. If you are onboarding any employee, for you to enroll an employee into the social security benefits, you have to link that person’s social security number with Aadhaar.

One, if you link that with Aadhaar, only then can you contribute on behalf of the employee to the social security benefits. And the employee will also get benefits from the social security department only if they have linked their number with Aadhaar, otherwise, they will not be able to get any benefits from the portal. That’s one way of looking at it.

Rahul Goyal  06:22

And I think Ramesh said it, right? Right. What Aadhaar does is, it’s a digital identity and it makes everything transparent and super simple.

Luisa Rollenhagen  06:32

I came across this Aadhaar number quite a bit while I was doing some preliminary research on payroll in India. Can you explain what it is?

Rahul Goyal  06:41

Aadhaar is a very revolutionary concept. I think it changed the entire ecosystem in the country. For people like me, I think it’s a boon in many ways. It’s the digital identity that each one of us as citizens of India have, and it’s interlinked with all other digital portals that the government of India has. So if I have an identity number, which is Aadhaar, it’s a 12 digit number, I can link up with all the other government portals, and that enables me to do transactions in a very transparent and simple way. My employer can also benefit from logging into one portal and carrying out all activities. And so would the tax authorities, so would the other social security departments within the country, and that makes life for everyone easier. However, there’s a flip side. Government and tax authorities and other social securities can enforce compliance in a very quick and fast manner because they know what transactions you are carrying out and what transactions you have not carried out.

Ramesh Dayalan

Aadhaar was introduced 10 years back, and remember, we are 1.4 billion people, so rolling out across the country with fingerprints and giving a unique identity number to each citizen is a massive task, and I think the government authorities, they really pushed hard and over last five years, is when it has become ubiquitous, right? So everyone has it. Without Aadhaar, it’s very difficult to transact in the country.

Luisa Rollenhagen  08:24

That’s really interesting. From what I understand, it’s the largest biometric ID system in the world, and it was also called the world’s most sophisticated ID program by former World Bank Chief Economist Paul Romer.

So how has Aadhaar changed day to day life in India?

Rahul Goyal  08:41

So Aadhaar is a part of a digital ecosystem, or digital infrastructure, we call it in India the public digital infrastructure. For example, I don’t remember, when did I last go to the ATM and withdraw some cash? Honestly, we don’t use cash anymore in India, right? So I haven’t used it for many, many weeks. Everything is on what is called a UPI, which is a unique payment interface. And it’s either Google Pay or Amazon Pay, or any other methodologies. And these are not wallets, right? So mind you, these are transactions that happen directly from my bank to the vendor, right? So that was just a glimpse of  how the payments have gotten transformed through this digital infrastructure.

Similarly, just imagine: There are social security authorities, which are four of them in India, federal and state authorities. There are income tax, government income tax authorities, and many other organizations, employer-related statutory bodies. Everyone is interoperable, right? They can transact from each other just by having one common code, which is Aadhaar, right? So I think it has… everything has got interwoven in a fabric, and everything is available on a click of a button. If I have not paid taxes, but I paid my Social Security, within 24 hours, I will receive a notification from the government. It has held organizations to be compliant. They don’t have to wait for months and years to receive notices and then respond to that. They have built a sense of responsibility and accountability in the minds of employees, which is the foundation of a compliant country and a country which plays by the rule book, right? So I’m very proud of the fact that we have something called Aadhaar. I’m very proud of the fact that there is a digital infrastructure that creates that level of transparency and trust amongst all of us. 

Luisa Rollenhagen  10:50

It’s definitely quite the feat to achieve such a level of digitization amongst such a big population. What are some other aspects you find unique about payroll in India?

Rahul Goyal  11:00

From my perspective, what’s unique about payroll in India is its diversity of compensation patterns, right? So, it’s a unique ability that an organization in India has to select and elect its own payroll components. Of course, all within the legal and taxation framework that allows flexibility to employees, right? In other words, employees can personalize their pay structure. And that’s what I like about it, and I think that’s what is unique about it. 

Ramesh Dayalan  11:37

In my view, what’s unique about payroll in India, it’s the complexity. I call that unique, because the payroll is the one function which touches upon the majority of the compliance requirements of the organization. It can be labor compliances, it can be organizational compliances. So all the compliances, the majority of that, it comes under the payroll function. So that way it’s very unique and a simple differentiator if I have to compare it with the rest of the markets.

Luisa Rollenhagen  12:12

I want to delve into that a little bit more in just a moment. But first, I’d like to properly introduce Sindhu.

In this series, we don’t just share the invaluable local knowledge of ADP’s professionals and partners, but also speak to real people on the ground about their own lived experiences with work and pay.

Sindhu is 37 years old, lives and works in Chennai, and is a single mother of two children.

She’s been navigating her career path in sales and marketing while being the primary caretaker for her two children, one of which is neurodivergent. This meant finding a job that allowed her to put her family first.

Sindhu  12:51

I’m a single mother. I have two children and I live with my parents. So they’re retired as well. Most of the family responsibility is something that I have to take upon. And while I don’t think calling myself a breadwinner is a fair definition to it, there are… I mean, we share responsibilities between my father, my mother, and myself. And one of my children is neurodivergent. So therapy is a very expensive thing here in India. I also have to meet that expense month on month.

Luisa Rollenhagen  13:24

Right now, Sindhu’s main concern is to make enough to be financially independent. When she was laid off from her previous job, she had to take a bit of a pay cut, from 18 lakhs to 15 lakhs per year. Now, if you’re like me, and wondering what lakhs are — I just learned it’s a unit in the Indian numeric system equal to 100,000, similar to how one grand is used to signify the number one thousand. So right now, she’s earning 1.5 million rupees. Her current role also entails a performance-based bonus in addition to her fixed salary.

Sindhu  14:00

You know, you have to sometimes be pragmatic and play it a bit differently. And when this opportunity came and I went through three levels of interviews and they were happy with the way, the kind of skills they were looking for, somebody who was ready to do the sales thing, who was open to traveling from time to time, and also had a fair level of expertise in CR management.

Now I have a basic… a fixed salary and performance based. You know, there’s also this variable pay component to it where I will be able to avail that one if I meet my specific sales targets. But from a pragmatic point of view, given that I have two children, the school fees and the whole circle that comes with it, when this current organization, when they told me that they’ll be able to give me 15 lakh per annum, 18 to 15 lakhs seemed fair enough, you know, a jump to make. And I went with them.

Luisa Rollenhagen  15:04

While the pay cut isn’t ideal, Sindhu told us that she considered the new salary package pretty fair for Indian standards, as her previous job had been at an international company. She also told us that her return to the workforce as a single mother wasn’t always easy, but gender parity efforts have allowed her to gain a foothold and build on her career. She also believes that she can serve as inspiration to others.

Sindhu  15:29

There is this unwritten rule where women are expected to give up on their career aspirations. I mean, you know, you can do work from home jobs. You don’t have to earn, you don’t have to make money. It’s okay if you take a couple of years out of your regular career thing. And they’ve been like, no, we want to do this because we see a single parent managing all herself.

Of course, I have sufficient support from my parents. And also, if there are two of us, we can definitely, you know, share responsibilities between us. And after, I mean, some of my friends who’ve seen me through the years, who have seen me give up everything and then take this decision to come back and study, complete an MBA, and then also take up full time work. And there was a time when I realized that my child was neurodivergent, so I had to take a break. More than a complete break. I moved on to part-time freelancing or consulting roles. See, so they’ve seen me do the whole drill, and now their takeaway is that if a single parent, if a single person could do all of this… they have partners who are reasonably supportive, but for some reason, they are also not fully out of their conservative traditional minds. Maybe because of the conditioning or whatever.

Luisa Rollenhagen  16:48

Sindhu also told us that having her Aadhaar number linked to all of her accounts and personal information made the onboarding process at her new company much easier. Before Aadhaar, doing background checks took a fair amount of time.

Sindhu  17:02

Before Aadhaar was enforced, I was working with this IT organization. Background verification had taken a certain amount of time. I had to go and submit a non criminal affidavit and other documents saying that I have no loan defaults, my father has no loan defaults, and all that. Now, I think after the advent of Aadhaar, that has considerably calmed down. The process has been streamlined and I think Aadhaar has definitely simplified the process, at least in these aspects.

And also, since Aadhaar is.. I have linked my PAN with my Aadhaar, so I think also from a tax filing and, I don’t know, financial credibility perspective also, I think that has helped.

Luisa Rollenhagen  17:54

In case you’re wondering, PAN stands for Permanent Account Number, which is a number issued by the Indian Income Tax department to taxpayers.

By submitting her Aadhaar number, Sindhu was also able to easily sign the employee agreement with her new company.

Sindhu  18:12

They have this HRMS system, human resource management software system, that also helps them, you know, once you feed the new data, it’ll put all of that… from there, it’ll be fed into this employee-employment agreement system. And as a key part of their background verification, they will also ask for the candidates or the new employee’s Aadhaar number. So once the Aadhaar number is given, there is some method by which it goes and verifies the details shared by this person on the UIDAI website, the whole thing where they verify your father’s name, how old you are, where you’ve been, and all that.

Luisa Rollenhagen  19:00

Just interjecting here again to clarify: UIDAI is the Unique Identification Authority of India, which manages Aadhar numbers.

Sindhu  19:09

Most of the information available is what I vaguely understand. And from the Aadhaar system, I will be given a certain one-time password that will come to my phone, which is linked to the Aadhaar itself. And unless I enter that OTP, I will not be able to sign the system, I mean, sign the agreement, I’m sorry. So once I enter that, then it takes me to a whole different page where they, I have to say, agree to a certain level of terms and conditions. And finally I will be asked to upload my digital signature.

Luisa Rollenhagen  19:50

I found this level of digitization really impressive, but then also thought to myself that it must be a bit overwhelming for multinationals coming into India for the first time. There are a lot of things to consider in order to stay compliant, after all.

So I asked Ramesh and Rahul to tell me a bit more about how ADP is helping companies get their footing in India, and what multinationals need to be aware of.

Rahul Goyal  20:11

So we work with many companies who set up in India, and they seek our help in doing the first payroll. Some of the items that we highlight to them are, one, India would have a lot of employees querying about payroll and taxes and the payroll structure. So therefore, it would help if ADP or your internal department can set up regular awareness sessions around taxation, around payroll structure, and that’ll help them to query less and feel much more settled with the pay that they get. So that’s one thing that I like to highlight. The second big item is that India offers a very big diversity, a big variety of components to choose from. And organizations can tailor-make their pay structures to the industry that they are. They can personalize pay structures to the levels and grades and seniority of people as well. And this is to save taxes all within the legal and the tax framework. So this is another important theme that multinational organizations can look at. And finally, compliance is very important.

Ramesh Dayalan  21:29

As Rahul mentioned, in India, the compensation structures are not standardized. Each company has their own compensation structure. So naturally the employees expect there’s a lot more flexibility. So we, as a service provider, help them to create that flexible compensation structure. And since each client, they have their own policies and compensation structure, it requires an expert to manage and administer those compensation structures and in complying with the labor law and the income tax requirements. So compliance takes the center stage with the changing amendments and things the government is introducing. So MNC companies look for a partner who has that level of deep expertise. And their presence is very important for them to manage these compliances, both federal as well as the state compliances. So that’s what they look for from a service provider like ADP.

Luisa Rollenhagen  22:30

Raul shares more.

Rahul Goyal  22:33

End of year is a very dreaded period, very busy period in India, and the end of year is January, February, March. And these are three months where employees are expected to submit vouchers or bills to avail tax exemptions. Now, this is a very, very complicated subject. Employees submit their vouchers in the ADP portal. If ADP is a provider, these are automated processes, rejections and approvals of those bills happen. And thereafter adequate tax liabilities are passed onto the payroll. This is a very, not only complicated, but cumbersome exercise and many employee queries come through during this time. We often organize help desks to help the clients, but just for those of you who are planning to set up in India, word of caution: Don’t get scared with the busy activities over the last three months of the year.

Luisa Rollenhagen  23:41

Rahul, at the beginning of this episode, you mentioned that India’s young workforce values greater transparency. What does that mean?

Rahul Goyal  23:48

Employees in India would like to know more about their payroll components, pay structure and taxation. Companies therefore invest a lot of time and energy in educating employees around taxation, payroll components and other related items. So these periodic webinars in educational sessions around taxation help companies to retain their employees.

Ramesh Dayalan  24:21

The other thing which we see in India and most of the companies now looking at is gender pay equality. That is another aspect which is very critical for a single mother to support the family. So this is, this is another thing which all the organizations are looking at.

Luisa Rollenhagen  24:37

Right, Sindhu was talking about how gaining financial independence in order to support her family was her main priority at the moment. Encouraging organizations to invest in pay equity is certainly a vital aspect of ensuring a more level playing field for women in the workforce as well.

Why do you think it’s advisable for companies in India to invest in more transparency towards their employees when it comes to things like taxation and payroll structure?

Rahul Goyal  25:03

Yeah. So we recently conducted a big survey in India. Future of Pay is what we called it. And we interviewed 200 CHROs. And interestingly, what came up as one of the big priorities is financial wellness. And financial wellness isn’t, doesn’t mean increasing the paychecks, but what it meant was, how do we educate employees on the pay structures, the benefits an organization provides, and therefore mechanisms to save more money and be more tax friendly? And this is something that perhaps this young mother would really benefit from. We in ADP provide that sort of support. We conduct awareness sessions, especially for new joiners, for many of our clients.

Luisa Rollenhagen

Ramesh tells us more.

Ramesh Dayalan  25:51

See, some of the recent things which all the employers are initiating is the NPS, which we call the National Pension Scheme, which most of the organizations want to extend it to the employees. We see that as part of the financial wellness nowadays: Employers are focused on the wellness of the people, not only the current, the future benefits, how they can support their family post-retirement, also how they can be supportive for that. They’re launching this NPS scheme, where 10% of your basic income is the maximum value you can contribute towards this pension fund. And this entire pension fund is tax free. So that way, people want to invest in something for the future, which is completely tax free. So this is one thing which all the employers are initiating and employees are very happy to take.

Luisa Rollenhagen  26:42

It sounds like this concept of financial wellness is really a holistic way of approaching an employee’s relationship to their workplace.

At the beginning of this episode, both of you spoke of employers offering more personalized benefits that mesh with employees’ needs and interests. Rahul, I believe you called it a “bouquet of pay components.” Can you two tell me a little bit more about that?

Rahul Goyal  27:04

When I say flexible compensation structure, say for example an employee has been given a choice to choose their own component and the limits. For example, if I am having a vehicle, I can decide to go for vehicle maintenance, and there are certain limits provided by the tax department. So I can fix my compensation structure as per my requirements.

For example, in this case, the young mother can choose crèche benefits, crèche reimbursements, as it’s called in India. And this is a benefit where there would not be any taxation. And so components and flexible benefits like this could help in furthering the cause of financial wellness.

So I came across this benefit called spa allowance. And this was very interesting. We’ve heard about gym allowances, we’re heard about fitness allowances, but I think this was specifically spa allowance.

Luisa Rollenhagen  28:02

I’m sorry, you get a tax break for going to the spa? I love this. Tell me more.

Rahul Goyal  28:08

You go to a spa, spend money and get a tax exemption.

Luisa Rollenhagen  28:13

Wow, I want this. I need this.

So how does the negotiation process work for these kinds of benefits?

Ramesh Dayalan  28:23

Benefits are being provided when a person gets enrolled in the organization. In every organization nowadays, there’s a lot of focus and attention into this compensation and benefits management administration. So this comp team always looks around and looks at how we can add value to the employees by offering certain benefits? So companies are always looking at ways and means to see, how do we make it a little more interesting? So as part of the yearly appraisal process, they introduce these things. So the employee will get an opportunity, one, at the time of joining. And as part of your annual increment cycle, you will do one more time as an option for you to exercise these changes.

Luisa Rollenhagen  29:06

I see, so all of these components fall under this umbrella of financial wellness, right? How is ADP helping clients achieve financial wellness for their employees?

Rahul Goyal  29:17

So, first and foremost, we listen to our customers. We listen to employees, we listen to a lot of organizations who are our clients or who would be our potential clients. And to do that, we do a lot of surveys and research continuously.

Future of Pay is something that we do every year. We talk to, we listen to more than a million employees who we do payroll, and they provide us a lot of feedback. Uh, we listen to thousands of our customers and collating everything, making a meaning out of it is what Ramesh and his team does.

So if you look at our portals, our navigation platforms, you know, which our employees use and which our employers use, they find it so very intuitive, so very simple, because the way we project salary information, the payslip information, they make maximum meaning out of it. They can understand how the pay increases have happened over several months, and what is their savings, and what is it that they can do with that paycheck that they get every year, every month. Similarly, for our practitioners, our payroll practitioners, our clients, we do not overwhelm them with dashboards and tons of information in jazzy looking graphs. You know, we really talk to them, consult with them, make them understand: What does gender pay parity look like, get into round table conversations, et cetera. So this is done at a little bit of a macro level, as to speak. 

Luisa Rollenhagen  30:50

Let’s hear a little bit more from Ramesh.

Ramesh Dayalan  30:52

How do we make it easy, smart and human? So this is what we do in our products and things. So there are two interfaces for us when we are providing payroll services, very critical. So one is the employee interface, which Rahul has explained, about the intuitive way of collecting because, in India, for the purpose of taxation and also for the purpose of claiming all the benefits, you need to have an interface for you to submit all your claims, vouchers, and bills to take that flexible benefits plan advantages. So we facilitate in terms of creating the flexible benefits plan, claims page for the clients, and also to do the end of year activities. So that’s very important, which also includes this support  system where employees can raise any queries. 

And we have ADP experts and teams who will respond to all the employee queries. That is one info for the purpose of client practitioners. We provide an interface where the clients can share their inputs, monthly salary inputs, in a structured way. So we have built in a lot of validations and controls to make sure that the right inputs are coming into the ADP system, and we provide complete transparency to the client from the collection of inputs until we provide a sign off on the payroll. 

Luisa Rollenhagen  32:18

That’s great, thanks for that insight. We’re going to start wrapping up, but is there anything on the horizon in terms of payroll trends in India that you’re anticipating?

Rahul Goyal  32:25

So I think a lot of changes are on the horizon and, and we are all excited about it. I think the government is following three principles, to standardize everything, right? So mind you, we have 29 states and extremely complicated payroll laws written centuries back, right? So standardization, simplification and digitization, right? And all the three kind of work in tandem. And if this is the direction, we can see many changes happening over the next few months and years to come.

Ramesh Dayalan  33:04

Income tax is one of the things the government wants to standardize and simplify. It’s a really complex process. They already started this journey a few years before, but I hope, I’m expecting that this particular thing will get further simplified and standardized in the coming years, which provides a lot of opportunity for a service provider like ADP to help their clients to stay compliant with these legislative changes. So these are a few things which I see will have a significant impact in the coming years.

Luisa Rollenhagen  33:35

Thank you so much for your time and expertise. It’s been really interesting to hear about the impact of mass digitization efforts and the streamlining of payroll processes through policies such as Aadhaar. I’m also slightly jealous about that spa allowance.

I hope you got a bit of a deeper insight into how payroll in India works today. If this episode has piqued your interest, or your company is considering expanding into India and you want to learn more about payroll there, please go to the ADP India website in.adp.com and don’t forget to subscribe to learn more about payroll around the world with each new episode.

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