HRMS software: what it must do for Indian businesses
The records an HR system keeps, the statutory deductions it has to get right under India’s Labour Codes and tax law, and how to choose one, from the team building ERPStack.
Last updated 21 October 2026
What is HRMS software?
HRMS software (a human resource management system) keeps employee records, attendance, leave and payroll in one place. In India it also has to calculate and report statutory deductions such as PF, ESI, Professional Tax and TDS on salary, issue payslips, give staff self-service access, and handle exits through full and final settlement.
Where ERPStack is today
ERPStack is in development. It is not yet available to download or buy, and the features on this page are planned, not shipped.
Sign upWhat does HRMS software cover?
An HRMS is only as good as the records behind it. Payroll errors usually start upstream: a joining date entered late, leave approved by message but never recorded, or an allowance changed in one spreadsheet and not another. These are the areas a complete system covers.
| Area | What the software should do |
|---|---|
| Employee records | One master record per person: personal details, PAN, UAN, ESI number, bank account, salary structure, documents and history of changes |
| Attendance | Daily in and out times from biometric devices, mobile or web, shift rosters, overtime hours and working days for each pay period |
| Leave | Leave types and policies, balances, approvals and carry-forward, with unpaid leave flowing straight into payroll |
| Payroll | Gross-to-net calculation, arrears, reimbursements, payslips and a bank salary file each month |
| Statutory compliance | PF, ESI, Professional Tax, Labour Welfare Fund, TDS on salary, bonus and gratuity, with the returns and challans each needs |
| Self-service | Staff see payslips, apply for leave, submit tax declarations and update their own details |
| Exits and full and final | Notice period, leave encashment, gratuity where due, recoveries and the final settlement paid on time |
Attendance and leave matter for pay, so they have their own guides: see attendance and leave management.
Which statutory deductions must HRMS software handle in India?
India’s four Labour Codes, the Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020 and the Occupational Safety, Health and Working Conditions Code, 2020, came into force on 21 November 2025 (PIB release). They replaced 29 central labour laws, and the Code on Social Security now carries PF, ESI and gratuity. Salary TDS moved to the Income-tax Act, 2025 from 1 April 2026 (Income Tax Department).
| Item | Who it applies to | What is paid | Threshold or limit |
|---|---|---|---|
| Provident Fund (EPF) | Establishments with 20 or more employees (MoLE handbook) | Employee and employer contribute 12% of wages each, 10% for notified establishments (EPF Scheme, 2026); up to 8.33% of the employer share goes to the pension scheme | Mandatory wage ceiling ₹25,000 a month from 17 September 2026, up from ₹15,000 (PIB) |
| Employees’ State Insurance (ESI) | Establishments with 10 or more persons (MoLE handbook) | Employee 0.75%, employer 3.25% of wages (ESIC) | Employees earning up to ₹21,000 a month (MoLE FAQ); no employee share if the average daily wage is ₹176 or less |
| Professional Tax | Employees in states that levy it; the employer deducts and pays | A state-set slab; Karnataka charges ₹200 a month on salary of ₹25,000 and above (schedule) | Capped at ₹2,500 a person a year by Article 276(2) of the Constitution (Sixtieth Amendment) |
| TDS on salary | Every employer paying income taxable as salary | Tax at the average rate on the employee’s estimated income for the year, under section 392 of the Income-tax Act, 2025 (text), which replaced section 192 from 1 April 2026 | Depends on the employee’s estimated income and chosen tax regime |
| Labour Welfare Fund | Employers and employees in states with a welfare fund law | Small fixed contributions set by each state; Maharashtra collects them every six months, for June and December (MLWF Act and Rules) | Amounts and periods differ by state |
| Bonus | Employees who earn up to the wage limit set by the appropriate government and worked at least 30 days in the year | Minimum 8.33%, maximum 20% of wages earned (MoLE handbook) | Wage limit set by the appropriate government |
| Gratuity | Factories, mines, plantations and every shop or establishment with 10 or more employees (MoLE handbook) | 15 days’ wages for each completed year of service, paid within 30 days of becoming payable | After 5 years of continuous service, or 1 year for fixed-term employees; maximum ₹20 lakh (MoLE FAQ) |
The biggest change for payroll is the single definition of wages. Basic pay, dearness allowance and retaining allowance count as wages; if the other allowances come to more than 50% of total remuneration, the excess is added back to wages for statutory purposes. The Ministry of Labour says this definition, and gratuity based on it, apply from 21 November 2025 (MoLE FAQs). Software that calculates PF or gratuity on basic pay alone can now under-deduct.
How do you choose HRMS software?
Ask each vendor to show, not tell, how the software handles these:
- Calculating wages under the Labour Codes’ 50% rule, with the add-back shown on the payslip workings.
- Applying the new ₹25,000 PF wage ceiling and the ₹21,000 ESI limit without manual overrides.
- Different Professional Tax and Labour Welfare Fund rules for each state you employ people in.
- TDS under section 392, with the employee’s regime choice and declarations feeding the monthly deduction.
- Attendance and leave flowing into payroll without re-entry.
- Exits: leave encashment, gratuity and recoveries in one full and final statement.
- A full export of employee and payroll data, and a clear answer on where that data is hosted.
Spreadsheets and standalone payroll tools can calculate a payslip. The gap usually shows in the records around it: attendance, leave, statutory filings and exits. For the India-specific detail, read the HRMS software India buyer’s guide; for the calculation itself, see payroll software India.
What is ERPStack planning for HR?
ERPStack is an ERP for Indian small and mid-sized businesses that Perimattic is building. HR and payroll are planned modules, sharing records with billing and accounting. The plan:
- One employee record feeding attendance, leave, payroll and exits.
- Statutory wages calculated under the Labour Codes’ definition, with PF, ESI, Professional Tax and TDS worked out from it.
- Payslips, bank salary files and the data PF, ESI and TDS returns need.
- State-wise rules for Professional Tax and Labour Welfare Fund.
- Salary costs posted to the ledgers from the same payroll run.
Status: ERPStack is in development and nothing on this page is available to use yet. Sign up to tell us which HR features matter most to you.
This page is general guidance, not legal or tax advice. Rules and rates were checked on 22 October 2026.
Go deeper on HR and payroll
HRMS software, answered
What is the difference between HRMS and payroll software?
Payroll software calculates pay, statutory deductions and payslips. HRMS software includes payroll but also holds the records payroll depends on: employee master data, attendance, leave balances, joining documents and exits. When payroll runs on its own, those inputs are usually re-typed from spreadsheets each month.
Do small businesses in India need HRMS software?
Not always. A business with a handful of staff can run payroll on spreadsheets if someone tracks the statutory thresholds. Software becomes worth it once PF or ESI applies, staff work across states, or attendance and leave start driving pay, because each adds monthly calculations and filings that are easy to get wrong by hand.
Did the Labour Codes change what HRMS software must do?
Yes. The four Labour Codes came into force on 21 November 2025. They bring a single definition of wages with a 50% rule on allowances, which can raise the base for PF and gratuity, plus mandatory appointment letters and wage slips. HRMS software should calculate statutory amounts on that definition, not simply on basic pay.
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