PF and ESI basics for small employers

Provident Fund (PF) and Employees' State Insurance (ESI) are the two main social security schemes for private sector employees in India. PF builds retirement savings, pension and life insurance. ESI gives medical care and cash benefits for sickness, maternity and injury at work.

Both are now governed by the Code on Social Security, 2020, in force since 21 November 2025, with the schemes run by EPFO and ESIC. The basics below are as of October 2026. They are general information and not legal advice; rates and ceilings change, so confirm with your CA or the EPFO and ESIC portals.

01When they apply

Under the Code, EPF applies to all establishments with 20 or more employees. The earlier limit to "scheduled" industries has gone.

02EPF: the essentials

Who is covered

Employees whose wages are within the statutory wage ceiling must be enrolled. The government announced on 16 September 2026 that the ceiling for mandatory coverage is raised from ₹15,000 to ₹25,000 a month, with effect from 17 September 2026. The Ministry and EPFO are taking the statutory and administrative steps to implement it, so check EPFO's notices for how it applies to your establishment.

Contribution rates

For most establishments, the EPFO's published rates are:

Employee

12 percent of wages

Employer

12 percent of wages, of which a part goes to the Employees' Pension Scheme

Plus

small employer contributions for administration and the EDLI insurance scheme

Wages here are basic pay, dearness allowance and retaining allowance. Under the Codes, if allowances exceed half of total pay, the excess is added to wages, which can raise the PF base.

Paying

Contributions for a month are paid by the 15th of the following month through the Electronic Challan cum Return (ECR) on the EPFO portal. Each employee has a Universal Account Number (UAN) that stays with them across jobs.

An example

A Rajkot pump maker with 32 staff pays a fitter basic pay and DA of ₹18,000 a month. On 12 percent:

• Employee share deducted from salary: ₹2,160
• Employer share, paid on top: ₹2,160, plus administration and EDLI charges

Before 17 September 2026, a fitter earning ₹18,000 joining a new establishment was above the ₹15,000 ceiling for mandatory coverage. With the ceiling raised to ₹25,000, such employees come within mandatory coverage as the change is implemented.

03ESI: the essentials

Who is covered

Employees earning up to ₹21,000 a month in wages, as of October 2026. The Ministry has said that this limit continues until the rules under the Code are finalised. For employees with a disability, the limit is ₹25,000.

Contribution rates

Employer

3.25 percent of wages

Employee

0.75 percent of wages

Employees whose average daily wage is up to ₹176 are exempt from their own share; the employer still pays its share.

Paying

Contributions are paid within 15 days of the end of the calendar month for which they are due, through the ESIC portal.

An example

An Ahmedabad CA firm with 12 staff pays an article assistant ₹18,000 a month.

• Employee share: 0.75 percent = ₹135
• Employer share: 3.25 percent = ₹585

The employee and their family get medical care through ESI dispensaries and hospitals, and cash benefits during certified sickness.

04What both need from you

1. 1Register on the EPFO and ESIC portals when you cross the threshold, or earlier if you choose.
2. 2Enrol each eligible employee when they join, with their UAN or ESI number if they have one.
3. 3Deduct the employee's share from wages and show it on the wage slip.
4. 4Pay both shares by the due dates.
5. 5Keep records of wages, contributions and challans.
6. 6Update exits when people leave.

Money deducted from employees for PF and ESI belongs to them. Using it for working capital, even for a few weeks, brings interest and damages, and can bring prosecution.

05Planning ahead

The step from 19 to 20 employees, or from 9 to 10, brings real costs: roughly 12 percent of wages for PF and 3.25 percent for ESI, on top of salaries. Build these into your pricing and hiring plans. A business at 18 employees planning to hire 5 more should budget for PF from the start of the next quarter.

06Common mistakes

Waiting to register

until an inspector or an employee asks. Contributions are then due from the date you became liable, with interest.

Leaving out new joiners

for their first month or probation period.

Splitting pay into large allowances

to reduce PF. Under the Codes, allowances above half of pay are added back to wages.

Depositing late

because cash is short. Plan the deposit as a fixed payment in your cash forecast. See cash flow for small business.

07Contract workers

Workers supplied by a contractor are covered too. The contractor is responsible for their PF and ESI, but if the contractor fails, the principal employer can be held liable. Ask contractors for proof of payment each month.

08For larger employers

A business with 100 or more staff should reconcile PF and ESI each month: headcount, wages, contributions and challans, against the payroll. Check new joiners are enrolled within the month, and that exits are recorded so contributions stop.

In MatruOS, attendance feeds the pay run, which works out PF and ESI and prepares the PF ECR and the ESIC contribution sheet for you to check and file. Filing waits for a person.