PF and ESI Basics for Employers: Who Is Covered and What You Pay

EPF is administered by the Employees' Provident Fund Organisation (EPFO). Each covered employee gets a Universal Account Number (UAN) that stays with them across jobs. Contributions build a corpus the employee can withdraw on retirement or under specified conditions, and part of the employer share goes to the Employees' Pension Scheme (EPS).

ESI is administered by the Employees' State Insurance Corporation (ESIC). Covered employees and their dependants get access to medical care at ESI dispensaries and hospitals, plus cash benefits in situations such as sickness, maternity and employment injury. For a front-line workforce, ESI is often the only health cover an employee has, which is why many workers ask about it during interviews.

Both EPF and ESI apply to establishments once they cross a headcount threshold set by law and notification, and smaller establishments can often opt in voluntarily. ESI coverage also depends on whether your area and type of establishment have been notified, which can differ from state to state. Because thresholds and notified lists are revised from time to time, confirm the current numbers for your establishment rather than relying on old rules of thumb.

Once an establishment is covered, it usually stays covered even if headcount later falls below the threshold. The Code on Social Security, brought into force from 21 November 2025, consolidates these laws, and its rules are still being notified by the Centre and the states. Before you assume you are outside the net, check the current applicability with the official portals or a compliance adviser.

• Count all employees, including those hired through contractors, when checking thresholds — principal employers can be responsible for contract workers.
• Note that coverage is tied to the establishment, not just to individual employees.
• Keep a dated record of when you crossed a threshold; it determines from when contributions were due.

For EPF, enrolment is mandatory for employees whose basic wages plus DA fall within the statutory wage ceiling, while some higher earners joining for the first time may be treated as excluded employees. Many employers still choose to cover everyone, and an employee who has been a PF member before generally continues as a member. Check the current ceiling on the EPFO portal before deciding.

For ESI, employees whose gross monthly wages are up to ₹21,000 (₹25,000 for persons with disability) are covered. If an employee's wages rise above the limit in the middle of a contribution period, they typically remain covered until that period ends. Gross wages for ESI usually include most regular pay components, not just basic, so check your salary structure carefully.

Take a simple example. A warehouse associate in Pune has basic + DA of ₹12,000 and gross wages of ₹16,000 a month. The illustrations below are for understanding only; your payroll software or consultant should calculate the actual figures, including any administrative charges and EDLI.

For EPF, the employee contributes 12% of ₹12,000, which is ₹1,440, deducted from salary. The employer also contributes ₹1,440, of which a portion goes to the pension scheme and the rest to the PF account. Administrative and insurance charges are paid by the employer on top.

For ESI on gross wages of ₹16,000, the employee share at 0.75% is ₹120 and the employer share at 3.25% is ₹520. If the same associate's gross wages were ₹24,000, ESI would generally not apply because they are above the ₹21,000 ceiling.

• EPF: 12% employee + 12% employer, calculated on basic + DA (subject to the wage ceiling rules)
• ESI: 0.75% employee + 3.25% employer, calculated on gross wages, for employees earning up to ₹21,000 a month
• Employer cost is over and above the gross salary, so budget for it when you set a CTC

Registration for both schemes is done online through the Shram Suvidha / EPFO and ESIC employer portals. You will usually need the establishment's PAN, registration documents, address proof, details of owners or directors, and bank information.

Once registered, build PF and ESI into your joining process so nobody is missed in the first month. Many small businesses forget the new joiner's UAN or ESI number until the first salary run, and then scramble.

1. 1Collect Aadhaar, PAN, bank details and any existing UAN on the joining day.
2. 2Ask about previous PF membership — this affects whether the employee must stay a member.
3. 3Generate or link the UAN on the EPFO portal and complete KYC seeding.
4. 4Register the employee on the ESIC portal and share the e-pehchan card or IP number.
5. 5Record nominee details for both schemes.
6. 6Map salary components in payroll so the right wage base is used for each scheme.

Both schemes run on a monthly cycle. Contributions are due early in the following month, with the electronic challan-cum-return (ECR) for EPF and the monthly contribution filing for ESI. Late payment can attract interest and damages, so treat the due date as fixed rather than flexible.

A simple calendar habit helps: close payroll by the last working day, generate the ECR and ESI files in the first week, reconcile the amounts with deductions in the salary register, and pay well before the deadline. Keep downloaded challans and acknowledgements in one folder per month.

Most PF and ESI problems in small firms come from salary structuring and record-keeping rather than deliberate avoidance. Inspectors and auditors look closely at whether the wage base has been artificially shrunk.

Under the new Labour Codes, the definition of wages has been standardised, and allowances above a set share of total pay may be counted back into wages. This can change the base for PF. Review your structures with a professional rather than relying on old templates.

• Keeping basic pay very low and pushing the rest into allowances to reduce PF
• Not enrolling contract, probation or trainee staff who meet the coverage conditions
• Deducting the employee share but depositing it late or not at all — this is treated very seriously
• Ignoring ESI after an employee's salary crosses ₹21,000 mid-period
• Missing exits: not updating date of leaving, which blocks the employee's transfer or withdrawal

Front-line candidates often compare offers on take-home pay, but many also look for “PF + ESI” in the job post as a sign of a genuine, organised employer. Stating it clearly can lift trust, especially for roles such as warehouse workers and security guards.

Be precise in your advert. A line such as “₹16,000 gross per month, PF and ESI as applicable, in-hand approx. ₹14,400” sets honest expectations and reduces drop-outs after the first payslip. When you post a job on BetterJobs, you can describe the role in one line and the AI-written description gives you a clean place to add these benefits.

Finally, explain deductions on joining day. A five-minute walk through the payslip, the UAN and the ESI card prevents many of the “why is my salary less?” calls that HR teams receive in the first month.