Statutory Compliance
Provident Fund (PF) and Employees' State Insurance (ESI) are mandatory social security schemes for Indian employees. PF (managed by EPFO) is a retirement savings scheme requiring 12% contribution each by employee and employer on basic wages. ESI (managed by ESIC) is medical insurance + benefits requiring 0.75% employee + 3.25% employer on gross wages, applicable to employees earning gross under ₹21,000/month.
PF applies to establishments with 20+ employees (with some exemptions for specific industries). Once registered, all employees with basic wages up to ₹15,000/month must be enrolled. Employees earning above ₹15,000 can voluntarily contribute. Both employee 12% and employer 12% on basic wages capped at ₹15,000 (employer 8.33% goes to Employees' Pension Scheme, 3.67% to PF accumulation; employer can pay more voluntarily). ESI applies to establishments with 10+ employees in notified areas. Mandatory for employees with gross wages up to ₹21,000/month — provides medical care, maternity benefits, disability benefits to insured persons and their dependents.
Industries served: All Indian employers above 20 employees (PF) / 10 employees (ESI), Manufacturing, Services, IT, Retail, Hospitality
Related terms: EPFO, ESIC, UAN, TDS Compliance, Professional Tax, Gratuity
Mandatory for establishments with 20+ employees (with some industry-specific lower thresholds for specific industries like cinema). Once registered, all employees with basic wages up to ₹15,000/month must be enrolled. Above ₹15,000 basic, contribution is voluntary but commonly included for retention/benefits.
ESI applies in two conditions: (1) Employer has 10+ employees in notified areas (most urban India), (2) Employee's monthly gross wages do not exceed ₹21,000. Once an employee's gross crosses ₹21,000, they cease to be ESI-insured (but pre-existing ESI claims continue for the benefit period). Most Indian factories, IT services SMBs, and BPOs need ESI compliance.
PF penalties: 5-25% damages on unpaid contributions + 12% interest per annum. ESI penalties: similar — interest + damages. Criminal prosecution possible in serious cases (imprisonment up to 3 years + fine). Practical impact: PF/ESI inspections result in retrospective assessments + penalties that can run ₹10-50 lakh for medium SMBs. Far cheaper to comply from day one.
Modern Indian payroll software (GreytHR, Zoho Payroll, Keka, RazorpayX) automate this: (1) Calculate 12% employee + employer PF on basic wages, (2) Calculate ESI for eligible employees, (3) Generate monthly ECR file for EPFO upload, (4) Generate ESI challan for ESIC upload, (5) Maintain employee-wise statements. Most Indian SMBs upload PF ECR and ESI challan to government portals in 10 minutes/month using automated files.
UAN (Universal Account Number) is a 12-digit number issued by EPFO to each PF member. It is permanent and portable — same UAN follows the employee across employers. UAN allows: viewing PF balance online, KYC update, transfer of PF balance when changing jobs, withdrawal claims. Every Indian employee should know their UAN; employers must report PF contributions against the correct UAN.
Free PF/ESI compliance setup for Indian SMBs — GreytHR or Zoho Payroll automation.