PF and ESI Registration for New Employers in India
You have just hired your first few people, and payday is coming. Now the question is whether you need PF and ESI registration for new employers like you. The honest answer is: it depends on how many people you employ, what they earn and which state you are in. This guide explains how to check, what you must do once covered, and what can go wrong if you ignore it.
Do I need PF and ESI registration as a new employer?
PF (Provident Fund) and ESI (Employees' State Insurance) are two separate laws. Each has its own headcount limit and its own salary limit. Being covered under one does not automatically mean you are covered under the other.
So do not assume that a small team means no registration. Also do not assume that registering for one scheme takes care of the other. Check both separately, ideally before you run your first salary.
- PF is run by the EPFO and is a retirement savings and pension scheme.
- ESI is run by the ESIC and gives medical care and cash benefits to employees during sickness, maternity or injury.
- Both look at the number of persons employed and the wages they earn.
When does PF become applicable?
Under the Employees' Provident Funds Act, an establishment with 20 or more employees generally has to register. The count is not limited to people on your regular payroll, so how you count contract or outsourced staff should be checked with a professional.
For mandatory coverage, the wage limit used is Rs 15,000 per month (basic pay plus dearness allowance). Employees earning more than this at the time of joining can often be kept outside the scheme, but employer and employee can agree to contribute on higher wages. Once an establishment is covered, it generally stays covered even if headcount later falls.
When does ESI become applicable?
ESI generally applies to shops, factories and many other establishments with 10 or more persons. Some states have notified a different number, so check what applies in your state.
Employees whose wages are within the ESI limit, currently Rs 21,000 per month (higher for persons with disability), are covered. Those earning above the limit are not. This means one team can have some members under ESI and some outside it.
Because the PF and ESI limits are different, a business with 12 people may need ESI but not PF. A business with 25 people may need both. Your exact position depends on your staff count, wages and state.
Who pays the PF and ESI contribution?
Both schemes are shared costs. A part is deducted from the employee's salary, and a part is paid by you from your own pocket. The employer's share is an extra cost over and above the salary you offer.
Under PF, the usual rate is 12% of PF wages from the employee and 12% from the employer. Under ESI, the rates are 0.75% from the employee and 3.25% from the employer on wages. Rates and wage limits can be revised by the government, so confirm the current figures before finalising salaries.
Build this into your salary budget from day one. Fixing it later means either cutting take-home pay, which upsets staff, or absorbing a cost you did not plan for.
- Decide whether your offer is a cost-to-company figure or a gross salary figure.
- Show the employer contribution clearly in the offer letter.
- Keep a separate record of what was deducted and what was paid for each employee.
What are the monthly deadlines and what happens if you pay late?
Once you are covered, registration is not optional. Contributions and returns must be filed every month, and the usual due date for depositing both PF and ESI is the 15th of the following month. Salary for April, for example, is to be deposited by 15 May.
Late deposit can attract interest and damages, and repeated default can lead to further action under the law. The amount depends on the delay and the facts of the case, so it is far cheaper to pay on time than to deal with a notice later.
A simple monthly calendar helps. Mark the salary date, the deduction check, the deposit date and the return filing date. If your accounts person is away, someone else should be assigned to deposit.
Should you cover staff voluntarily, and who should run payroll?
Even when you are below the limits, some employers choose to cover staff voluntarily. PF in particular allows voluntary coverage. It can help you attract and keep good people, because many job seekers look for PF and insurance benefits. The trade-off is that once you register, you have to follow the rules every month.
Running payroll in-house works when you have a trained person and a stable team. Many small businesses prefer to hand it to an outside professional, because a missed deposit or wrong wage calculation costs more than the fee. Whichever way you choose, someone must be clearly responsible for it.
CGA - Canjain Global Advisors can check whether PF and ESI apply to your business, handle registration, and set up monthly payroll and compliance so that nothing is missed. Our team of CAs and Advocates works with employers across India.
Key takeaways
- PF and ESI are separate laws with different headcount and wage limits, so check both.
- Once you are covered, monthly deposits and returns are compulsory, not optional.
- Part of the contribution is deducted from the employee and part is your own cost, so budget for it from the first salary.
- Late deposits can lead to interest and damages, so keep a monthly deadline calendar.
- Exact applicability depends on your state, staff count and wages, so confirm before payday.
Frequently asked questions
Is PF mandatory for a company with fewer than 20 employees?
Generally not by law, but an employer with fewer than 20 employees can choose to register voluntarily. How headcount is counted can include more than regular staff, so confirm your position before deciding. Once registered, the monthly compliance applies in the usual way.
How many employees are needed for ESI registration?
ESI generally applies to establishments with 10 or more persons, though some states have notified a different number. Only employees whose wages are within the ESI wage limit are covered. Check the position in your state.
Do I have to register for both PF and ESI?
Not necessarily. The two laws have different thresholds, so a business may be covered under one, both or neither. Each should be checked on its own.
What is the due date for PF and ESI payment?
The usual due date for both is the 15th of the following month. Contributions and the monthly return should be filed by then. Late payment can attract interest and damages.
Who pays PF and ESI, the employer or the employee?
Both share it. The employee's part is deducted from salary, and the employer pays a separate share from its own funds. The employer deposits both together and is responsible for doing so on time.
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Ask on WhatsAppExplore CGA servicesThis article is general information based on the law as we understand it on the date above, not legal or tax advice for your case. Facts change outcomes; speak to a professional before acting.