PF and ESI rates are published and unambiguous. Almost nobody gets the rates wrong. The notices arrive because of what counts as wages, and what happens when circumstances change mid-year.
Provident Fund: the mechanics
PF applies to establishments with 20 or more employees. Contributions are:
- Employee: 12% of PF wages
- Employer: 12% of PF wages, split as 8.33% to the Pension Scheme (EPS) and 3.67% to PF
- Plus employer-borne charges: 0.50% EDLI and 0.50% administrative charges
The EPS portion is capped at 8.33% of ₹15,000, which is ₹1,250 per month. Anything above that goes to PF.
The ₹15,000 ceiling decision
Employees earning PF wages above ₹15,000 create a choice:
- Contribute on the ceiling — ₹1,800 each side, capping cost
- Contribute on actual wages — higher cost, larger retirement corpus for the employee
What counts as PF wages
This is where most liability arises. PF wages include basic, dearness allowance and retaining allowance. They exclude HRA, overtime, bonus and commission.
The complication: the Supreme Court held in 2019 that allowances paid universally, ordinarily and necessarily to all employees are part of PF wages, regardless of what they are labelled. A "special allowance" paid to everyone as a fixed monthly amount is, in substance, basic wages.
- An allowance paid to every employee every month, at a predictable amount — likely PF wages
- An allowance that varies with individual performance, or applies to some roles only — more defensible as excluded
- Labelling alone decides nothing; the payment pattern does
ESI: the mechanics
ESI applies to establishments with 10 or more employees, covering those earning gross wages up to ₹21,000 per month (₹25,000 for employees with disabilities).
- Employee: 0.75% of gross wages
- Employer: 3.25% of gross wages
Note ESI is calculated on gross wages, a wider base than PF wages.
Crossing the ESI threshold mid-period
ESI runs on two contribution periods: April–September and October–March. The rule many employers miss:
So an employee raised to ₹24,000 in July continues to attract ESI on ₹24,000 through September, then exits coverage from October. Stopping in July is a common and findable error.
A worked example
Employee with basic ₹20,000, HRA ₹10,000, special allowance ₹8,000 — gross ₹38,000:
- PF wages: ₹20,000 basic. If the special allowance is paid universally, arguably ₹28,000 — consult on your specific structure.
- PF on ceiling: employee ₹1,800, employer ₹1,800 (EPS ₹1,250 + PF ₹550)
- EDLI + admin: ₹75 + ₹75, employer-borne
- ESI: not applicable, gross exceeds ₹21,000
Filing and deadlines
- PF ECR — upload and pay by the 15th of the following month
- ESI contribution — pay by the 15th
- Interest on late PF payment — 12% per annum, plus damages up to 25%
- Every employee needs a UAN; new joiners with existing UANs must have them linked, not duplicated
