PF and ESI calculation changed twice in a year: the Code on Social Security 2020 brought in a new definition of wages from 21 November 2025, and the PF wage ceiling rose from ₹15,000 to ₹25,000 a month from 17 September 2026. This guide explains PF applicability at 20 employees and ESI applicability at 10, how the employer PF contribution and the ESI contribution rate apply to a real salary, and the monthly deadlines. The key point: both PF and ESI now run on Code wages, which are never less than half of gross pay.
When does PF become applicable to a business?
PF is compulsory once an establishment has 20 or more employees, in any industry, under the Code on Social Security 2020. Below 20, an establishment can join voluntarily if the employer and most employees agree.
The PIB note on the Code says the 20-employee test applies "regardless of the type of industry". Within a covered establishment, every employee with wages up to ₹25,000 a month must be a member. Employees above ₹25,000 are "excluded employees": they can still join, with the employer, on ₹25,000 or on actual wages. The calculator asks how you want to treat them, because the choice changes the employer's cost.
When does ESI apply, and which employees are covered?
ESI applies to establishments with 10 or more employees anywhere in India, and to establishments with even 1 employee in hazardous occupations notified by the Centre. Employees with wages up to ₹21,000 a month (₹25,000 for persons with disability) are covered, as ESIC's coverage page states.
Three points decide whether you actually pay:
- District coverage. The Code removed the old "notified area" test, but contributions start from the date ESIC begins providing benefits in your district. For example, S.O. 5206(E) extended coverage to whole districts from 1 October 2026; check your district on ESIC's website.
- Code wages, not gross. The Labour Ministry's FAQ No. 12 (16 March 2026) says the Code's definition of wages governs ESI coverage, with the ₹21,000 limit continuing. An employee on a high gross salary with a low basic can still fall within ESI.
- Contribution periods. An employee whose wages cross ₹21,000 during a contribution period stays covered until that period ends (the periods are in the table above).
How do Code wages change the PF calculation?
PF is 12% of "wages": basic pay, dearness allowance and retaining allowance. If the allowances left out of wages are more than half of total pay, the excess is added back, so PF wages are never less than 50% of gross. The employer pays another 12%, of which 8.33% goes to the pension scheme (EPS).
The Ministry of Labour's FAQs clarify what goes into the 50% test:
- Overtime allowance counts as an excluded allowance, so a large overtime payment can push wages up.
- Annual performance-based incentives are not wages.
- Food coupons, ration items and mobile recharges are remuneration in kind.
EPS is 8.33% of wages up to ₹25,000, so it stops at ₹2,083 a month. The rest of the employer's 12% goes to the employee's PF account (3.67% when wages are within the ceiling). EPFO's FAQs on the new ceiling add that EPS is open only to employees whose wages were within the ceiling when they joined or on 17 September 2026; for anyone else, the employer's whole 12% goes to EPF. A 10% rate applies only to establishments the Central Government has notified, not to every small business.
Worked example: PF and ESI for two employees
Take a made-up company, Bluepeak Foods Private Limited, with 25 employees in a district where ESIC already provides benefits. Two of its salary bands look like this in October 2026, with PF for higher earners capped at ₹25,000 and Employee B an existing EPS member.
| Item | Employee A | Employee B |
|---|---|---|
| Basic + DA | ₹16,000 | ₹30,000 |
| Gross pay | ₹40,000 | ₹60,000 |
| Code wages | ₹20,000 | ₹30,000 |
| Employee PF (12%) | ₹2,400 | ₹3,000 |
| Employer EPS (8.33%) | ₹1,666 | ₹2,083 |
| Employer EPF | ₹734 | ₹917 |
| ESI employee (0.75%) | ₹150 | Not covered |
| ESI employer (3.25%) | ₹650 | Not covered |
Example. Employee A's basic of ₹16,000 is less than half of ₹40,000, so ₹4,000 is added back and Code wages are ₹20,000. Those wages are within ₹21,000, so ESI applies even though gross pay is ₹40,000. The employer pays ₹3,050 a month for A (₹2,400 PF and ₹650 ESI) and ₹3,000 for B, and deducts ₹2,550 from A's salary and ₹3,000 from B's. EDLI and PF admin charges come on top; the calculator shows them separately.
What changed for PF and ESI in 2025 and 2026?
The four Labour Codes took effect on 21 November 2025, bringing the new wages definition. On 17 September 2026 the PF wage ceiling rose from ₹15,000 to ₹25,000 a month (S.O. 5109(E)), the first revision since September 2014. The ESI ceiling stays at ₹21,000.
- The Social Security (Central) Rules 2026 were notified on 8 May 2026, and the EPF Scheme 2026, Employees' Pension Scheme 2026 and EDLI Scheme 2026 on 29 June 2026.
- The maximum EPS share rose from ₹1,250 to ₹2,083 a month. PIB estimates that more than 51 lakh additional workers earning ₹15,000 to ₹25,000 come under compulsory EPFO coverage.
- September 2026 is a split month: wages for 1 to 16 September use the ₹15,000 ceiling and 17 to 30 September the ₹25,000 ceiling, in one return due on 15 October 2026.
- The transition period under the Code for ESI ends on 20 November 2026.
For an employee with wages of ₹25,000 or more whose PF you cap at the ceiling, the employee share rises from ₹1,800 to ₹3,000 a month, and the employer matches it.
What does late PF or ESI payment cost?
Late PF carries simple interest at 12% a year plus damages of 0.25% to 1% a month, and a late statutory return costs ₹500 a day. Both PF and ESI are due by the 15th of the following month.
PF is paid with the monthly electronic challan-cum-return (ECR); ESI is due within 15 days of the end of the month. Damages under the EPF Scheme 2026 run at 0.25% a month for delays under 2 months, 0.5% a month from 2 to 4 months and 1% a month after 4 months.
Watch out. On ₹50,000 of PF paid one month late, interest at 12% a year is ₹500 (₹50,000 × 12% ÷ 12), and damages at 0.25% add ₹125. After four months, the damages rate quadruples. Deposit the employee's share you have deducted even if cash is tight.
Common mistakes in PF and ESI calculation
Most errors come from carrying old payroll settings into the Code regime: PF on basic pay alone, ESI tested on gross pay and the old ₹15,000 ceiling. Check these before you file the next ECR.
- Calculating PF on basic pay alone when allowances are more than half of gross pay.
- Testing ESI on gross pay instead of Code wages, which leaves out employees like Employee A above.
- Still using the ₹15,000 ceiling for wages from 17 September 2026, or not splitting September 2026.
- Sending more than ₹2,083 a month to EPS. The excess of the employer's 12% belongs in EPF.
- Stopping ESI the month an employee's wages cross ₹21,000, instead of at the end of the contribution period.
- Assuming the 10% rate applies because the business is small.
What to set up alongside PF and ESI
Payroll in most states also needs professional tax. In Maharashtra, use the Maharashtra Professional Tax Calculator; elsewhere, check professional tax by state. If you deduct TDS on salary, the TDS late fee and interest calculator shows what a missed deposit costs. Starting out, the business registration checklist lists every registration your headcount triggers.
How Ofin can help with PF and ESI
Ofin registers your establishment with EPFO from ₹2,899 and with ESIC from ₹2,899, and offers monthly ECR and ESI return support as an add-on, with wages computed under the Code. See PF registration and ESI registration.
