It’s the 3rd of the month, payroll is due tomorrow, and a new joinee in accounts has just messaged you asking why his PF got deducted on ₹15,000 when his basic is ₹32,000. Ten minutes later, someone else in the group wants to know if she’s “out of ESI” now that her hike takes her past ₹21,000. If you run payroll for a 20–200 person Indian company, this conversation happens every single month — and in 2026, it’s gotten trickier because the new Labour Codes have quietly changed how “wages” get defined for PF purposes.
This guide walks through the current PF and ESI contribution rates, the wage ceilings that actually matter, how the Labour Codes affect your calculations this year, and the mistakes that get HR managers into trouble with EPFO and ESIC inspectors.
TL;DR
- PF is 12% of PF-wages from the employee and 12% from the employer, but it’s mandatory only up to a ₹15,000/month wage ceiling — anything beyond that is voluntary.
- ESI is 0.75% employee + 3.25% employer = 4% of gross wages, and it’s mandatory for anyone earning up to ₹21,000/month gross (₹25,000 for employees with disabilities).
- The four Labour Codes, in force since 21 November 2025 with rules rolling out through 2026, require basic pay to be at least 50% of CTC — this directly raises PF and gratuity liability for companies that had inflated allowances to shrink basic pay.
- Run your numbers through EZHRM’s free PF & ESI calculator instead of doing this in a spreadsheet every month.
What Are PF and ESI, and Why Do They Trip Up HR Teams?
Provident Fund (PF) is a retirement savings scheme under the Employees’ Provident Funds & Miscellaneous Provisions Act, 1952, administered by the EPFO — both employer and employee contribute a fixed percentage of wages every month into the employee’s PF account. Employees’ State Insurance (ESI) is a self-financed health insurance and social security scheme under the ESI Act, 1948, run by ESIC, that covers medical care, sickness benefit, maternity benefit and more for lower-wage employees.
Both schemes have their own wage definitions, ceilings and filing calendars — and neither ceiling has moved much in years even as salaries have risen, so more employees fall into that awkward “just above the ceiling” zone every year.
Who needs to register?
- PF registration is mandatory once you cross 20 employees (voluntary registration is allowed below that).
- ESI registration is mandatory once you cross 10 employees in most states (20 in a handful of states) in areas where ESI is implemented — which today covers almost every industrial and commercial hub in India.
Check both thresholds separately for your establishment — they don’t move in sync, and crossing one doesn’t automatically mean you’ve crossed the other.
PF Contribution Rate 2026: The Formula and the Split
The PF contribution rate in 2026 is unchanged: 12% of PF wages from the employee, matched by 12% from the employer, calculated on a wage ceiling of ₹15,000 per month. That ₹15,000 figure hasn’t moved since 2014, despite repeated talk of revising it — as of August 2026 it’s still the operative ceiling.
The employer’s 12% isn’t a single lump sum — it splits internally:
| Component | Who pays | Rate | Capped on |
|---|---|---|---|
| Employee Provident Fund (EPF) | Employee | 12% of PF wages | ₹15,000/month |
| Employees’ Pension Scheme (EPS) | Employer (out of the 12%) | 8.33% of PF wages | ₹15,000/month (max ₹1,250/month) |
| Employer’s EPF share | Employer | 3.67% of PF wages (balance of the 12%) | ₹15,000/month |
| EDLI (insurance) | Employer, additional | 0.5% of PF wages | ₹15,000/month (max ₹75/month) |
| Admin charges | Employer, additional | 0.5% of PF wages (min ₹500/month for active establishments) | ₹15,000/month |
Worked example: At ₹15,000 PF wages, that’s ₹1,800 employee EPF, ₹1,250 employer EPS, ₹550 employer EPF, ₹75 EDLI, plus admin charges — so employer PF outgo runs closer to 13–13.5% of PF wages, not a flat 12%. Most CTC structures under-budget for this.
Employers and employees can jointly agree to contribute on wages above ₹15,000 — this is the “voluntary” or VPF route, and it’s common in companies that want to offer a higher retirement corpus without changing the statutory structure. If you want the exact split for a specific salary, EZHRM’s PF & ESI calculator does this math instantly instead of you rebuilding a spreadsheet formula every time a rate query comes up.
ESI Contribution Rate 2026: The Formula and Eligibility
ESI is calculated as 4% of gross wages in total — 3.25% from the employer and 0.75% from the employee — for any employee whose gross monthly wage is ₹21,000 or less (₹25,000 for employees with disabilities). This rate has held steady since July 2019.
Employees earning up to ₹176 per day are exempt from the employee’s 0.75% share, though the employer still contributes on their behalf.
Worked example: An employee on ₹18,000 gross pays ₹135 (0.75%) as employee contribution, and the employer pays ₹585 (3.25%) — a combined ₹720/month goes toward ESI.
The mid-year salary hike problem
This is the single most common ESI mistake: if an employee’s gross wage crosses ₹21,000 during a contribution period (April–September or October–March), they do not exit ESI immediately. Coverage continues till the end of that six-month period, and contributions keep getting deducted at the usual rate — stopping deduction the same month the hike kicks in is technically non-compliant.
How the New Labour Codes Change PF & ESI Math in 2026
The four Labour Codes — Code on Wages, Industrial Relations Code, Code on Social Security, and Occupational Safety Code — were notified effective 21 November 2025, repealing 29 older central labour laws. Central rules were finalised through early 2026, and states are rolling out their own rules at different speeds, so implementation has been staggered through the year.
The part that matters most for your PF calculation is the new, uniform definition of “wages”: basic pay plus dearness allowance plus retaining allowance must together make up at least 50% of an employee’s total remuneration (CTC). If the allowances and exclusions you’ve built into a salary structure push basic pay below that 50% mark, the excess gets deemed “wages” anyway for the purpose of PF, gratuity and other statutory calculations.
In practice, companies that used a low basic (say, 30–35% of CTC) to shrink PF and gratuity liability now have to restructure salaries or accept a higher statutory PF base — raising employer cost even though the 12% rate itself hasn’t changed. Our CTC salary calculator is a quick way to check where your current structures stand against the 50% basic rule.
PF vs ESI: Quick Comparison
| Provident Fund (PF) | ESI | |
|---|---|---|
| Governing law | EPF & MP Act, 1952 (now under Code on Social Security, 2020) | ESI Act, 1948 |
| Regulator | EPFO | ESIC |
| Total contribution | 24% of PF wages (12% + 12%) | 4% of gross wages (0.75% + 3.25%) |
| Wage ceiling | ₹15,000/month (mandatory) | ₹21,000/month (₹25,000 for PwD) |
| Mandatory registration | 20+ employees | 10+ (or 20+ in some states) |
| Monthly return | ECR (Electronic Challan cum Return) | Monthly contribution + half-yearly return |
| Filing/payment deadline | 15th of the following month | 15th of the following month |
Filing PF (ECR) and ESI Returns: Deadlines HR Can’t Miss
- Generate the PF ECR on the EPFO Unified Portal by the 15th of the following month, covering every employee’s PF wages and contributions.
- Pay the PF challan the same day you file the ECR — filing without payment doesn’t count as compliance.
- Deposit ESI contributions (employer + employee share) by the 15th of the following month through the ESIC portal.
- File the ESI half-yearly return for April–September by 11 November, and for October–March by 11 May.
- Reconcile new joiners and exits before you file — a missed UAN or ESI IP number generation is the most common reason ECRs get rejected or delayed.
Where HR Managers Get This Wrong
A few patterns show up again and again:
- Calculating PF on full basic instead of the ₹15,000 ceiling — unless the company explicitly opts to contribute on actual basic, the statutory minimum stays ceiling-based.
- Dropping ESI the same month an employee crosses ₹21,000 instead of continuing till the contribution period ends.
- Forgetting EDLI and admin charges when budgeting employer PF cost, understating true cost by 1%+ of PF wages.
- Not revisiting salary structures against the new 50% basic-pay rule, which can silently raise PF and gratuity provisioning.
- Treating Apprentices Act trainees as ESI-eligible — they’re excluded, though other trainees drawing wages are usually covered.
- Late ECR/ESI filing — interest plus damages under Section 14B of the EPF Act add up faster than most SMEs expect.
FAQs on PF & ESI Calculation India 2026
Is PF mandatory for every employee, regardless of salary?
No. PF is mandatory for employees whose PF wages are ₹15,000/month or below, and for employees who were already PF members before crossing that ceiling. Employees joining fresh at a wage above ₹15,000 can be classified as “excluded employees,” though many companies still offer PF voluntarily as a benefit.
If my salary crosses ₹21,000 mid-year, do I stop paying ESI immediately?
No. Coverage continues until the end of the current contribution period (April–September or October–March), even after your gross wage crosses ₹21,000.
Can an employee contribute PF on their full salary voluntarily?
Yes, through Voluntary Provident Fund (VPF), where the employee can contribute above the mandatory 12%, subject to internal company policy. The employer’s matching contribution, however, generally stays capped at the statutory ceiling.
Are apprentices and interns covered under ESI?
Apprentices engaged under the Apprentices Act, 1961 are excluded from ESI coverage. Interns and trainees hired outside that Act, and drawing wages, are typically covered like regular employees if they fall within the wage ceiling.
What’s the penalty for late PF or ESI payment?
Both attract interest at 12% per annum. PF adds damages under Section 14B that scale with delay; ESI adds its own penal provisions, and repeated defaults can invite prosecution under either Act.
How does the new Labour Code wage definition affect my in-hand salary?
If your current basic pay is below 50% of your CTC, your employer may need to restructure your salary so basic (plus DA) reaches that threshold. This usually increases your PF deduction and your employer’s PF and gratuity contribution, which can slightly reduce your monthly take-home even though your CTC stays the same.
Stop Reconciling PF and ESI by Hand
Between the ceiling rules, the mid-year ESI transition, and the new Labour Code wage definition, PF and ESI math has more moving parts in 2026 than it used to. Run your numbers through EZHRM’s free PF & ESI calculator to see the exact employee and employer split before you finalise a salary structure or run payroll — and if you’re still doing this in Excel every month, it’s worth looking at how EZHRM’s payroll software automates PF, ESI and compliance filing end to end.
For more calculators — CTC breakup, gratuity, statutory bonus, leave encashment and more — head to our free HR calculators hub, and for more guides like this one, browse the EZHRM blog.