It’s the last week of the month, your payroll sheet is open, and you’re double-checking whether that new hire’s basic salary of ₹16,200 means PF is mandatory or not — again. Every HR manager in India has been here: one employee crosses ₹21,000 gross mid-month and you’re not sure if ESI still applies, another joins at exactly ₹15,000 basic and someone in accounts insists PF should be “optional” for them. Small errors here don’t just cost money — they invite EPFO and ESIC notices.
PF and ESI calculation in India runs on fixed statutory percentages, but the eligibility rules, wage ceilings, and a fresh 2026 change to the EPF Scheme trip up even experienced payroll teams. This guide walks through the exact formulas, the new rule you need to know about, and where HR managers commonly go wrong.
TL;DR — PF & ESI in 60 Seconds
- PF is 12% of Basic + DA from the employee, matched by 12% from the employer (split into 3.67% EPF + 8.33% EPS), mandatory up to a ₹15,000 basic wage ceiling.
- ESI is 0.75% (employee) + 3.25% (employer) of gross salary, but only applies when gross salary is ₹21,000/month or less (₹25,000 for employees with disabilities).
- Under the EPF Scheme, 2026, only contribution up to the ₹15,000 ceiling is mandatory — anything an employer pays above that is now officially voluntary, unless both sides agree to continue it.
- Use a free PF & ESI calculator instead of a spreadsheet — one wrong IF formula and you’re filing a corrected ECR.
What Is PF and ESI Calculation, Exactly?
PF (Provident Fund) and ESI (Employee State Insurance) are two separate statutory deductions that Indian employers must calculate and deposit every month for eligible employees. PF calculation determines how much goes into an employee’s retirement savings under the EPF Act, 1952, while ESI calculation determines the contribution toward medical and cash benefits under the ESI Act, 1948. Both are calculated as a percentage of salary, both have an employee share and an employer share, and both have to be filed with a different government body — EPFO for PF, ESIC for ESI — by different deadlines.
They get confused constantly because both are “statutory payroll deductions,” but the wage base, the percentage, and the ceiling are completely different, which is exactly why a dedicated PF & ESI calculator saves so much back-and-forth.
PF Contribution Rates in India — 2026
PF is calculated on Basic + Dearness Allowance (DA), not on gross salary. The statutory wage ceiling for mandatory PF remains ₹15,000/month in 2026 — proposals to raise it have been discussed for years but haven’t been notified yet, per the EPFO.
| Component | Employee Share | Employer Share | Notes |
|---|---|---|---|
| EPF (Provident Fund) | 12% | 3.67% | Of Basic + DA, capped at ₹15,000 |
| EPS (Pension Scheme) | Nil | 8.33% | Part of employer’s 12%, capped at ₹1,250/month |
| EDLI (Insurance) | Nil | 0.5% | Capped at ₹75/month |
| Admin Charges | Nil | 0.5% | Minimum ₹500/month per establishment |
So for an employee with ₹15,000 basic: employee PF is ₹1,800/month, employer’s EPF+EPS together is also ₹1,800/month (₹550.50 to EPF, ₹1,249.50 to EPS — rounded per EPFO rules), plus EDLI and admin charges as separate employer costs that don’t touch the employee’s payslip.
ESI Contribution Rates in India — 2026
ESI is calculated differently — on gross monthly salary, not just Basic + DA — and only kicks in below a wage ceiling.
- Applicability: Any establishment with 10 or more employees where gross salary is ₹21,000/month or less (₹25,000 for persons with disabilities)
- Employee contribution: 0.75% of gross salary
- Employer contribution: 3.25% of gross salary
- Total: 4% of gross, split between the two
- Filing deadline: 15th of the following month, via ESIC’s online portal
One rule that catches new HR managers off guard: once an employee is covered under ESI, they stay covered for the rest of that contribution period (April–September or October–March) even if their salary crosses ₹21,000 mid-cycle. You don’t stop deducting ESI the month they get a raise.
The New EPF Scheme, 2026 — What Actually Changed
This is the part most payroll teams haven’t caught up on yet. The EPF Scheme, 2026 keeps the ₹15,000 wage ceiling exactly where it’s always been, but it clarifies something that used to be a grey area: contribution beyond ₹15,000 basic is now explicitly voluntary, not a default employer obligation.
In practice, this matters for companies that were matching PF on an employee’s full (actual) basic salary — say ₹30,000 — instead of capping it at ₹15,000. Under the new scheme, employers can continue that higher contribution only if both employer and employee agree to it in writing. If there’s no such agreement, the safe, compliant default is to cap mandatory PF at ₹15,000 basic and treat anything above that as an employee-only voluntary contribution (VPF), not an automatic employer match.
If your payroll process has been contributing on actual basic “because that’s how we’ve always done it,” this is worth revisiting with your compliance team before the next audit. This is also where a lot of the confusion around CTC structuring comes from — employees see their offer letter’s “CTC” number shrink in hand once PF, ESI, and other deductions are applied correctly.
How to Calculate PF & ESI — Step by Step
- Confirm the wage components. Note Basic + DA (for PF) and full gross salary (for ESI) separately — they’re not the same number.
- Check the PF basis. Is the employee’s basic ≤ ₹15,000? Mandatory PF applies on the full basic. Above ₹15,000? Mandatory PF is capped at ₹15,000 unless there’s a documented voluntary agreement.
- Calculate employee PF. 12% of PF-eligible basic.
- Split employer PF. 3.67% to EPF, 8.33% to EPS (capped at ₹1,250), plus 0.5% EDLI and 0.5% admin charges as employer-only cost.
- Check ESI eligibility. Is gross salary ≤ ₹21,000/month (₹25,000 for PwD)? If yes, ESI applies for the full contribution period.
- Calculate ESI. 0.75% employee + 3.25% employer, on gross salary.
- File on time. PF via ECR by the 15th; ESI contributions also by the 15th of the following month.
PF vs ESI — Quick Comparison
| Aspect | PF | ESI |
|---|---|---|
| Governing law | EPF Act, 1952 | ESI Act, 1948 |
| Calculated on | Basic + DA | Gross salary |
| Wage ceiling | ₹15,000/month | ₹21,000/month (₹25,000 PwD) |
| Employee share | 12% | 0.75% |
| Employer share | 12% (3.67% + 8.33%) | 3.25% |
| Regulator | EPFO | ESIC |
| Benefit | Retirement corpus + pension | Medical care + cash benefits |
What HR Managers Get Wrong
A few mistakes show up in almost every payroll audit we’ve seen at growing Indian companies:
- Deducting PF on gross salary instead of Basic + DA. This inflates deductions and confuses employees when they compare payslips.
- Stopping ESI the moment salary crosses ₹21,000. ESI continues for the rest of the contribution period, not just till the salary hike.
- Forgetting EDLI and admin charges in employer cost projections. These are small per employee but add up across headcount, and finance teams often miss them when budgeting CTC.
- Not documenting voluntary PF agreements. Under the EPF Scheme 2026 clarification, contribution above ₹15,000 needs an explicit agreement — verbal understanding won’t hold up in an inspection.
- Manually recalculating this every month in Excel. One dragged formula error and every payslip in that department is wrong.
If your team is also juggling gratuity or full & final settlement calculations by hand, the same errors tend to show up there too — worth checking your numbers against the gratuity calculator and F&F settlement calculator while you’re at it. EZHRM’s compliance management module automates all of this — PF, ESI, PT, and TDS — so nobody’s manually tracking rule changes like the EPF Scheme 2026 update.
FAQs
Is PF mandatory for all employees in India?
PF is mandatory for employees earning ₹15,000 or less in basic + DA at establishments with 20 or more employees. Employees above this can be covered voluntarily if both employer and employee agree, but it isn’t compulsory by default.
Can an employee opt out of ESI once covered?
No. Once ESI applies, coverage continues for the full contribution period (April–September or October–March), even if the employee’s salary rises above ₹21,000 during that period.
What is the current PF contribution rate in 2026?
Both employee and employer contribute 12% each of Basic + DA (capped at ₹15,000). The employer’s 12% splits into 3.67% EPF and 8.33% EPS, plus 0.5% EDLI and 0.5% admin charges as additional employer cost.
What is the ESI wage ceiling for 2026?
₹21,000 per month gross salary, or ₹25,000 for employees with disabilities. This has been unchanged since 2017.
Has the EPF wage ceiling of ₹15,000 changed in 2026?
No. The ₹15,000 ceiling remains in place. What changed is that contribution above this ceiling is now explicitly voluntary under the EPF Scheme, 2026, rather than a default employer obligation.
What happens if an employer doesn’t deposit PF/ESI on time?
Late PF deposits attract interest under Section 7Q and damages under Section 14B of the EPF Act. Late ESI payments attract interest at 12% per annum plus potential penal action from ESIC. Both are avoidable with a compliance calendar and automated payroll.
Getting This Right, Every Month
PF and ESI math isn’t complicated once you know the rules — but it’s exactly the kind of calculation where a single manual error snowballs into a compliance headache three months later. Run your numbers through EZHRM’s free PF & ESI calculator before your next payroll cycle, or explore the full set of free HR calculators to check gratuity, bonus, and CTC breakups in the same place. For more on staying compliant, browse our HR guides on the EZHRM blog.