It’s the 3rd of the month, your payroll run is due tomorrow, and one of your executives has just forwarded you a WhatsApp forward about “PF rules changing under the new Labour Code.” You open your salary sheet, stare at the PF and ESI columns, and wonder: are you still calculating this right? If you run payroll for a team of 20 or 200 in India, that mild panic is familiar — and honestly, this year it’s justified, because the rules genuinely did move under your feet.
PF and ESI calculation in India for 2026 still runs on the same core formulas HR managers have used for years, but the base those formulas sit on is shifting because of the new Labour Codes. Get the base wrong, and every PF and ESI number downstream — employer cost, employee take-home, your compliance filings — is wrong too. Here’s what’s actually changed, what hasn’t, and how to calculate it correctly this year.
TL;DR — PF & ESI Calculation in India, 2026
- PF contribution stays at 12% of Basic + DA from both employer and employee, capped at a wage ceiling of ₹15,000/month (max ₹1,800 each side).
- ESI contribution stays at 4% total (3.25% employer + 0.75% employee) on gross wages up to ₹21,000/month (₹25,000 for employees with disabilities).
- The four Labour Codes, notified into force from November 21, 2025, require Basic + DA to be at least 50% of CTC — which mechanically raises the PF (and gratuity) base for many salary structures.
- Use EZHRM’s free PF & ESI calculator to run this instantly instead of rebuilding the formula in Excel every payroll cycle.
What Are PF and ESI, and Why Should HR Get the Base Right?
Provident Fund (PF) is a retirement savings scheme under the Employees’ Provident Funds and 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 the ESIC, covering medical, sickness, maternity, and disability benefits for lower-wage employees.
Both are calculated as a percentage of a defined “wage” figure — and that wage definition is exactly what’s in motion right now because of the new Labour Codes. If your payroll software or your Excel sheet is still working off last year’s assumptions, your deductions and your employer cost projections will both be off.
PF Contribution Rate and Wage Ceiling in 2026
PF is calculated at 12% of Basic + Dearness Allowance (DA) from the employee, matched by 12% from the employer (of which 8.33% goes to the Employees’ Pension Scheme, subject to its own ceiling, and 3.67% to the PF account). The statutory wage ceiling for mandatory PF coverage remains ₹15,000 per month in 2026 — the long-discussed hike to ₹25,000 hasn’t come through yet, so contributions on wages above ₹15,000 are voluntary unless both parties opt in.
That means the maximum mandatory PF deduction at the wage ceiling is ₹1,800/month from the employee, matched by ₹1,800/month from the employer — ₹3,600 total. Many established companies still contribute on actual Basic (not capped at ₹15,000) as a retention benefit, so check your company’s PF policy before assuming the ceiling applies.
ESI Contribution Rate and Wage Ceiling in 2026
ESI is calculated on gross monthly wages (not just Basic) and has been unchanged since July 2019: 3.25% from the employer and 0.75% from the employee, a combined 4%. Any employee earning gross wages up to ₹21,000/month at a covered establishment is mandatorily enrolled; the ceiling is ₹25,000/month for employees with disabilities. Once an employee’s gross wages cross the ceiling mid-contribution-period, they typically continue under ESI coverage until the end of that contribution cycle (April–September or October–March) — a detail HR teams often miss.
How the New Labour Codes Change Your PF Base
This is the part most payroll teams haven’t fully absorbed yet. The four Labour Codes — Code on Wages, Industrial Relations Code, Occupational Safety Code, and Code on Social Security — were notified into force from November 21, 2025. Under the new wage definition, Basic Pay + Dearness Allowance + Retaining Allowance must together form at least 50% of an employee’s total CTC.
For years, a lot of Indian salary structures kept Basic Pay deliberately low — often 30–40% of CTC — and loaded the rest into HRA, special allowance, and other components specifically to keep the PF and gratuity base small. That workaround is closing. If your current salary structure has Basic below 50% of CTC, you’ll need to restructure it, which mechanically increases the PF base (and gratuity liability) even though the 12% contribution rate itself hasn’t changed. Employees will typically see a slightly lower in-hand salary and a meaningfully higher retirement corpus — worth explaining clearly when you communicate this to your team, because “why has my take-home dropped” is the first question you’ll get.
If you haven’t already benchmarked your salary structures against this rule, do it before your next appraisal cycle. It directly affects how you’d want to run numbers on a CTC salary calculator and, downstream, on a gratuity calculator — both use the same Basic + DA base that’s now moving.
Step-by-Step: How to Calculate PF and ESI Deductions
- Confirm the wage components. Identify Basic + DA (for PF) and gross wages (for ESI) for each employee, making sure your structure meets the 50% wage rule.
- Check ESI eligibility. If gross wages are ≤ ₹21,000/month (₹25,000 for PWD employees), the employee is covered under ESI for that contribution period.
- Calculate PF. Take 12% of Basic + DA (capped at ₹15,000 unless your policy contributes on actual Basic) from the employee, and match it from the employer.
- Calculate ESI. Take 0.75% of gross wages from the employee and 3.25% from the employer — no ceiling applies to the wage figure once the employee is covered, only to the eligibility threshold.
- File and deposit. PF via ECR on the EPFO portal, ESI via the ESIC portal, both by the 15th of the following month.
- Reconcile every cycle. New joiners, exits, and mid-month salary revisions all change PF/ESI eligibility and amounts — don’t assume last month’s numbers carry forward.
Running this by hand for even 30–40 employees eats up hours you don’t have during a payroll close. EZHRM’s PF & ESI calculator does the math instantly — enter Basic, DA, and gross wages, and it returns both employee and employer contributions with the current ceilings already built in.
PF vs ESI: A Quick Comparison
| Parameter | PF (EPF) | ESI |
|---|---|---|
| Governing law | EPF & MP Act, 1952 | ESI Act, 1948 |
| Calculated on | Basic + DA | Gross wages |
| Wage ceiling | ₹15,000/month | ₹21,000/month (₹25,000 for PWD) |
| Employee contribution | 12% | 0.75% |
| Employer contribution | 12% | 3.25% |
| Regulator | EPFO | ESIC |
| Purpose | Retirement savings | Health & social insurance |
Common Mistakes HR Managers Make with PF & ESI
A few errors show up again and again during audits and payroll reviews:
- Applying the PF ceiling inconsistently. Switching between “contribute on ₹15,000 cap” and “contribute on actual Basic” mid-year without a documented policy change causes reconciliation headaches.
- Missing ESI continuity rules. Dropping an employee from ESI the moment their salary crosses ₹21,000, instead of waiting till the contribution period ends.
- Ignoring the 50% wage rule in new offer letters. Issuing new CTC structures that still keep Basic at 30% is a compliance gap under the new Labour Codes.
- Late ECR/ESI filing. Missing the 15th-of-the-month deadline attracts interest and penalties from both EPFO and ESIC.
- Not separating voluntary PF contributions (above the wage ceiling) clearly in payslips, which confuses employees and complicates Form 16 reconciliation.
FAQ: PF & ESI Calculation in India
Is the PF wage ceiling still ₹15,000 in 2026?
Yes. Despite proposals to raise it to ₹25,000, the EPFO wage ceiling remains ₹15,000/month as of 2026, so mandatory PF contribution is capped at ₹1,800/employee/month unless your company contributes on actual Basic.
Has the ESI contribution rate changed for 2026?
No. ESI has stayed at 4% total (3.25% employer, 0.75% employee) since July 2019, with a gross wage eligibility ceiling of ₹21,000/month.
How do the new Labour Codes affect PF calculation?
They require Basic + DA + Retaining Allowance to be at least 50% of CTC, which raises the PF (and gratuity) base for salary structures that previously kept Basic artificially low, even though the 12% rate is unchanged.
Do I deduct ESI on gross salary or just Basic?
ESI is calculated on gross monthly wages, not just Basic — this is a key difference from PF, which uses only Basic + DA.
What happens if an employee’s salary crosses the ESI ceiling mid-year?
They continue to be covered under ESI until the end of the current contribution period (April–September or October–March), not from the exact month their salary increased.
Can I contribute PF above the ₹15,000 ceiling voluntarily?
Yes, both employer and employee can agree to contribute on actual Basic above ₹15,000 — many established companies do this as a retention benefit, but it must be documented in policy.
Getting PF and ESI right every month — especially with the wage definition shifting under the new Labour Codes — is exactly the kind of repetitive, error-prone calculation that shouldn’t sit on one HR manager’s shoulders. Run your numbers on EZHRM’s free PF & ESI calculator before your next payroll cycle, and if you’re ready to stop doing this by hand altogether, take a look at how EZHRM’s payroll software and compliance management handle it automatically.
For more calculators like this one, visit our HR tools hub, or browse more guides on the EZHRM blog.