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This blog describes rules for ESI and PF Deduction, where ESI is Employee State Insurance (ESI) and PF is Provident Fund (PF). These are two social security schemes available to employees working in India.
However, payroll administrators often often struggle to keep up with the latest standards in these 2 areas. This leads to wrong deductions and deposits, queries from government departments, the dreaded scrutiny, and even fines.
Significant information is available on the web and the government websites. But that is often contradictory, confusing, poorly written, or sometimes even wrong or misleading.
This blog explains both schemes and describes the Rules of ESI and PF Deduction in detail. These rules are updated in this post whenever there are changes in government schemes. This helps you implement Best Practices of Payroll Processing in your organization.
Employees’ State Insurance (ESI) Scheme
ESI is a contributory fund that enables Indian employees to participate in a self-financed, healthcare insurance fund with contributions from both the employee and their employer.
The scheme is managed by Employees’ State Insurance Corporation, a government entity that is a self-financing, social security, and labor welfare organization.
The entity administers and regulates ESI scheme as per the rules mentioned in the Indian ESI Act of 1948.
ESI is one of the most popular integrated need-based social insurance schemes among employees. The scheme protects employee interest in uncertain events such as temporary or permanent physical disability, sickness, maternity, injury during employment, and more. The scheme provides both cash benefits and healthcare benefits.
Eligibility for ESI
ESI scheme applies to all types of establishments, including corporates, factories, restaurants, cinema theaters, offices, medical and other institutions. Such units are called Covered Units.
What is the criteria for Covered Units
- – All units that are covered under Factory Act and Shops and Establishment act are eligible for ESI.
- – Where 10 or more people are employed irrespective of their monthly earnings.
- – Units which are located in the scheme-implemented areas. The government plans to implement ESI across the entire country by 2022 so all units will be considered as Covered Units.
All the establishments covered under the ESI act and all the factories that employ more than 10 employees (in some states, 20 employees) and pay a maximum salary of INR 21,000 per month (Rs. 25,000 for employees with disability) must register with ESIC and contribute towards the ESI scheme.
How to identify eligible employees?
All employees of a covered unit, whose monthly incomes (excluding overtime, bonus, leave encashment) does not exceed Rs. 21,000 per month, are eligible to avail benefits under the Scheme. The ESIC has fixed the contribution rate of the employees at 0.75% of their wages and the employer’s contribution at 3.25% of the wages.
Employees earning daily average wage up to Rs. 137 are exempted from ESIC contribution.
However, employers will contribute their share for these employees.
What salary components are applicable to ESI deductions?
ESI contributions (from the employee and employer) are calculated on the employee’s gross monthly salary.
Most people face challenges in understanding ESI deduction rules because they aren’t clear about the concept of Gross Salary. So let us explain this concept first.
Gross salary is described as the total income earned by the employee, while working in their job, before any deductions are made for health insurance, social security and state and federal taxes.
For ESI calculation, the salary comprises of all the monthly payable amounts as shown in the image:
The gross monthly salary, however, does not include Annual bonus (such as Diwali bonus), Incentive bonus, Service charges, Gazetted allowance, Saving scheme, Retrenchment compensation, Encashment of leave and gratuity, and more.
Collection of ESI Contribution
It is the employers responsibility to contribute to the ESI fund by deducting the employees’ contribution from wages and combining it with their own contribution.
An employer is expected to deposit the combined contributions within 15 days of the last day of the Calendar month. The payments can be made online or to authorized designated branches of the State Bank of India and some other banks.
ESI Calculations
The rates of contribution, as a percentage of gross wages payable to the employees, is explained in the table below
| Percentage of Gross Pay | Example Gross Salary | Contributions | |
| Employee Deduction | 0.75% | Rs 15,000 | 15,000 * 0.75% = 112.50 |
| Employer Contribution | 3.25% | 15,000 * 3.25% = 487.50 | |
| Total Contributions for this employee | 112.50 + 487.50 = Rs 600.00 | ||
In case, the gross salary of the employee exceeds Rs. 21,000 during the contribution period (explained next), the ESI contributions would be calculated on the new salary and not Rs 21,000.
Contribution Period and Benefit Period
Payroll administrators often face confusion when employees salaries change – especially when the monthly salary exceeds the ESI limits of Rs 21,000.
To handle this situation, ESI has a concept of contribution periods during which the ESI contributions have to continue, even when the salary exceeds the maximum limits.
There are two contribution periods each of six months duratio n and two corresponding benefit periods also of six months duration.
| Contribution Period | Cash Benefit Period |
| 1st April to 30th September | 1st January of the following year to 30th June |
| 1st October to 31st March of the following year | 1st July to 31st December |
After the commencement of a contribution period, even if the gross salary of an employee exceeds Rs. 21,000 monthly, the employee continues to be covered under ESI scheme till the end of that contribution period.
The contribution is deducted on the new salary. Let us look at an example to understand this better.
If an employee’s gross salary increases in June from Rs. 18,000 (within ESI limit) to Rs. 22,000 (above ESI limit), the deductions for ESI will continue to happen till the end of the ESI contribution period i.e. September.
And the deduction amount for both the employee and employer will be calculated on the increased gross salary of Rs. 22,000.
At the end of the contribution period, if the employee salary is more than the ESI limit, no further deductions and contributions are required. The employee will still be covered under ESI till 30th June of the following year.
Similar rules apply when an employees salary increases in the 2nd contribution period.
Rules related to Employee Provident Fund (EPF)
Just like the ESI scheme, the Employees Provident Fund (EPF) is a Contributory fund with contributions from both the employee and their employers.
While the focus of the ESI scheme is healthcare, Provident Fund is focused towards post Retirement Income and Benefits.
EPF is a compulsory and contributory fund for Indian organizations under “The Employees’ Provident Fund and Miscellaneous Provisions Act 1952”.
Employee and Employer Contributions to the Employee Provident Fund (EPF)
For EPF, both the employee and the employer contribute an equal amount of 12% of the monthly basic salary of the employee. The contributions are payable on maximum wage ceiling of Rs 15,000.
Employees can voluntarily contribute more than 12% of their salary, however the employer is not bound to match the extra contribution of the employee.
The PF deduction rate of 10% is only applicable to some establishments where less than 20 employees are employed and they meet the following conditions:
- – If it is a sick industry declared by BIFR
- – If industry belongs to brick, jute, beedi, gaur and coir industries
- – If an organization is operating with a wage limit of Rs 6,500
- – If an organization has seen annual loss which is more than its net value
For PF contribution, the salary comprises of fewer components:
- – Basic wages,
- – Dearness Allowances (DA),
- – Conveyance allowance and
- – Special allowance.
The employers monthly contribution is restricted to a maximum amount of Rs 1,800. Even if the employee’s salary exceeds Rs 15,000, the employer is liable to contribute only Rs 1,800 (12% of Rs 15,000).
For international workers, wage ceiling of Rs 15,000 is not applicable.
Details of EPF
The statutory compliance associated with PF contribution has some lesser known facts associated with it.
The contributions by the employee and employer are divided into two separate funds:
- – EPF (Employee Provident Fund) and
- – EPS (Employee Pension Scheme).
The breakup happens as follows:
| Employee | Employer | |
| Total contribution | 12% of monthly salary | 12% of monthly salary (subject to a maximum of Rs 1,800) |
| Employee Pension Scheme (EPS) | 0 | 8.33% (of the 12%) |
| Employee Provident Fund (EPF) | Full amount | 3.67% (of the 12%) |
| Example Monthly Salary: Rs 12,000 | ||
| Total Contribution | 12,000 * 12% = Rs 1,440 | 12,000 * 12% = Rs 1,440 |
| EPS | 0 | 12,000 * 8.33% = Rs 999.60 |
| EPF | Rs 1,440 | 12,000 * 3.67% = Rs 440.40 |
Provident Fund Withdrawal Rule
A PF account holder can withdraw up to 75% of the total amount if he/ she has been unemployed for more than a month.
The offline PF withdrawal process usually takes upto 20 working days, and online PF withdrawal takes upto 3 working days.
An employee cannot withdraw full or partial PF until he/ she is employed. Full PF balance can be withdrawn only if the employee has been unemployed for at least 2 months or the joining date of the new job is more than 2 months from the last working day at the previous employer.
In any case, if an employee withdraws ₹50,000 or more within 5 years of opening a PF account, then a TDS of 10% is applicable on the withdrawal (provided you have a valid PAN card) or 30% (if you don’t have a PAN card).
How an Automated Payroll Software helps implement Rules for ESI and PF Deduction
Manual computation of statutory compliances involves lot of paperwork and filling in of challans and forms on paper and submitting them to banks. This makes the process time-consuming, can introduce inaccuracies and can often lead to mistakes.
Both the ESI and PF departments encourage online filing and payments.
It is advisable to use automated payroll processing tools to calculate ESI, PF and income tax deductions.
A good payroll management software puts an end to increased complexities of payroll processing and offers following benefits:
- – Accuracy in PF, ESI and other statutory calculations
- – Increased transparency in payroll processing
- – Reduced number of queries from employees
- – Higher compliance
- – Lower load on payroll administrators
My Total Gross Salary is 24840/- par month break is under.
Basic pay : 9269
HRA : 9936
Washing Allowances : 4553
Bonus : 1081
——————————————–
Total earning : 24840
But my PF deducted only : 1112 Rs
So please help me because my contract change from July Earlier my PF Deducted : 1800 Rs
it is correct deduction bec pf is calculated on your basic pay ,which is 12%of9269
There are three pf deduction rules. 1) 12% of basic+DA 2) 12% of basic+DA with 1800 Maximum capping 3) 12% of Gross-HRA with 1800 Maximum capping. It depends on your company that which option they are using to deduct the PF for their employees.
For more information, you can check with your the HR department of your organization. .
can we opt 2 different methods for different people as per their salary? like for less than 10K one option and for more than 10K opt another one.
Sir,
My question is as per SC judgment Pf deduction on fixed allowances & my company is security service firm so can i deduct pf on washing allowance or not?
Hello sir
Employees not interested pf deduction
What’s rule of pf not deduction
YOU CAN FILLUP FORM 11 FOR THE SAME
For PF contribution, the salary comprises of fewer components:
– Basic wages,
– Dearness Allowances (DA),
– Conveyance allowance and
– Special allowance
So Pf deduct only basic salary+Da so Your pf deduct Amount of 9269*12%=1112.00
my salary 15000
basic is 30% 4500
pf deduction is 12%
basic which is 540 PF AMT
is this right deduction are going from company because i worked in ATUL PROJECTS INDIA PRIVATE LIMTED
Yes, it is based on the PF rules.
Yes your deduction is correct as per rule 4500*12%= 540
YEs YOUR pf deduction on your basic 4500*12% so pf amount is 540
It is truly a great and useful piece of info. I am glad that you simply shared this useful information with us.
Please keep us informed like this. Thanks for sharing.
If my salary more than Rs. 21000 ESI are apply cable or not
Hi Sir, i am working with a company where we have PF contribution options as below for new joiners,
NO- no PF will be deducted from salary
Fixed- 1800 will be deducted as Employee contribution and another 1800 will be deducted as employer contribution.
Yes- they will apply 12% of my basic pay for both employee and employer contribution,
my basic pay is 40000, initially when i joined 3 years ago i have opted PF option as YES, so now they are deducting straight 12% of my basic which is 4800 as employee contribution and another 4800 as employer contribution. so this 9600 makes my take home lesser.
Now when i asked my employer to convert my PF Option from YES to FIXED, they are not allowing me to do. i don’t see any PF rules saying employee can not reduce PF contribution. i think PF rules are saying i should contribute a min of 1800 per month.
Can you please help me on this…are there any rules supporting that employee can change their PF contribution option?
This will depend on your company’s policy.
BUT pf ceiling limit 15000 basic and ceiling amount is 1800
And I have not got any such rule till now, it is wrong, you should talk to your HR and and show them the government rules for pf deduction
Hi, An employee salary is Rs 22000/- till Jun effective from Jul the employee salary is reduced to Rs 20000/-.
The employee was not part of ESI to date since his salary is reduced below the esi ceiling, should the ESI deduction happen from Jul onwards or from the next cycle of Oct.
Please clarify.
In this case, ESIC dedcution will be effective from Jul month or when ever the salary comes under the ESIC range.
what happened , When gross salary of a person is in this manner.
april – 25000, may – 23000, june – 21000, july – 18500, august – 25000 so on
So, Is he eligible for ESIC
As per the shared information, June month’s gross salary of employee is 21000/- which is under the ESIC limit. Hence the ESIC deduction will start deducting from the month of June and this will continue till the ESIC contribution period.
Hey, Can anyone please help me with the below query:-
There is employee in my organization, his basic salary is 15000 and there is special allowances also of 6800 but we were deducting PF of 12% of basic salary but this month employee was on leave for around half month due to which his basic salary come around 7500 so My question is should I deduct PF on Basic salary or should I change my calculation and deduct pf on Basic + Special allowances?
Ideally you should deduct the PF as per the earlier logic i.e on monthly payable basic salary. If you wish to give the advantage to the employee, you can include the special allowance limiting it up to the 15000/-
If a employees salary 25000 in a month,but employer has not deduct any pf and esi because this is a partnership firm and his employee is less than 10,so the employee can harass for any kind of loan taken from bank?
No, there would not be any problem in bank loan
yes problem i think some bank person will ask pf
Dear sir,
My basic salary is Rs: 689/- and my da & other allowance is Rs:143/-
our company works for 26 days per month.
If calculated:
Basic 689 *26 = 17914
DA & Other allowance: 3718
Total =21632
im i eligible for ESI ?? iF YES then How?
As you said that you are getting a monthly fixed salary of 21632 which is more than the ESIC current limit i.e 21000/- per month. Hence you are not eligible for ESIC deduction. If there is an increase in the salary in between the ESIC contribution periods (Apr-Sep and Oct-Mar) then your ESIC deduction will continue till the last month of contribution period.
My package 273000. Then how much my monthly net salary
You can ask your HR to share your complete salary breakup. As per the given information your CTC is 273000/- with this your monthly gross salary 273000/12= 22750/-. Please note that Net salary calculation always depends on the salary component payable and deductions in a month.
Sir,
My Salary as given below
Gross Salary 20560/-
i asked to cut my pf
our company was deduction the PF Contribution Rs. 4500/-
how it is happen sir. please explain me.
There are three options for PF deduction. 1) 12% of Basic salary 2) 12% of basic salary with 1800 cap 3) 12% of gross salary – HRA with 1800 cap. Please check your PF deduction based on these rules. For any further doubt, you may contact the HR department of your company.
i think your compony cutting your PF [ employer 12 % + employee 12% ] from your payment
………….lmao……….
One Employee was getting Rs. 20000 til May 21, his salary has increase to Rs. 22000 in June 21.
Consultant says that there is capping on ESIC Deduction of Rs. 158 which is 0.75% of Rs. 21000.
Pls confirm.
ESIC will be deducted on total monthly salary till the month of September, as it is the ESIC return cycle.
No capping on ESIC Deduction. If your employees salary exceeded Rs. 22000/- due to wage revision then you have to deduct ESI from their salary till the contribution period ends ie. till September-2021 and respective person and his family eligible for medical benefit under ESIC till June-2022
SIR WITH REQUEST I ASK YOU AN EMPLOYEE HIS SALARY IS 19500/ IN MARCH -2021 HIS DEDUCTION ESI BUT IN MAY HIS SALARY IS 22000/- THEN I DEDUCTED HIS ESI PLEASE TELL ME SIR
There are two cycles of ESIC return. Cycle-1 start from Apr-Sep and cycle-2 start Oct-Mar. For example: If any employee’s salary changes more than ESIC limit in any month of define ESIC cycle then the ESIC will deduct till end of the ESIC cycle. In your case it will deduct till September.
Then till what time we can get ESI benifit
Your ESIC deduction will continue till the Sep month Payroll.
all the employee asking us to not deduct ESI ,because they dont want ESI, what is the solution for it
Make sure you formally communicate to your employees that ESI Act 1948 is applicable to every organization with minimum employee strength as 20. According to the Act, ESI deduction is mandatory for all employees earning Rs 21,000 or less monthly. There is no choice given, and the rule has to be obeyed.
Explain the long term benefits of ESI deduction to your employees. Each employee is eligible to avail medical care for self and family members from ESI Hospitals/Dispensaries by showing the ESI card.
In case, if an employee still wants to opt out from ESI deduction, then the individual needs to provide proof/ document for a personal medical health policy. It is important to have medical insurance or similar policy in which the person has already invested in.
There is a special case under which the employer is not bound to deduct ESI. If no ESI owned hospital or dispensary is found within a distance of 10 kilometers from the workplace, then the employer can specify this reason for not deducting ESI amount.
Hope this information helps you.
Can I be working for two company and get ESI in 2nd company and PF in 1st?
No, the provisions of Indian employment laws are against dual employment. You can take both the benefits from one company only.
If my salary is exceeding the limit on which PF is deductible, say Rs 2 Lakh a month, Employer is deducting and contributing @12% and deducting Rs 24,000 a month. Can i ask employer to restrict deduction and matching contribution to rs 15000 a month only
Yes, there is an option available with employers to deduct PF on capping wages i.e 15000/- per month.
EPFS, 1952 clearly states in Chapter V that “Employer’s share not to be deducted from the members” , is there any similar provision/rule in ESIC?
Yes there is the same rule for ESIC that employers have to pay their own contribution on behalf of employees.
What is the standard Basic pay % on CTC. Is PF mandatory even IF it is registered with the EPF.
What are the minimum labor wages of Employee as per Law.
There is no standard rule for basic allocation on CTC so far. It depends on the company how they are defining your salary structure. You can check with your HR to know more about your salary breakup. PF is mandatory if the company is registered under EPF. There are minimum wage state wise rules applicable to all employees based on certain categories like skilled, semi-skilled, unskilled. You can contact your HR to know more about your minimum wages.
Dear sir,
My salary is 12500/month
Now our company as gaving only 9000.
When we enquiry about this; they said other money are cutting for PFand ESI.
Now my request is, what is the accurate price of my month PF and ESI from 12500.like how to government rules
You can ask your HR for complete breakup of your salary i.e 12500/-. PF deduction would be 12% as employee contribution and 12% for company contribution from your basic salary. ESIC deduction would be 0.75% for employee contribution and 3.25% for company contribution.
My company’s salary calculation:-
Salary – 13000
May 21 salary payble – 12581
Epf 25% 2201
Esic 4% on total salary 503
Net salary 9875
Plz explain why employer’s contribution part is also deducting from my salary.
This depends on your company policy and the offer made to you. You can check with your HR department to understand the complete salary breakup.
hello 🙂
i got 25k per month ,
am i eligible for PF or not ?
Yes, you are eligible for PF if your company is registered under PF act and deducting PF for other employees.
Hi, For employees who are covered under ESIC for maternity leave Benifit, do employer needs to pay ESIC and PF contribution monthly on their 26 weeks of maternity leave entitlement as ESIC shall pay them their monthly Salary! If employer has to pay monthly ESIC and PF contribution then can we recover employers contribution (12% for PF and 3.25% for ESIC) from employee
ESIC contribution will be based on salary paid to employees and employer bears their ESIC/PF contributions as usual.
No, Employer do not need to pay ESI and PF contributions, since the women employee is being paid by ESIC as a form of benefit, it is not salary. So Employer has to file Zero days in working column and Zero Wages in Wages column while filing ESIC Returns and similarly has to file Zero wages and Zero deduction in PF Returns also
Dear Sir,
Please send voluntarily PF minim and Rules