Skip to content
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
Respected sir,
my basic salery is 18000 thosand and CTC 33000 thosand. how much pf will deducted and its deduction is mandatory or not?
and 33000 ctc included with EL and not according to rules?
If an employee wants to opt out of PF, he need to fill out Form 11 at the time of joining his first job. If you have contributed in PF scheme earlier then you need to continue your PF contribution.
There are three PF rules: 1) 12% of basic+DA 2) 12% of basic+DA with 1800 Maximum capping. 3) 12% of Gross-HRA with 1800 maximum capping 3) 12% of Gross-HRA with 1800 Maximum capping.
How many days to from start leave eligibility in esic
MY EMPLOYER WANT REMITE PF AMOUNT MORE THAN 1800 AS MY BASIC+ALLOWANCE WILL COME TO 40000 AND EMPLOYER IS READY TO REMIT 4800 CAN WE DO SO REPLY ME
Yes, you can contribute more amount in PF to get long term benefits.
Dear Sir,
I have seen that at many websites the employee deduction is of 12% and employer contribution is of 13% for PF.
But here it is stated that it is 12% including both employee deduction and employer contribution.
so please do help me in finding the actual rates.
12% Emplyee deduction 12 % Employer deduction 1% Administrative charge
Respected Forum,
Before deciding to raise the salary ceiling cap from 21000/- to 25000/-, the Hon’ble Minister and the Central govt. in power should think of the repercussions, i.e. who actually gets benfit and who looses. Fine, on paper it is rosy to say every thing by the Minister. Is he aware of the facts, related to the conditions and services rendered by ESIC Hospitals to the subscribers. Perhaps not! It actually hurts a lot. The related issue is to enhance the ceiling limit for Pension. It all goes to the head of an employer. The employer ,who ever he may be, has to pay from his business earnings.If at all, all the Govt. Rules and Regulations are to be implemented in its True perspective, they will have to pass on the expenses to consumer in the form of better margins. Ultimately, the product cost will go up naturally and it will be a burden on common man. Mind You, there are citizens ranging from 60-65 % of population who has to work on their own to earn their Bread and taking care of family members. It is my experience, it serves “no purpose”, except of few vested interests in the Govt, just to show figures of improvement in parliament.The opportunistic group of this country is making mockery of Democracy and looting the Public in the name of serving the poor. Knowingly, politicians introduce these schemes, only to fool the public in general and loot the Govt. funds.It is better for the Govt. to take a stand on it and initiate strict vigilance in monitoring their employees.
Hi I’m Priyanka ,
I teach in a school and my monthly salary is 20k and what i have told that i have to pay security amount which will be deduct on my monthly salary till the 20k is not completed and they have not mentioned about PF so should i mention this and is it beneficial for a loong go ?
You need to check your appointment/offer letter for the PF component in the salary breakup. If PF component is there it is beneficial.
Thanks for this information blog. I would like to know if we are required to calculate PF & ESI on pro-rata basis if an employee leaves the organization in the middle of the month. Say if the last working day of an employee is 18th April, do we deduct the PF & ESI for the entire month or is it calculated till the last working day?
ESIC/PF should be calculated on the payable salary for the month.
Hello Sir,
1) Suppose an Employees Gross Salary is Rs. 35000/50000 and If the Employee Wants to deducted his ESIC even above the celling limit (i.e. 21,000) then is that possible in ACT? As ESIC consultant is saying that an Employee can continue contributing his part of contribution voluntary if he/she wish to do so.
So, Is there any Amendments or Notification regarding Voluntary ESIC contribution above 21,000 can be done?
2) One more concern that, Is there any circular or notification that we have to stop contribution above 21,000/-
Please reply my concern immediately as we have to send the data to consultant.
ESIC medical benefits is allowed for lower salaried employee below 21000/-. And it is clearly mentioned on the ESIC official websites. You can visit ESIC official website for more clarification.
Please provide circular or notification, that employer does not contribute ESIC above 21,000/-
Because we have seen in the tender paper of Chief District Medical Officer Keonjhar, Odisha where clearly mentioned that the salary of the employee is 55000/- , and their EPF contribution 13% on 15K is 1950 and ESI contribution 3.25% 682.50 on 21K.
Please clarify the matter with proper document, we will be highly obliged.
If employee getting salary 19,000/- for upto July22 and he contributing ESIC, from Aug’22 month the employee salary increased 19K to 25K is the employee still need to contribute ESIC. if yes how many months need to pay.
If any employee ESIC contribution is deducted in any month then it should continue till the ESIC half yearly return period i.e April-Sep and Oct-Mar.
Dear sir/mam,
If the employee Basic is less than 15000 is it mandatory to deduct as gross-HRA or can we deduct from basic kindly suggest
ESI contributions are calculated on the employee’s gross monthly salary.
Sir, How much would be the contribution by a worker to his P.F. A/c. drawing ₹ 16,064/- as minimum wages i.e. Basic Per Month = ₹ 14,842/- + VDA per month ₹ 1,066/- in Delhi . Is it mandatory to give minimum wages of net amount ₹ 16,064/- after E.P.F. & E.S.I DEDUCTION ?
PF would be deducted @12% of total payable salary or the PF contribution may be capped at 1800/-
grass salary of our employee exceed Rs. 21,000 per month from april’22 one of rs.21160.00 and other one rs.21765.00
kya hame contribution jama karna chahiye
No need to submit ESIC contributions as the employee’s gross salary is exceeding 21000/- and the salary month is April.
CAN YOU PROVIDE RULE AND ACT FOR IF EMPLOYEE NOT WANT TO DEDUCT EPF CONTRIBUTION. AND HOW TO FILE FORM 11 IN EPF
You can visit to EPF official website i.e https://epfindia.gov.in to check or download the relevant forms.
Dear Sir, I found your blog very helpful. Thank you for the blog.
I have a query please help me.
My workers salary is above RS 21000 per month which I hire on contract basis for the required work orders. I have total of 4 employees in my private limited company. So is it mandatory for me to get the registration of EPF?
It is not mandatory till you hire 10 or more employees.
sir my gross salary 21500rs and my deduction 2000, take home salary 19500rs, i am Eligible for esi
ESIC eligibility is checked on the basis of an employee’s gross salary not on the take home salary.
Sir salary 20500 .and 18k something in hand they said all deducting pf esi. What will be salary correctly given in hand to us
Dear Sir
We had taken Health Insurance policy for all employee.
So still we have to pay ESIC for all Employee.
Please assist
An employee covered by ESI benefits can opt out of ESIC after submitting documentary proof of having got himself covered under the medical insurance (an IRDAI-approved health cover). Once the employee exercises this option, the “employee shall be deemed to have exited from the ESIC deductions.
salary- 9000
Basic – 4950
PF= 594
Esi = 68
cash in hand = 8338
This is the calculation given by my company to me
Can you please help me with the in-hand salary that I am supposed to receive
You can check with HR for a complete salary breakup and deduction. They can guide you on what they are deducting from your salary.
Dear Arshad,
As per my understanding your gross salary is 9000 and basic is 4950.
according to this your pf contribution will be 12% of your basic which would be 4950*12/100=594.
your esic contribution will be 0.75% of gross which is calculated as 9000*0.75/100=68.
hence your inhand salary come up with 9000-594-68=8338.5
if an employee’s salary is 20000 and overtime or week offs is 1200 and the amount of week off varies from month to month then ESI contribution will be deducted or not? Is the limit of 21000 exceeding in this case? and if the the week off amount is 800 then on what amount esi will be deducted?
As you said the employee salary including Overtime is more than 21K, in such case the employee is out of ESIC range and ESIC will be not deducted for this employee subject to the condition. If employee ESIC is deducted for any month it will continue till the ESIC half yearly return period ends i.e April – September and October – March.
Thank you Sir.
Yes you are eligible for esi because your fixed gross is 20000 right then esi will be calculated on your earned if your fixed gross is less than 21k.
Which salary component included for pf deduction and which are salary heads excluded for pf calculation
For PF deduction there are 4 rules as mentioned below:
1) 12 % of basic salary
2) 12 % of basic salary with 1800 cap
3) 12% Gross-HRA (all the fixed salary heads are included except HRA)
4) 12% Gross-HRA with 1800 cap (all the fixed salary heads are included except HRA)
One of the 4 we can apply for deduction
Hello all,
I have a question, as we all know that the PF Celling is 15000, But my question is If my basic Salary + Allowance is Rs 30000, and I worked 10 day in a Month ,in that case my PF will be calculating on which amount
Please Share the fact along with PF act….
You need to check your company policy related to PF deduction/benefits. Ideally the company prorate the PF contribution as per the number of days worked in the month.
If my salary Component are as follow
Basic Rs. 12000/-, HRA Rs. 6000/-, Travelling Allowance Rs. 6000/-, Other Allowance Rs. 12000/-, Total Gross Salary Rs. 36000/-. We are deducting PF on Rs. 12000/- @ 12% i.e. Rs. 1,440/-.
Is it ok
Please confirm
Yes, it is per the PF rules i.e: 12% of basic.
Sir salary 20500 .and 18k something in hand they said all deducting pf esi. What will be salary correctly given in hand to us
SIR, Please clear my ESI point in this case.
Dear Mr. Mahera,
First of all the contribution, which has been given to you is not correct. As the Supreme court judgement while calculating for we need to calculate Basic+DA-HRA+Washing Allowance+Bonus(because can’t be given like this. If it is different every month then no PF but if it is same every month then has to give). Also some companies make a cap of upto 1800/-.
Thanks,
Biswajit
hello,
i wanted to know that suppose my organisation is registered under PF ESI act and some employee does not want to be registered in PF ESI scheme whose monthly salary is 15000/-. so my question is whether the organisation can pay them with bank or cheque by treating them as an expense for salary to those employees
Yes, employees have an option to opt out of ESIC after submitting documentary proof of having got himself covered under this product (an IRDAI-approved health cover), as per the rule. Once the employee exercises this option, the “employee shall be deemed to have exited from this Act”.
For PF, if there is no deduction for PF earlier, employee can opt out from the PF deduction.
Please share salary slip format in Excel with deductions ratios.
if a contractual labour work for 30-31 days per month, then for how many day of ESIC is to be deducted from the contractual worker
Contractual workers are covered under the Employees’ State Insurance Act, 1948 and entitled to social security cover if they draw up to Rs. 15,000/- in monthly wages. The employer has to register with the Employee State Insurance (ESI) corporation and is responsible to insure the workers. The current rates for ESIC deduction are: Employee= 0.75% and Employer = 3.25%
Hi
i have workers around 19-20 ppl and getting around 8000/- gross
1. Is it mandatory to get ESI and PF
2.How much i should deduct.
The minimum number of employees for ESIC and PF are: For ESIC= 10 For PF= 20
There are employee and company contributions for ESIC 1) 0.75% from employee’s salary 2) 3.25% from company side each month of the fixed salary.
For EPF, an employee contributes 12 percent of the basic salary (1800 cap can be put if basic salary is more than 15000 per month) while the employer contributes 8.33 per cent towards Employees’ Pension Scheme and 3.67 per cent to employees’ EPF (12% as total)