How to set up PF and ESIC correctly when you cross the threshold

Provident Fund (PF) under the Employees' Provident Funds and Miscellaneous Provisions Act 1952 becomes mandatory when you employ 20 or more employees. ESIC (Employees' State Insurance) under the ESI Act 1948 becomes mandatory when you employ 10 or more employees (in most states) and your employees earn below ₹21,000 per month. Getting these set up correctly from the start prevents penalties, back payments, and compliance notices.

PF registration: register with the EPFO (Employees' Provident Fund Organisation) at the unified member portal. Upon registration, you receive a PF code. Contribution: 12% of basic salary from the employee and 12% from the employer (of which 8.33% goes to EPS — Employee Pension Scheme — and 3.67% to EPF). The employer also contributes 0.5% to EDLI (Employee Deposit Linked Insurance) and administrative charges of approximately 0.5–1.1%.

Basic salary for PF purposes: PF contributions are calculated on basic salary plus dearness allowance. Many Indian companies structure CTC to minimise PF liability by keeping basic salary low and other allowances high. This is legal but has trade-offs — it reduces the employee's retirement corpus and can affect gratuity calculations. Be conscious of this trade-off when structuring CTC.

ESIC registration: register at the ESIC portal. ESIC contribution: 0.75% of gross wages from the employee and 3.25% from the employer. Employees earning above ₹21,000 per month are exempt. ESIC covers medical treatment, sick leave, maternity, disability, and death benefits for covered employees. For employees earning above ₹21,000, you should have group health insurance as an alternative.

Monthly compliance: PF challan must be deposited by the 15th of the following month. ESIC challan by the 15th of the following month. ECR (Electronic Challan cum Return) must be filed monthly for PF. Half-yearly return for ESIC. Missing these deadlines attracts interest and penalties.