For Indian startups, Provident Fund (PF) and Employee State Insurance (ESI) are the two pillars of statutory payroll compliance. PF is a retirement savings scheme managed by the Employees' Provident Fund Organisation (EPFO), while ESI is a health insurance scheme managed by the Employees' State Insurance Corporation (ESIC). Both become mandatory when your headcount crosses specific thresholds — and both carry significant penalties for non-compliance.
PF Registration: When Is It Mandatory?
Provident Fund registration with EPFO is mandatory for establishments with 20 or more employees. The threshold is based on all employees — permanent, temporary, contractual, or on probation. Once you cross 20 employees, you have 1 month to register. Below 20 employees, registration is voluntary but recommended — it signals professionalism to employees and makes future mandatory compliance seamless.
- Mandatory: 20 or more employees at any point in time
- Voluntary: fewer than 20 employees; you can choose to register voluntarily
- Once registered (mandatory or voluntary), you cannot de-register even if headcount later drops below 20
- Registration via EPFO Unified Portal: employers.epfindia.gov.in
- Required documents: PAN, registration certificate, bank details, list of employees with Aadhaar-seeded UAN
- Each employee gets a Universal Account Number (UAN) — remains with them across employers for life
- Employees who have a UAN from a previous employer must carry it forward — do not create new UANs
Even at 5–10 employees, voluntary PF registration helps attract senior talent who expect the benefit. It also eliminates the risk of non-compliance penalties when you scale past 20 employees.
PF Contribution Rates and Monthly ECR Filing
Both the employer and employee contribute 12% each of the employee's basic salary + Dearness Allowance (DA) to the PF. The employer's 12% is split between the Employees' Provident Fund (EPF) and the Employees' Pension Scheme (EPS). Monthly contributions are submitted via the Electronic Challan cum Return (ECR) filed on the EPFO Unified Portal.
- Employee contribution: 12% of (Basic Salary + DA) — deducted from gross pay
- Employer contribution: 12% of (Basic Salary + DA) — fully borne by the employer
- Of the employer's 12%: 8.33% goes to EPS (capped at ₹15,000 base), 3.67% goes to EPF
- Employer also pays: 0.5% EDLI (Employees' Deposit Linked Insurance) + 0.5% administrative charges (min ₹75/month)
- PF applies only on salary up to ₹15,000/month for EPS — higher earners can choose to limit PF to ₹15,000 base
- ECR filing deadline: 15th of the following month
- Challan payment deadline: 15th of the following month (same as ECR filing)
- Late payment: 12% per annum interest + damages from 5% to 25% of arrears for delayed filings
Structure employee salary packages carefully: PF is calculated on Basic + DA, not on HRA, travel allowances, or performance bonuses (if paid as separate allowances). Structuring salaries with higher allowances reduces PF outgo — but be careful not to make basic salary unreasonably low.
ESI Registration and Contribution Rates
Employee State Insurance (ESI) provides health insurance, maternity benefits, and disability coverage to covered employees. It is mandatory for establishments with 10 or more employees (in some states, the threshold may still be 20 — verify your state's notification). ESI covers employees earning up to ₹21,000/month gross salary (₹25,000 for persons with disability).
- Mandatory: 10 or more employees in states where the lower threshold has been notified
- Salary eligibility: employees earning ₹21,000/month or less gross salary are covered
- Employer ESI contribution: 3.25% of gross wages
- Employee ESI contribution: 0.75% of gross wages (deducted from salary)
- If an employee's salary increases above ₹21,000 mid-contribution period, they remain covered until the end of that 6-month contribution period
- Registration via ESIC online portal: esic.gov.in
- ESI challan due date: 15th of the following month
- ESI provides: medical care for the employee and family, sick pay, maternity benefit (26 weeks paid), and disability compensation
Employees covered under ESI cannot claim deduction under Section 80D (medical insurance premium) for the same year — because ESI is considered their medical insurance. Inform employees of this at the time of onboarding.
TDS on Salary (Section 192) and Form 16
In addition to PF and ESI, employers must deduct Tax Deducted at Source (TDS) from employee salaries under Section 192 of the Income Tax Act. The TDS amount is based on the employee's projected annual income tax liability, divided across the remaining months of the financial year. TDS is deposited monthly and reported quarterly via Form 24Q.
- Collect investment declaration forms from employees at the beginning of the year (HRA, 80C, 80D, home loan interest, etc.)
- Compute projected annual tax on (estimated gross salary − deductions − exemptions)
- Divide annual tax liability by remaining months — deduct equally each month
- Deposit TDS by the 7th of the following month (for April to February) and by March 31 for March salary
- File quarterly TDS returns: Form 24Q (salary TDS) — due by July 31, October 31, January 31, and May 31
- Issue Form 16 to all employees by June 15 of the following financial year
- Form 16 Part A: TDS certificate downloaded from TRACES (income tax department system)
- Form 16 Part B: salary breakup and deductions — prepared by the employer
- Failure to deduct or deposit TDS attracts 1.5% per month interest plus disallowance of salary as business expense
Collect revised investment declarations in December–January. Employees often buy tax-saving instruments (ELSS, PPF, insurance) toward year-end and need their TDS recalculated. Payub manages this re-computation automatically.
What Payub Handles for Indian Payroll Compliance
Managing PF, ESI, TDS, and professional tax manually across multiple employees is complex and error-prone. Payub automates the full statutory compliance stack for Indian companies so you can focus on your business.
- PF: auto-calculate employee and employer contributions, generate ECR file, submit to EPFO portal
- ESI: compute contributions for eligible employees, generate challan, submit to ESIC portal
- TDS (Section 192): collect declarations, compute projected annual tax, deduct correct TDS monthly
- Form 24Q: prepare and file quarterly TDS returns
- Form 16: generate Part A (via TRACES) and Part B for all employees by June 15
- Professional Tax: state-wise PT deductions automatically maintained (Maharashtra, Karnataka, West Bengal, Tamil Nadu, AP, Telangana, and more)
- Payslips: branded payslips with full salary breakup sent to employees monthly
- Compliance calendar: Payub sends reminders before all statutory deadlines
If you've been running payroll manually (cash or bank transfers without proper payslips and deductions), getting compliant requires back-filing. Nexub's team can help you compute and regularise arrear PF and ESI contributions.
Automate PF, ESI, and TDS with Payub
Full statutory payroll compliance for Indian companies — PF ECR filing, ESI challan, TDS, Form 16, and professional tax, all automated.
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