Complete guide to PF and ESI calculation in India (2026)

Provident Fund and Employees State Insurance are the two statutory deductions almost every Indian SMB has to deal with as soon as they cross 10 employees. They are also the two areas where we see the most expensive payroll mistakes — usually because someone applied last year's ceiling, or treated PF basic wage as the same as gross.

This is a 2026-current breakdown of what the rates are, who they apply to, and how to get the math right.

Provident Fund (PF)

Who pays

Mandatory for every establishment with 20 or more employees (10 in some states with notification). Voluntary below that threshold, but uncommon.

The 12 + 12 split

Both employee and employer contribute 12% of basic wage + DA. The catch: the employer's 12% gets split:

• 8.33% to Employees Pension Scheme (EPS), capped at the wage ceiling
• 3.67% to PF (the actual savings account)

The wage ceiling

The PF wage ceiling is ₹15,000. For employees earning more than ₹15,000 in basic + DA, employers can:

1. Contribute on actual basic + DA (no cap), or
2. Contribute only on ₹15,000 (statutory minimum)

Most large employers go with option 2; SMBs often default to option 1 because their payroll software does not implement the cap correctly.

Worked example

A software engineer with basic ₹40,000, HRA ₹16,000, special allowance ₹14,000.

• PF wage = ₹40,000 (basic only; HRA/special excluded)
• Employee deduction = 12% of ₹40,000 = ₹4,800
• Employer 12% = ₹4,800, split into:
  • EPS portion = 8.33% of ₹15,000 (capped) = ₹1,250
  • PF portion = ₹4,800 − ₹1,250 = ₹3,550

Plus the employer pays admin + EDLI charges of about 0.5% on top.

Employees State Insurance (ESI)

Who pays

Mandatory for establishments with 10+ employees (20+ in some states, but moving to 10). Applies to employees earning gross ≤ ₹21,000/month (₹25,000 for persons with disabilities).

The 0.75 + 3.25 split

• Employee: 0.75% of gross
• Employer: 3.25% of gross

Worked example

Factory worker with gross ₹18,000.

• ESI eligible (under ₹21k cap)
• Employee: 0.75% = ₹135
• Employer: 3.25% = ₹585
• Total to ESIC = ₹720

If a salary hike pushes someone above ₹21,000 mid-cycle, they remain ESI-eligible until the end of the contribution period (April-September or October-March), then drop out.

Common mistakes

1. Treating "basic" as "basic + HRA" — HRA is excluded from PF wage. We see this almost weekly in payroll audits.
2. Forgetting the EPS cap of ₹15,000 — paying 8.33% on full basic instead of capped wage costs the employer real money.
3. Missing mid-cycle ESI eligibility transitions — when someone crosses ₹21k, they stay in ESI for the contribution period. Cutting them off early causes ESI penalties.
4. Paying late — PF interest accrues at 12% per annum on delayed payments. ESI penalty can be up to 25% of the contribution. Both are easily 10x the cost of any HRMS subscription.
5. Manual ECR + ESIC files — the EPFO portal validates fields like UAN, IFSC, and member ID strictly. Excel-generated files fail on subtle whitespace and date-format issues.

How OfficHR handles this

Every paid plan calculates PF and ESI per employee per cycle, generates the EPFO ECR and ESIC contribution file, and validates against EPFO 2.0 and ESIC schemas before letting you download. Mid-cycle eligibility transitions are auto-flagged and applied at the right contribution-period boundary.

If you are running PF and ESI on Excel today, start a 14-day trial — we will migrate your existing structure for free if you are over 50 employees.

Quick reference

This guide is current as of FY 2026-27. Rates and ceilings can change with budget notifications — OfficHR pushes changes within seven days of any notification.