Tag: Employer Compliance

ESIC Applicability, Wage Limit and Contribution Rates (3.25% + 0.75%)

Posted on by CA Meet Dhrangadhariya

Last updated: 08 October 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • ESI is a social security scheme giving medical care and cash benefits to employees earning up to Rs 21,000 a month (Rs 25,000 for a person with disability).
  • Contribution is 4% of wages in total: 3.25% by the employer and 0.75% by the employee.
  • Under the Code on Social Security it applies to every establishment with 10 or more persons (other than a seasonal factory), and to hazardous establishments even with one employee.
  • Contribution is due by the 15th of the next month. Employees earning up to Rs 176 a day pay no employee share.

The Employees’ State Insurance Corporation (ESIC) runs the ESI scheme, a self-financed social security scheme for employees against sickness, maternity, disablement and death caused by employment injury. It was set up under the Employees’ State Insurance Act, 1948. Since 21/11/2025 the Code on Social Security, 2020 has replaced that Act, but the scheme, the rates and the wage limit continue to be applied by ESIC in the same way.

Who is covered?

  • Establishments: every establishment in which ten or more persons are employed, other than a seasonal factory (First Schedule to the Code). Establishments doing notified hazardous or life threatening work are covered even with one employee. Employees earning above the wage ceiling are still counted for the head count.
  • Employees: those whose gross monthly wages are Rs 21,000 or less. For a person with disability the limit is Rs 25,000.
  • Once covered, always covered: an employee who crosses the wage limit mid-way through a contribution period stays covered until the end of that period.

Contribution rates

Particulars Rate on gross wages
Employer share 3.25%
Employee share 0.75%
Total 4%

These rates have applied since 01/07/2019, when they were reduced from 4.75% and 1.75%.

Employees whose average daily wage is up to Rs 176 pay no employee share; the employer pays only its own 3.25%.

Example

An employee earns Rs 20,000 a month. The employee share is Rs 150 and the employer share is Rs 650, so Rs 800 is deposited with ESIC. At Rs 22,000 a month the employee is outside the scheme.

Benefits

  • Medical care for the insured person and family, including hospital and specialist care.
  • Cash benefits: sickness, maternity, temporary and permanent disablement, dependants’ benefit, funeral expenses.

Due date and filing

The employer deducts the employee share from wages and deposits both shares by the 15th of the following month. Late payment attracts interest and damages. Payment and the monthly contribution details are filed through the ESIC portal.

Wages for ESI under the Code (section 2(88))

“Wages” means basic pay, dearness allowance and retaining allowance, and all other remuneration, but the Code leaves out items such as statutory bonus, house rent allowance, conveyance allowance, overtime, commission, the employer’s PF contribution and gratuity. There is a cap: if these exclusions together exceed one-half (or the percentage the Central Government notifies) of total remuneration, the excess is added back to wages.

Example 1: total remuneration Rs 30,000 a month: basic Rs 12,000, HRA Rs 10,000, conveyance Rs 4,000 and a special allowance of Rs 4,000 that is not an excluded item. Exclusions come to Rs 14,000, below half (Rs 15,000), so wages are Rs 16,000.

Example 2: same Rs 30,000 with basic Rs 8,000, HRA Rs 12,000 and conveyance Rs 10,000. Exclusions are Rs 22,000, which is Rs 7,000 over half. That Rs 7,000 is added back, so wages are Rs 8,000 plus Rs 7,000 = Rs 15,000.

The wages figure decides both whether the employee is within the ceiling and the contribution payable.

Points to check

  • The Code says contributions are paid at the rates prescribed by the Central Government and ordinarily fall due on the last day of the wage period, with exact days set in regulations. ESIC’s present practice is payment by the 15th of the next month; check current ESIC instructions.
  • The Rs 21,000 ceiling and the rates are set by notification, not by the Code, so verify them on the ESIC site when paying.

Frequently asked questions

What is the ESIC contribution rate?

4% of gross wages: 3.25% paid by the employer and 0.75% deducted from the employee.

What is the ESI wage limit?

Employees whose gross monthly wages are Rs 21,000 or less are covered. The limit is Rs 25,000 for a person with disability.

Which establishments must register?

Under the First Schedule to the Code on Social Security, 2020, every establishment in which ten or more persons are employed, other than a seasonal factory. An establishment doing notified hazardous or life threatening work is covered even with a single employee.

When is ESI contribution due?

By the 15th day of the month following the month for which wages are paid.

Does an employee earning Rs 150 a day pay ESI?

No employee share is deducted if the average daily wage is up to Rs 176, but the employer still pays 3.25%.

What changed with the new Labour Codes?

The Code on Social Security, 2020 came into force on 21/11/2025 and repealed the ESI Act, 1948. The Code leaves the rates and the wage ceiling to be prescribed by the Central Government. The Rs 21,000 ceiling and the 3.25% and 0.75% rates are the existing notified figures; we found no new notification changing them.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

PF and ESIC Compliance for Employers under the Code on Social Security: Registration, Deduction, Interest, Damages and Penalties

Posted on by CA Meet Dhrangadhariya

Last updated: 08 October 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • The Code on Social Security, 2020 (in force from 21/11/2025) replaced the EPF Act, 1952 and the ESI Act, 1948. PF applies to establishments with 20 or more employees and ESI to establishments with 10 or more persons.
  • An establishment already registered under an earlier labour law need not register again; that registration is treated as registration under the Code.
  • An employer who deducts the employee share from wages and does not deposit it faces imprisonment of at least one year (up to three years) and a fine of Rs 1 lakh. Other defaults carry two months to six months and Rs 50,000.
  • Delay attracts simple interest at the notified rate and damages up to the amount of arrears, after a hearing.

Since 21/11/2025 an employer’s PF and ESI duties come from the Code on Social Security, 2020. The Code repealed the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 and the Employees’ State Insurance Act, 1948 (and seven other laws). The schemes, rates and wage ceilings continue as notified, but the penalty and procedure rules below are now from the Code itself.

When does each scheme apply?

The First Schedule to the Code says:

Scheme Applies to
Employees’ Provident Fund (Chapter III) Every establishment in which twenty or more employees are employed
Employees’ State Insurance (Chapter IV) Every establishment in which ten or more persons are employed, other than a seasonal factory. A notified hazardous or life threatening occupation is covered even with a single employee

For the head count, employees earning above the notified wage ceiling are also counted. An employer and the majority of employees can agree to bring a smaller establishment under the PF chapter by applying to the Central Provident Fund Commissioner, and the Government can extend the Code to establishments above a notified size.

Registration

Every establishment to which the Code applies registers electronically or otherwise, within the time and in the manner prescribed (section 3). An establishment already registered under any other Central labour law does not have to register again, and that registration is treated as registration under the Code. An establishment that is closing down can apply to cancel the registration.

Wages: what the contribution is calculated on

The Code defines “wages” in section 2(88) as basic pay, dearness allowance and retaining allowance, with listed exclusions (statutory bonus, house rent allowance, conveyance allowance, overtime, commission, the employer’s PF contribution, gratuity and retirement payments). If the exclusions add up to more than one-half of total remuneration (or the percentage notified), the excess is added back to wages. Check your pay structure against this cap, because it can raise both PF and ESI contributions.

Who pays what

  • The employer pays both the employer’s and the employee’s contribution for every employee, whether employed directly or through a contractor.
  • The employer may recover the employee’s contribution only by deduction from wages, only for the period it relates to and not more than the employee’s share.
  • The employer’s contribution cannot be deducted from wages or recovered from the employee in any way.
  • Sums deducted from wages are deemed to be entrusted to the employer for the purpose of paying the contribution.
  • For contract workers, the principal employer pays and recovers the amount from the contractor, who in turn may recover only the employee’s share from the worker’s wages.
  • Employees must establish identity through Aadhaar for registration and for claiming benefits or withdrawing funds (section 142).

If you pay late or do not pay

Consequence What the Code says
Interest (section 127) Simple interest at the rate notified by the Central Government, from the date the amount became due till actual payment
Damages (section 128) Up to the amount of arrears, levied by the PF Commissioner or ESIC Director General (or authorised officer), after giving the employer an opportunity of being heard
Failure to pay employee share that was deducted (section 133(i)(a)) Imprisonment of at least one year, up to three years, and a fine of Rs 1 lakh
Failure to pay any other contribution (section 133(i)(b)) Imprisonment of at least two months, up to six months, and a fine of Rs 50,000
Deducting the employer’s share from wages, or failing to file a return Fine up to Rs 50,000
Obstructing an inspector, or failing to produce records Imprisonment up to six months or fine up to Rs 50,000, or both
Repeat offence (section 134) Imprisonment up to two years and fine of Rs 2 lakh; for repeat non-payment of contributions, at least two years, up to three, and fine of Rs 3 lakh

In the case of a company, every person directly in charge of the conduct of its business, as well as the company, is deemed guilty (section 135). The court can impose a lesser jail term for adequate and special reasons recorded in the judgment, and offences can be compounded as the Code provides.

A practical checklist

  1. Count employees, including those above the wage ceiling, to see whether PF (20) and ESI (10) apply.
  2. Keep the registration number from the old law in your records; it carries over.
  3. Recalculate wages under the Code definition and check the one-half rule.
  4. Deposit both shares on time, every month, for contract workers too.
  5. File returns and keep registers ready for the inspector.

Points to check

  • This post follows the Code as published on India Code. Rates, the wage ceiling, interest rate and filing dates are fixed by rules, regulations and notifications issued under the Code, so check those before relying on a figure.
  • Penalty amounts and imprisonment terms are the maximums and minimums written in the Code; the actual order depends on the court.

Frequently asked questions

When does PF apply to an establishment?

Chapter III (Employees’ Provident Fund) applies to every establishment in which twenty or more employees are employed. Employees earning above the wage ceiling are counted for this head count.

When does ESI apply?

Chapter IV applies to every establishment in which ten or more persons are employed, other than a seasonal factory, and to a notified hazardous establishment even with one employee.

Do I have to register again under the Code?

An establishment already registered under any other Central labour law is not required to register again; its registration is deemed to be registration under the Code. A new establishment registers electronically as prescribed.

Can I deduct the employer share from wages?

No. The employer can recover only the employee’s contribution, by deduction from wages for the period it relates to, and the employer’s contribution cannot be recovered from the employee in any way.

What if the deducted employee contribution is not deposited?

The sum deducted is treated as entrusted to the employer. Failure to pay it is punishable with imprisonment of at least one year, up to three years, and a fine of Rs 1 lakh.

What are the interest and damages for late payment?

Simple interest at the rate notified by the Central Government from the due date to the date of payment, and damages up to the amount of arrears, levied after the employer has been heard.

Can the employer use a contractor to pay PF and ESI?

The principal employer pays the employer’s and employee’s share for contract workers and then recovers the amount from the contractor.

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.