EPF & ESI Registration

EPF — Applicability and Thresholds

Who Must Register for EPF

Under Section 1(3) of the EPF Act, 1952, the Act applies to:

1. Every establishment engaged in any industry specified in Schedule I and employing 20 or more persons. Schedule I covers 186 categories of industries including manufacturing, mining, construction, IT, hospitality, education, healthcare, and services.
2. Every establishment employing 20 or more persons which the Central Government may by notification specify, even if not in Schedule I.
3. Voluntary registration: Establishments with fewer than 20 employees can voluntarily apply for EPF coverage under Section 1(4) of the Act.

Counting “20 persons”: All persons employed directly or through a contractor are counted. This includes regular employees, contract workers, casual workers, and part-time workers. Apprentices under the Apprentices Act are excluded from the count.

Once applicable, always applicable: Under Section 1(5), once the Act applies to an establishment, it continues to apply even if the number of employees falls below 20 subsequently. The EPF coverage is irreversible.

Employee Coverage Under EPF

• Wage threshold: Every employee drawing basic wages + DA up to Rs 15,000 per month is mandatorily covered under EPF from the date of joining
• Employees drawing above Rs 15,000: Not mandatorily covered, but an existing member who crosses the threshold continues to be a member. New employees earning above Rs 15,000 may be enrolled with the consent of the employer and the employee (voluntary coverage)
• International workers: Covered under EPF irrespective of salary, except those from countries with which India has a Social Security Agreement (SSA) and who hold a Certificate of Coverage from the home country

EPF Contribution Structure

Component	Employer Contribution	Employee Contribution
EPF (Provident Fund)	3.67% of basic wages + DA	12% of basic wages + DA
EPS (Employees’ Pension Scheme)	8.33% of basic wages + DA (capped at Rs 15,000)	Nil
EDLI (Deposit Linked Insurance)	0.50% of basic wages + DA	Nil
EPF Admin Charges	0.50% of basic wages + DA (minimum Rs 500)	Nil
EDLI Admin Charges	Nil (waived since 2017)	Nil
Total Employer Cost	13% of basic wages + DA	12% of basic wages + DA

Note on EPS cap: The employer’s EPS contribution of 8.33% is calculated on basic wages + DA capped at Rs 15,000 per month (i.e., maximum Rs 1,250/month per employee). For employees earning above Rs 15,000, the excess is redirected to the EPF account. The Supreme Court of India in the R.C. Gupta & Company Ltd. case (2022) held that employees who were members before 1 September 2014 may opt for pension on actual wages (above the cap), subject to conditions.

ESI — Applicability and Thresholds

Who Must Register for ESI

Under Section 1(5) of the ESI Act, 1948, the Act applies to:

1. Factories: Employing 10 or more persons (with power) or 20 or more persons (without power). Most states have adopted the 10-person threshold.
2. Other establishments: The appropriate State Government can extend the ESI Act to shops, hotels, restaurants, cinemas, road transport, newspaper establishments, and other specified establishments employing 10 or more persons (or 20 or more persons, depending on the state notification).
3. Geographical applicability: ESI applies only in areas where the ESI Corporation has set up hospitals/dispensaries or tied-up with empanelled medical facilities. ESIC has progressively expanded coverage to most districts across India.

Employee Coverage Under ESI

• Wage threshold: Every employee earning gross wages up to Rs 21,000 per month (Rs 25,000 for disabled employees) is covered under ESI
• Gross wages include: Basic pay, DA, HRA, city compensatory allowance, overtime wages, and all other allowances payable to the employee (excluding annual bonus and gratuity)
• Once covered, always covered: An employee whose wages exceed Rs 21,000 during the contribution period continues to be covered for the entire contribution period (April-September or October-March)

ESI Contribution Rates

Contributor	Rate	Computed On
Employer	3.25%	Gross wages of covered employees
Employee	0.75%	Gross wages
Total	4%	Gross wages

Exemption for low-wage employees: Employees earning daily wages up to Rs 176 are exempt from their share of ESI contribution (the employer’s share is still payable).

ESI Benefits for Employees

• Sickness benefit: 70% of wages for up to 91 days in two consecutive benefit periods
• Extended sickness benefit: 80% of wages for specified long-term diseases (up to 2 years)
• Maternity benefit: Full wages for 26 weeks (extendable by 1 month)
• Disablement benefit — Temporary: 90% of wages during the period of disablement
• Disablement benefit — Permanent: 90% of wages as monthly payment for life (proportionate to loss of earning capacity)
• Dependants’ benefit: 90% of wages to dependants in case of death
• Medical benefit: Full medical care for the insured person and their family at ESIC hospitals/dispensaries/empanelled hospitals
• Funeral expenses: Rs 15,000

EPF Registration Process

Step 1: Apply Online

Access the EPFO Unified Portal (Employer). Click “Establishment Registration” and fill the online form with:

• Establishment name, address, and date of setup
• Type of establishment: Factory, Shop, Commercial Establishment, etc.
• PAN of the establishment and authorised signatory
• Details of the employer (director/partner/proprietor)
• Number of employees
• Digital Signature Certificate (DSC) of the authorised signatory
• Bank account details

Step 2: Upload Documents

• PAN card of the establishment and the employer
• Certificate of incorporation (from MCA for companies/LLPs)
• Address proof of the establishment
• Cancelled cheque of the establishment’s bank account
• First employee details (Aadhaar, bank account, nomination)
• GST registration certificate (from CBIC GST portal)

Step 3: Allotment of EPF Code

Upon verification, the EPFO allots an Establishment Code Number in the format XX/XXX/XXXXXXX/000/0000. This is the unique EPF registration number. Processing time: 3-7 working days.

ESI Registration Process

Step 1: Apply on ESIC Portal

Access the ESIC portal and register as an employer. Fill the Employer Registration Form (Form 01) with:

• Establishment name, address, and nature of business
• PAN of the establishment
• Date of applicability of ESI Act
• Number of employees and their wage details
• Bank account details

Step 2: Upload Documents

• PAN card of the establishment
• Certificate of incorporation (for companies/LLPs)
• Address proof of the premises
• List of employees with Aadhaar, bank details, and photographs
• Proof of wages (salary register or offer letters)

Step 3: Allotment of ESI Code

The ESIC allots a 17-digit ESI Code Number. Processing time: 3-7 working days. The ESI code is linked to the PAN and is used for all ESIC filings and contributions.

Monthly and Annual Compliance Calendar

Compliance	Due Date	Form/Challan
EPF contribution payment	15th of following month	ECR (Electronic Challan cum Return)
ESI contribution payment	15th of following month	ESI Challan on ESIC portal
EPF Monthly Return (ECR)	15th of following month (along with payment)	ECR file upload on EPFO portal
ESI Half-Yearly Return	12 November (for April-September) / 12 May (for October-March)	ESI Return on ESIC portal
EPF Annual Return	25 April (for preceding financial year)	Form 3A and Form 6A (now subsumed in ECR)
UAN activation for new employees	Within 15 days of joining	EPFO Unified Portal
KYC updation (Aadhaar, bank, PAN)	Within 15 days of joining	EPFO Unified Portal

Penalties for EPF Non-Compliance

Default	Section	Penalty
Late payment of contribution	Section 7Q	Interest at 12% per annum on outstanding amount
Non-payment / delayed payment	Section 14B	Damages: 5% (up to 2 months delay) to 25% (above 6 months delay) of arrears
Non-registration of establishment	Section 14	Imprisonment up to 1 year and/or fine up to Rs 5,000
False statement or return	Section 14(2)	Imprisonment up to 1 year and/or fine up to Rs 5,000
Non-compliance with EPFO order	Section 14(2A)	Imprisonment up to 3 years and fine up to Rs 10,000

Penalties for ESI Non-Compliance

Default	Section	Penalty
Late payment of contribution	Section 39(5)(a)	Simple interest at 12% per annum
Non-payment of contribution	Section 85(a)	Imprisonment up to 2 years and fine up to Rs 5,000
Failure to register	Section 85	Imprisonment up to 2 years and fine up to Rs 5,000
Repeat offence	Section 85(g)	Imprisonment up to 5 years and minimum fine of Rs 25,000

EPF and ESI for Startups — Special Provisions

Atmanirbhar Bharat EPF Subsidy

The Government of India, under the Atmanirbhar Bharat Rojgar Yojana (ABRY), provided EPF subsidy for new employees registered between 1 October 2020 and 31 March 2022. Under this scheme, the government contributed both the employer’s and employee’s share (24% of wages) for new employees in establishments with up to 1,000 employees, and the employer’s share (12%) for larger establishments. While ABRY enrolment has closed, the benefits continue for the 2-year subsidy period for enrolled employees.

Voluntary Coverage for Small Startups

Startups with fewer than 20 employees can voluntarily register for EPF under Section 1(4) of the EPF Act. The employer and majority of employees must jointly apply to the RPFC (Regional Provident Fund Commissioner). Once voluntary coverage is obtained, it becomes mandatory and irreversible.

EPF and Income Tax Implications

• Employer’s EPF contribution up to 12% of basic wages + DA is deductible under Section 36(1)(iv) of the Income Tax Act
• Employee’s EPF contribution qualifies for deduction under Section 80C (up to Rs 1.5 lakh overall limit)
• Interest on EPF balance in excess of Rs 2.5 lakh per year (for employees contributing above this threshold) is taxable under Section 9D from AY 2022-23 onwards
• Employer’s contribution to EPF, NPS, and superannuation exceeding Rs 7.5 lakh per year per employee is taxable as perquisite in the employee’s hands under Section 17(2)(viia)

Frequently Asked Questions

1. When does EPF become applicable to a new startup?

EPF becomes applicable from the date the establishment employs 20 or more persons (including contract workers). The employer must register on the EPFO Unified Portal within 30 days of the date of applicability. Once applicable, the employer must start contributing from the month in which the 20th employee is hired. Late registration attracts penalties under Section 14 of the EPF Act.

2. Can a director of a Private Limited Company be covered under EPF?

Working directors who draw remuneration (salary) from the company can be covered under EPF if their basic wages + DA is within the Rs 15,000 threshold for mandatory coverage, or voluntarily if above. Non-executive directors who only receive sitting fees are not employees and hence not covered. Managing directors and whole-time directors who draw salary are typically treated as employees for EPF purposes. The company structure determines the treatment.

3. Is ESI applicable if all employees earn above Rs 21,000?

If an establishment has 10 or more employees (in notified states) but ALL employees earn gross wages above Rs 21,000/month, the establishment is technically covered under the ESI Act (based on employee count), but no contributions are payable since no employee falls within the wage ceiling. The employer should still register to avoid non-registration penalties. If a new employee is hired at wages below Rs 21,000, contributions must commence immediately.

4. What is the difference between UAN and PF number?

UAN (Universal Account Number) is a 12-digit unique number allotted to each employee by EPFO. It remains the same throughout the employee’s career across multiple employers. The PF number (Member ID) is establishment-specific and changes when an employee changes jobs. The UAN acts as an umbrella number linking all PF numbers of an employee. KYC (Aadhaar, PAN, bank account) is linked to the UAN, enabling online transfer and withdrawal of EPF balances.

5. Can an employee opt out of EPF?

An employee drawing basic wages + DA up to Rs 15,000/month CANNOT opt out of EPF — it is mandatory. An employee who was not a member of EPF at any time prior to joining and draws basic wages + DA above Rs 15,000/month can choose not to enrol. However, an existing EPF member (who was a member at a previous employer) must mandatorily continue membership at the new establishment, irrespective of salary.

6. How do I calculate EPF contribution for employees earning above Rs 15,000?

For employees with basic wages + DA above Rs 15,000, the employer can choose to contribute 12% on either: (a) the actual basic wages + DA (full contribution), or (b) the statutory ceiling of Rs 15,000 (minimum contribution). The employee’s contribution mirrors the employer’s choice. The EPS contribution is always capped at 8.33% of Rs 15,000 (Rs 1,250/month). Most employers contribute on actual basic wages for employee welfare and retention.

7. What are the ESI contribution periods and benefit periods?

ESI operates on a two-period cycle. Contribution period: April to September (first half) and October to March (second half). Corresponding benefit periods: January to June (for contributions made April-September of the previous year) and July to December (for contributions made October-March of the current year). An employee must have contributed for at least 78 days in a contribution period to be eligible for sickness, maternity, and other cash benefits in the corresponding benefit period.

Virtual Auditor — AI-Powered CA & IBBI Registered Valuer Firm
Valuer: V. VISWANATHAN, FCA, ACS, CFE, IBBI/RV/03/2019/12333
Chennai (HQ): G-131, Phase III, Spencer Plaza, Anna Salai, Chennai 600002
Bangalore: 7th Floor, Mahalakshmi Chambers, 29, MG Road, Bangalore 560001
Mumbai: Workafella, Goregaon West, Mumbai 400062
Phone: +91 99622 60333 | Email: support@virtualauditor.in
Book a Free Consultation