PF and ESI compliance sounds straightforward until you get an audit notice. In my experience managing HR for organisations across multiple states, the gaps are almost never intentional — they're the result of misunderstanding the rules. This checklist covers every obligation you need to get right.
PF and ESI compliance sounds straightforward — until you get an audit notice. With the new 50% Basic Wage rule under the Code on Wages changing how contributions are calculated, 2026 is a critical year to get your PF and ESI compliance right.
PF Compliance — Who Must Register
Every establishment with 20 or more employees must register with the EPFO and contribute to the Employees' Provident Fund. Once registered, the obligation continues even if headcount falls below 20.
Coverage is mandatory for employees earning up to ₹15,000 per month basic salary. Employees earning above ₹15,000 can be covered voluntarily — and most organisations extend coverage to all employees regardless of salary level.
PF Contribution Rates — 2026
Employee contribution: 12% of basic salary (deducted from employee's salary)
Employer contribution: 12% of basic salary, split as follows:
- 8.33% to the Employees' Pension Scheme (EPS) — capped at ₹1,250 per month (8.33% of ₹15,000)
- 3.67% to the Employees' Provident Fund (EPF)
Employer's additional contribution: 0.5% to EDLI (Employees' Deposit-Linked Insurance)
Administrative charges: 0.5% of basic wages (minimum ₹75 per month per establishment)
PF Monthly Compliance Checklist
- ECR (Electronic Challan cum Return) filed by the 15th of the following month
- Contributions paid by the 15th — delay attracts interest at 12% per annum
- UAN activated for all new employees within 7 days of joining
- Basic salary used for PF calculation is at least 50% of CTC (Code on Wages compliance)
- PF contribution calculated on correct wage base — basic + DA
- New joiners' KYC seeded to UAN — Aadhaar, PAN, bank account
- Monthly PF passbook updated and accessible to employees
ESI Compliance — Who Must Register
Every establishment with 10 or more employees must register with the ESIC. The ESI scheme covers employees earning up to ₹21,000 per month gross wages (₹25,000 per month for employees with disabilities).
ESI Contribution Rates — 2026
Employer contribution: 3.25% of gross wages
Employee contribution: 0.75% of gross wages
Employees earning up to ₹137 per day (approximately ₹3,000 per month) are exempt from employee contribution — the employer still contributes 3.25%.
ESI Monthly Compliance Checklist
- ESI contribution paid by the 15th of the following month
- Half-yearly ESI return filed — April-September return by November 11, October-March return by May 12
- All eligible employees enrolled in the ESI scheme
- ESI cards issued to all enrolled employees
- Employees informed of nearest ESI dispensary and hospital
- New employees enrolled within 10 days of joining
- Employee earnings monitored — employees crossing ₹21,000 per month threshold should be reviewed at the contribution period boundary
Common PF and ESI Compliance Mistakes
Calculating PF on a lower wage base: The most common mistake — keeping basic salary artificially low to minimise PF liability. Under the Code on Wages, basic must be at least 50% of CTC. Incorrect PF calculation on a non-compliant wage base creates both a compliance gap and a potential back-payment liability.
Late ECR filing: Even one day late attracts interest and penalty. Set a reminder for the 10th of every month to prepare the ECR, leaving time for any corrections before the 15th deadline.
Not activating UANs for new employees: New employees must have their UAN activated before contributions can be remitted against their account. Delay in UAN activation creates a compliance gap.
Including ineligible allowances in ESI wages: Not all payments to employees are ESI wages. Overtime, bonus, and certain other payments have specific treatment. Consult the ESIC wage definition to ensure you are calculating on the correct base.
Missing the ESI return deadline: The half-yearly return deadline is missed more often than the monthly payment deadline. Set calendar reminders for both November 11 and May 12.
PF and ESI Audit Preparation Checklist
- ECR filed and paid on time for the last 36 months — statements available
- UAN activation records for all employees — current and former
- Wage registers for the last 3 years — showing basic salary used for PF calculation
- Attendance registers for the last 3 years
- ESI enrolment records for all eligible employees
- ESI return acknowledgements for the last 6 half-yearly periods
- Salary restructuring documentation — if CTC was restructured for Code on Wages compliance
Frequently Asked Questions
Q: Is an employee who opts out of PF entitled to a higher take-home salary?
A: Employees earning above ₹15,000 per month basic salary can opt not to become PF members — but only at the time of joining a new organisation. An existing PF member cannot opt out. If an employee opts out, both the employee and employer contributions are not required — which increases the employee's take-home but reduces their long-term retirement savings.
Q: What happens to PF when an employee changes jobs?
A: The employee's UAN remains the same across employers. PF accumulated with the previous employer can be transferred to the new employer's account using the UAN portal — or withdrawn after a minimum period of unemployment. Encourage employees to transfer rather than withdraw — PF is a retirement savings vehicle.
Q: Are contract workers covered under PF and ESI?
A: Contract workers (employed through a contractor) are the contractor's employees — the contractor is responsible for their PF and ESI compliance. However, if the principal employer fails to ensure the contractor's compliance, the principal employer can be held liable. Always include PF and ESI compliance as a condition in your contractor agreements.
For ready-to-use PF and ESI compliance checklists and complete HR documentation kits, visit our Stores and Services page.
Related reading: New Labour Codes India 2026 — What Every HR Professional Must Know
Related reading: New Salary Structure Compliance Checklist under Labour Codes
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