When Is PF Mandatory? PF and ESI Rules for Startups

When is PF mandatory? As soon as your company has 20 or more employees, you must register with the EPFO and start PF contributions. ESI comes earlier: once you have 10 or more employees in an area where ESIC operates, anyone earning ₹21,000 a month or less must be covered. Both are paid by the 15th of the following month.

Who this is for: founders approaching their tenth or twentieth hire, and anyone who has been told "we'll do PF later".

Later tends to arrive with interest. Here is what applies, when, and what it costs.

PF: the headcount rule

The Employees' Provident Funds Act applies to an establishment once it employs 20 or more people. A few notified categories are covered from 10. The new Code on Social Security, in force since 21 November 2025, kept this threshold. The old EPF Act and its schemes still run until the government notifies otherwise, so day-to-day compliance hasn't changed yet.

Points founders often miss:

• Everyone counts towards the 20, including people earning well above the PF wage ceiling.
• Once covered, always covered. If headcount drops below 20 later, you stay registered.
• You can register voluntarily with fewer than 20 people. Many startups do, because candidates expect PF.

Who must be enrolled

PF is compulsory for employees whose PF wages (basic plus DA, broadly) are ₹15,000 a month or less when they join. People earning more can be enrolled with the employer's consent. Once someone is a member, they stay one.

Under the labour codes, allowances above 50% of total pay are now added back to "wages". If you calculate PF on actual wages, a structure with a tiny basic pay will no longer keep PF low. See our CTC vs in-hand salary guide for a worked example.

What PF costs

On a capped wage of ₹15,000, the employee pays ₹1,800 a month and the employer about ₹1,950, including EDLI and admin charges.

ESI: headcount and wage limit

The Employees' State Insurance scheme gives covered employees medical care, sickness pay and maternity benefits. It applies to establishments with 10 or more employees in areas where ESIC is implemented (a few states use 20 for some kinds of business). ESIC has been extending coverage district by district, so check whether your office's district is notified. Under the new Code, smaller establishments can join voluntarily.

Who is covered, and what it costs

ESI covers employees earning ₹21,000 a month or less in gross wages (₹25,000 for people with disabilities). An increase to the ceiling has been discussed, but as of mid-2026 no notification had been issued.

Employees earning up to ₹176 a day don't pay their share; the employer still does. Example: an office assistant on ₹18,000 a month costs the employer ₹585 in ESI, and ₹135 is deducted from their pay.

Unlike PF, ESI has no voluntary cover for people above the ceiling. When someone's pay crosses ₹21,000, they move out of ESI at the end of the current contribution period.

Registering

Both registrations are online and free.

1. PF: register on the EPFO employer portal with the company's PAN, incorporation certificate, address proof, bank details and the authorised signatory's details. You get an establishment code.
2. ESI: register on the ESIC portal within 15 days of becoming covered. You get a 17-digit employer code.
3. Enrol employees: each PF member gets a UAN (or brings their existing one). Each ESI member gets an insurance number and an e-Pehchan card.

Register the month you cross the threshold. Contributions are owed from that month, whether you registered or not.

Monthly filing and due dates

Keep these in the same calendar as GST and TDS. Our GST and TDS due dates for 2026-27 has the full year in one place.

What happens if you're late

• PF: simple interest of 12% a year on the late amount, plus damages that increase the longer the delay runs. Damages can end up larger than the original contribution.
• ESI: simple interest of 12% a year, plus damages for longer delays.
• Deducted but not deposited: taking the employee's share from salary and not paying it in is treated seriously under both laws, including prosecution in bad cases.
• Diligence: investors check PF and ESI compliance in every round. Arrears become a condition to fix before money comes in.

Common mistakes

• Counting only people under ₹15,000 towards the 20. Everyone counts.
• Waiting to register until someone asks. Dues build up from the month you crossed the threshold.
• Ignoring the 50% wage rule when designing salary structures.
• Forgetting to move people out of ESI when their pay crosses ₹21,000, or into it when a new low-wage hire joins.
• Paying PF after the 15th as a habit. Small delays add up to interest and damages.

Questions people ask

When is PF mandatory for a company in India?

PF registration becomes mandatory once an establishment employs 20 or more people, counting everyone on the payroll, not only those under the wage ceiling. Once registered, you stay covered even if headcount later falls below 20. Companies with fewer people can register voluntarily.

When does ESI apply to a startup?

ESI applies once an establishment has 10 or more employees in an area where ESIC operates. Only employees earning ₹21,000 a month or less (₹25,000 for people with disabilities) are covered. The employer pays 3.25% of their wages and the employee 0.75%.

What is the due date for PF and ESI payments?

Both PF and ESI contributions for a month are due by the 15th of the following month. PF is paid through the ECR on the EPFO portal. ESI also needs half-yearly returns. Paying late attracts interest and, for PF, damages that grow with the delay.

Is PF mandatory for employees earning above ₹15,000?

No. PF is mandatory for employees whose PF wages are ₹15,000 a month or less when they join. People earning more can be enrolled with the employer's consent, and many startups enrol everyone. Once someone is a PF member, they generally stay a member.

Sources

• Corpready: EPF and ESIC compliance guide for employers (opens in a new tab)
• Bhatt & Joshi Associates: ESIC wage ceiling, status as of June 2026 (opens in a new tab)
• KPMG India: Implementation of the labour codes (opens in a new tab)
• EPFO employer portal (opens in a new tab)
• ESIC official site (opens in a new tab)

This is general information, not legal or tax advice. Check with your CA or lawyer for your company's situation.