Statutory Compliance for Employers: PF, ESI, PT & Gratuity
Five statutory obligations sit at the heart of Indian payroll — EPF, ESI, Professional Tax, Gratuity and the EPF-linked EDLI life cover. Each has its own headcount trigger, wage threshold and contribution rate, and together they form the legal floor your employee benefits are built on top of. This guide explains each one in plain language, then shows where the statutory floor ends and voluntary cover begins.
Last updated 07-Jul-2026
The five statutory pillars, in one view
Compliance feels heavy because the rules arrive from different laws and different authorities — the EPFO, the ESIC, and individual state governments. But the day-to-day obligation is consistent: register when you cross a threshold, deduct and deposit on time each month, and file the returns. For any unfamiliar term below, the HR glossary gives a one-line definition.
EPF — retirement savings
A compulsory provident-fund and pension scheme for eligible employees, funded by matched employer and employee contributions.
ESI — health & wage protection
State-run medical care, sickness, maternity and disability cover for lower-wage employees, funded by both parties.
Professional Tax — a state levy
A small state-level tax on employment income that the employer deducts from salary and deposits with the state.
Gratuity — long-service reward
A lump sum you owe an employee who completes five years of continuous service, funded entirely by the employer.
EDLI — EPF-linked life cover
An automatic life-insurance benefit that rides on EPF membership, paying the nominee if an in-service member dies.
Thresholds & rates at a glance
Use this as a quick reference, then read the section for each scheme below. Rates and ceilings are set by statute and revised from time to time — always confirm the current figures with the EPFO, ESIC or your state authority before you run payroll.
Indicative figures for general guidance only, not legal or tax advice. State-level rules — especially for Professional Tax and the ESI headcount trigger — vary, so verify the position for your establishment.
The one-line version
Statutory schemes are a floor, not a benefits programme — meaningful cover sits on top of them.
EPF — the Employees’ Provident Fund
The Employees’ Provident Fund is a compulsory retirement-savings scheme run by the EPFO. It applies once an establishment employs 20 or more people, and coverage is mandatory for employees earning up to ₹15,000 in basic pay plus dearness allowance — many employers voluntarily extend it above that ceiling too.
The employee contributes 12% of basic plus DA, and the employer matches it with 12%. The employer’s share is split: 8.33% funds the Employees’ Pension Scheme (EPS), subject to the wage ceiling, and the balance goes into the provident-fund account. Every member gets a Universal Account Number (UAN) that follows them across employers.
Practically, this means enrolling new joiners, generating their UAN, filing the monthly Electronic Challan cum Return (ECR), and depositing dues by the due date. Late deposits attract interest and damages, so the monthly rhythm matters more than any single form.
ESI — the Employees’ State Insurance
ESI is a contributory scheme run by the ESIC that gives lower-wage employees medical care plus cash benefits for sickness, maternity and disablement. It applies to establishments with 10 or more employees (a few states use 20), and covers those earning a gross wage up to ₹21,000 a month — ₹25,000 for a person with disability.
The employee contributes 0.75% of wages and the employer 3.25%. In return, covered employees and their dependents can access ESIC dispensaries and hospitals, and draw cash benefits during certified sickness or maternity leave.
The important limit for HR planning is the wage ceiling: employees earning above ₹21,000 fall outside ESI and have no statutory health cover at all. That gap is exactly what an employer group health insurance plan is designed to fill — see how the two compare in ESI vs group health insurance.
Professional Tax — a state-by-state levy
Professional Tax is a small tax on income from employment or profession, levied by state governments rather than the centre. It is charged in states such as Maharashtra, Karnataka, West Bengal and Tamil Nadu, while several states and union territories — including Delhi and Haryana — do not levy it at all.
Where it applies, the employer deducts it from the employee’s salary on a slab basis and deposits it with the state. The Constitution caps the total at ₹2,500 per person per year, so the amounts are modest, but the slabs and filing frequency differ from state to state.
For a business operating across multiple states, that means registering and filing Professional Tax separately in each state that charges it — a common trip-up for growing teams with remote or multi-city staff.
Gratuity — the long-service reward
Under the Payment of Gratuity Act, 1972, an establishment with 10 or more employees owes a lump-sum gratuity to any employee who completes five years of continuous service. The five-year condition is waived where employment ends because of death or disablement. Gratuity is funded entirely by the employer.
The statutory formula pays 15 days’ wages for each completed year of service, based on last-drawn basic plus dearness allowance:
Gratuity = (15 ÷ 26) × last-drawn monthly wage × years of service
Take an employee whose last-drawn basic plus DA is ₹50,000 a month, leaving after 8 years of continuous service:
Monthly wage (basic + DA)
Completed years of service
Gratuity payable
(15 ÷ 26) × ₹50,000 × 8 = ₹2,30,769. Gratuity is tax-exempt in the employee’s hands up to ₹20,00,000 across their career. Larger teams often pre-fund this liability through a group gratuity scheme rather than paying it from cash flow at exit.
EDLI — life cover that rides on EPF
The Employees’ Deposit Linked Insurance (EDLI) scheme is an automatic life-insurance benefit attached to EPF membership. If an active member dies in service, their nominee receives a lump sum. The employer funds it through a small contribution of 0.5% of wages; the employee pays nothing.
The catch is the ceiling: EDLI pays a maximum of ₹7,00,000, which is rarely enough to replace a breadwinner’s income. That is why many employers layer an employer-paid Group Term Life plan on top — the full mechanics, cap and a worked example are in EDLI vs Group Term Life.
The floor protects the fewest, most narrowly
ESI reaches only employees under the wage line, EDLI life cover is capped, and gratuity and EPF are savings and reward mechanisms rather than healthcare. The moment you look past the legal minimum, the gaps fall on exactly the people hardest to hire and retain.
That is where voluntary benefits earn their place — real hospitalisation cover for every employee regardless of wage, and life protection well beyond the statutory cap.
Where the statutory floor ends and benefits begin
Statutory schemes are a floor, not a full benefits programme. ESI protects only employees under the ₹21,000 wage line, so your mid- and senior-level staff have no statutory health cover. EDLI life cover stops at ₹7,00,000. Gratuity and EPF are savings and reward mechanisms, not healthcare. The moment you look past the legal minimum, the gaps are obvious — and they fall on exactly the people hardest to hire and retain.
That is where voluntary employer benefits sit: an employer group health insurance plan gives every employee real hospitalisation cover regardless of wage, and Group Term Life extends protection well beyond the EDLI cap. You can size the cost of that top-up in minutes with the group health premium calculator, or weigh the trade-offs across options on the comparison hub.
An employer’s monthly compliance checklist
Compliance is a routine, not a one-off event. These are the recurring actions that keep an establishment on the right side of EPF, ESI, Professional Tax and gratuity obligations.
- 1
Register once you cross the threshold
Enrol for EPF and ESI within the statutory window of the month you first meet the headcount trigger — registration is one-time per establishment.
- 2
Deduct and deposit every month
EPF and ESI dues, plus any Professional Tax, are deducted from salary and deposited by the monthly due date; late payment attracts interest and damages.
- 3
File the monthly returns
File the EPF ECR and ESI return each month, even for months with no new joiners or exits, to keep the establishment compliant.
- 4
Keep UAN and ESIC numbers current
Generate a UAN for every new EPF member and an ESIC insurance number for every eligible employee, and link Aadhaar and bank details.
- 5
Track five-year gratuity liability
Flag employees approaching five years of continuous service and provision for the gratuity payout, or fund it through a group gratuity scheme.
- 6
Register for Professional Tax per state
If you employ people across states, register and file PT separately in each state that levies it — rules and slabs differ.
Frequently asked questions
EPF applies once an establishment employs 20 or more people. ESI applies at 10 or more employees in most states, though a few use a threshold of 20. Once you cross the trigger, coverage is mandatory for all eligible employees and generally continues even if headcount later dips below the limit.
ESI covers employees earning a gross wage up to ₹21,000 a month (₹25,000 for a person with disability). Employees above that wage are outside ESI, which is why higher-earning staff have no statutory health cover and typically rely on an employer group health plan instead.
Under the Payment of Gratuity Act, the amount is 15 days of last-drawn basic plus dearness allowance for each completed year of service, calculated as (15 ÷ 26) × last-drawn monthly wage × years of service. It becomes payable after five years of continuous service, and that five-year condition is waived if service ends due to death or disablement.
No. Professional Tax is a state levy, so it applies only in states that have enacted it — for example Maharashtra, Karnataka, West Bengal and Tamil Nadu — while several states and union territories do not charge it at all. Where it applies, the total is capped at ₹2,500 per person per year and the employer deducts and deposits it.
No. ESI only covers lower-wage employees, EDLI life cover is capped at ₹7,00,000, and gratuity is a service reward, not health protection. For the rest of your team — and for meaningful hospitalisation cover — an employer group health plan sits on top of the statutory floor rather than being replaced by it.
Cover the team the statutory floor leaves out
Get a group health quote and see the per-employee cost of extending real hospitalisation and life cover to everyone — including the staff above the ESI and EDLI limits.
Get a group health quote