PF and ESIC for contract workers: who pays what

Two deductions appear on almost every shop floor wage slip: PF and ESI. Between them they give a worker retirement savings, a pension, insurance cover and medical care. For contract workers the contractor is the employer and deposits both, but the principal employer has every reason to check that the money actually goes in. Here is what each one is and how much it costs.

Provident fund (EPF)

Under the EPF Scheme, 1952, an employee contributes 12 per cent of wages, meaning basic wages, dearness allowance and retaining allowance, and the employer contributes another 12 per cent. Of the employer’s share, 8.33 per cent of wages goes into the Employees’ Pension Scheme, and the Central Government adds its own share to the pension fund.

Who must be covered changed recently. From 17 September 2026 the wage ceiling for compulsory EPFO coverage went up from Rs 15,000 to Rs 25,000 a month, the first change since September 2014. Employees earning between Rs 15,000 and Rs 25,000 a month now come under compulsory coverage. For many plants that means more contract workers on PF than before.

Under the Code on Social Security, 2020, the provident fund chapter applies to every establishment with 20 or more employees, and the earlier limit to listed (scheduled) employments has been removed. The Code sets the employer’s contribution at 10 per cent of wages, with the employee’s share equal to it. During the transition, the government has said existing schemes and notifications continue to remain in force, which is why the EPF Scheme rates above still apply until new ones are notified.

What counts as wages now

The Codes use a single definition of wages: basic pay, dearness allowance and retaining allowance. If allowances and the other excluded items together come to more than half of total pay, the excess is added back to wages for statutory calculations. The Ministry of Labour’s FAQ gives an example: on total pay of Rs 76,000 with basic and DA of Rs 20,000, allowances above the 50 per cent mark add Rs 2,000, so statutory calculations run on Rs 22,000. A salary structure built mostly on allowances therefore no longer keeps the PF base low.

ESI

ESI covers employees of covered factories and establishments who earn up to Rs 21,000 a month, or Rs 25,000 for persons with disability. The Ministry’s March 2026 FAQ confirms that the Rs 21,000 limit continues to apply until new rules are made. The contribution is 4 per cent of wages in all: 3.25 per cent from the employer and 0.75 per cent from the employee.

Under the Code on Social Security, ESI applies to every establishment with 10 or more persons, other than seasonal factories, and to establishments in notified hazardous occupations even if they employ a single person. The employer pays both its own and the employee’s contribution to ESIC, recovering the employee’s share from wages.

In return, an insured person gets medical care for themselves and their family, and cash benefits for sickness, maternity, disablement from an employment injury, dependants’ benefit and funeral expenses. For women employees, the family now includes dependent parents-in-law.

Who pays for contract workers

The contractor is the employer of contract workers, so the contractor registers with EPFO and ESIC, deducts the employee shares, adds its own and deposits both. The cost of the employer’s share is normally built into the contractor’s rate. The government’s announcement of the Codes also states that the principal employer will provide health and social security benefits to contract workers, which is one more reason for the principal employer to check the deposits every month.

The worker’s side: UAN

Every EPFO member has a UAN, a permanent 12 digit number that stays the same across jobs. A worker who changes contractor or employer gives the same UAN to the new one, so all PF accounts sit under one number. For transfers to work, the UAN has to be linked with verified Aadhaar, bank account and PAN, which the employer approves.

Common mistakes

• Not covering workers who earn between Rs 15,000 and Rs 25,000 a month after the ceiling changed on 17 September 2026
• Calculating PF on basic pay alone when allowances exceed half of total pay
• Creating a new UAN for a worker who already has one, which splits their savings
• Deducting the employee’s share from wages but depositing late, or not at all

What to ask a contractor for each month

• The PF return and challan, with the list of UANs covered, matched to the names deployed at your site
• The ESIC contribution challan for the same people
• Wage slips showing the PF and ESI deductions
• For new joiners, the date PF and ESI registration was done

If you would rather have one accountable party handle all of this, our payroll management and manpower outsourcing services include PF and ESIC as part of the work.

This is a plain summary for general information, not legal advice. Laws, rates and limits change; check the official source before acting on a figure.

Sources

1. PIB, 24 July 2023: Employees' Provident Fund Scheme
2. PIB: Increase in Employees' Pension Fund pension
3. Ministry of Labour and Employment (PIB, 16 September 2026): EPFO wage ceiling raised to Rs 25,000
4. Ministry of Labour and Employment: Compliance Handbook for Employers under the Four Labour Codes (February 2026)
5. Ministry of Labour and Employment: FAQs on Labour Codes (30 December 2025)
6. Ministry of Labour and Employment: Additional FAQs on Labour Codes (16 March 2026)
7. ESIC: Standard Note on the Employees’ State Insurance Scheme as on 1 January 2025
8. EPFO: Frequently asked questions for members on UAN
9. PIB, 21 November 2025: Government makes the four Labour Codes effective