Authored by VipinRead this first: the four Labour Codes are in force. The Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020 and the Occupational Safety, Health and Working Conditions Code, 2020 were brought into force with effect from 21 November 2025. The Code on Social Security subsumes the EPF Act, the ESI Act, the Payment of Gratuity Act and the Maternity Benefit Act, among others. The existing schemes (the EPF Scheme, 1952, the Employees' Pension Scheme, 1995 and the EDLI Scheme, 1976) and ESIC procedures continue to operate under the Code, and rules framed under the earlier laws continue to the extent they are not inconsistent until replaced by rules under the Codes, which the Centre and the States are notifying in stages. This guide therefore uses the familiar section numbers of the earlier Acts as reference labels and points out where the Codes change the position. Always check the rules notified by your State for FY 2026-27.
1. Statutory Overview and Legislative Intent
India's social security architecture for organised sector employees rests on four pillars: a retirement savings and pension system (EPFO), a health insurance and cash benefits system (ESIC), a lump-sum terminal benefit for long service (gratuity), and a State-level tax on employment (professional tax). The first three were governed by separate central laws for decades and are now consolidated in the Code on Social Security, 2020. Professional tax is levied by States under Article 276 of the Constitution.
Legacy laws and their place in the Code
| Subject | Earlier law (reference) | Code on Social Security, 2020 | Scheme or rules that continue |
|---|---|---|---|
| Provident fund, pension and deposit-linked insurance | Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act) | Chapter III (Employees' Provident Fund) | EPF Scheme, 1952; EPS, 1995; EDLI Scheme, 1976 |
| Health insurance and cash benefits | Employees' State Insurance Act, 1948 (ESI Act) | Chapter IV (Employees' State Insurance Corporation) | ESI (General) Regulations, 1950 and ESIC procedures |
| Gratuity | Payment of Gratuity Act, 1972 | Chapter V (Gratuity), including Section 53 | Payment of Gratuity (Central) Rules to the extent not inconsistent |
| Professional tax | State Acts under Article 276 (for example the Gujarat and Maharashtra professional tax Acts) | Not part of the Codes | State rules |
"Wages" under the Codes
The Code on Social Security (Section 2(88)) and the Code on Wages (Section 2(y)) define wages to include basic pay, dearness allowance and retaining allowance, and exclude items such as HRA, conveyance, statutory bonus, overtime, commission, employer's PF contribution and gratuity. Where the excluded components exceed 50% of total remuneration, the excess is added back to wages. This "50% rule" increases the base for PF (where contributions are on actual wages), gratuity and other wage-linked benefits for many salary structures.
2. Applicability and Threshold Matrix
| Item | EPF and EPS | ESIC | Gratuity | Professional Tax |
|---|---|---|---|---|
| Establishment coverage | 20 or more employees (voluntary coverage below 20 by agreement with majority of employees); once covered, continues even if headcount falls | 10 or more employees in notified areas (practically all districts); hazardous establishments may be covered even with one employee where notified | 10 or more employees on any day in the preceding 12 months; once covered, continues | All employers in States that levy PT; registration as employer (deductor) and enrolment as entity |
| Employee eligibility | Mandatory for employees with wages up to Rs. 15,000 per month; those above may join if not an "excluded employee" | Employees with wages up to Rs. 21,000 per month (Rs. 25,000 for persons with disability) | All employees with 5 years of continuous service (no minimum for death or disablement); fixed-term employees after 1 year under the Code | Salary or wage above the State threshold |
| Contribution base | Basic wages, dearness allowance and retaining allowance (with the 50% rule under the Code); allowances paid universally form part of basic wages (Supreme Court, Regional Provident Fund Commissioner v. Vivekananda Vidyamandir, 2019) | Gross wages paid in cash | Last drawn wages (basic plus DA under the old Act; Code wages under the new framework) | Monthly salary or wages |
| Rates | Employee 12%; employer 12% (8.33% to EPS on wages up to Rs. 15,000, i.e. maximum Rs. 1,250, and the balance 3.67% plus any excess to EPF); 10% for specified classes. Administration charges 0.5% of EPF wages (minimum Rs. 500 per month); EDLI 0.5% of wages up to Rs. 15,000 | Employee 0.75%; employer 3.25%. Employees earning average daily wages up to Rs. 176 are exempt from the employee share | 15 days' wages for each completed year (or part above 6 months) | State slabs; constitutional cap of Rs. 2,500 per person per year |
| Ceiling | Wage ceiling of Rs. 15,000 for mandatory coverage and EPS | Rs. 21,000 coverage ceiling | Rs. 20 lakh (Notification S.O. 1420(E) dated 29 March 2018, unless revised under the Code) | Rs. 2,500 per year |
Professional tax: illustrative State slabs
| State | Monthly salary | PT per month |
|---|---|---|
| Gujarat | Below Rs. 12,000 | Nil |
| Gujarat | Rs. 12,000 and above | Rs. 200 |
| Maharashtra (men) | Up to Rs. 7,500 | Nil |
| Maharashtra (men) | Rs. 7,501 to Rs. 10,000 | Rs. 175 |
| Maharashtra (men and women) | Above Rs. 10,000 (women: above Rs. 25,000) | Rs. 200, and Rs. 300 in February |
| Karnataka | Rs. 25,000 and above | Rs. 200 (with a higher February instalment where the State Act so provides) |
PT slabs change through State budgets. Confirm the current slabs on the State commercial tax portal at the start of the year.
3. Step-by-Step Compliance and Filing Workflow
A. EPF
- Registration: register the establishment on the EPFO Unified Portal (or through the Shram Suvidha portal or SPICe+ for new companies) to obtain the establishment code.
- Onboard employees: collect Form 11 (declaration), generate or link the Universal Account Number (UAN), and seed Aadhaar, PAN and bank account (KYC). Encourage e-nomination.
- Monthly payroll: compute contributions on PF wages, prepare the Electronic Challan cum Return (ECR) text file with member-wise wages and contributions, upload on the Unified Portal, verify, and pay the challan (TRRN) through internet banking by the 15th of the following month.
- Exits and claims: update date of exit and reason on the portal; employees file claims (Form 19 for PF, 10C or 10D for pension, 31 for advances) online with UAN.
- Records: maintain wage registers, contribution cards and ECR acknowledgements. Annual returns are subsumed into monthly ECR filings.
B. ESIC
- Registration: register on the ESIC portal (or via SPICe+ or Shram Suvidha) to obtain the 17-digit employer code.
- Register employees within 10 days of joining through e-Pehchan, generating the insured person (IP) number; family details are added for medical benefits.
- Monthly contributions: file the monthly contribution online (employee-wise days worked and wages) and pay by the 15th of the following month.
- Contribution and benefit periods: contribution periods run from 1 April to 30 September and 1 October to 31 March. An employee covered at the start of a contribution period remains covered for the whole period even if wages rise above the ceiling.
- Accidents: report employment injuries in the accident report form within the prescribed time (24 hours for serious injuries), and maintain the accident book.
C. Professional tax (Gujarat and Maharashtra examples)
- Obtain the employer registration certificate (RC) for deduction from salaries and the enrolment certificate (EC) for the entity's own PT, on the State commercial tax portal.
- Deduct PT from salaries every month according to the slab.
- Pay and file returns as per the State's periodicity. In Maharashtra, PTRC returns are monthly where the previous year's liability was Rs. 1 lakh or more and annual (by 31 March) where it was below Rs. 50,000; the PTEC amount for the entity is generally payable by 30 June. Gujarat prescribes its own payment and return schedule on the State portal.
D. Gratuity
- Display and notice: display the abstract of the Act or Code provisions, and send the notice of opening (Form A under the Payment of Gratuity (Central) Rules) to the controlling authority within 30 days of applicability.
- Nomination: obtain nomination in Form F from each employee within 30 days of completing one year of service.
- Funding: provide for gratuity on an actuarial basis under AS 15 or Ind AS 19. Many employers fund through a gratuity trust with an insurer; States may mandate insurance under Section 4A of the Payment of Gratuity Act.
- Computation on exit: Gratuity = Last drawn wages x 15 / 26 x Completed years of service. A part year of more than six months counts as a full year. For seasonal establishments, 7 days' wages per season; for piece-rated employees, average wages of the last three months.
- Payment: pay within 30 days from the date it becomes payable. Issue a written notice of the amount (Form L) and pay through banking channels.
Worked example: an employee resigns after 7 years and 8 months of service with last drawn basic plus DA of Rs. 52,000 per month. Completed years = 8 (the 8 months exceed six months). Gratuity = 52,000 x 15 / 26 x 8 = Rs. 2,40,000. It is within the Rs. 20 lakh ceiling and, for a covered employee, exempt from income tax up to the statutory limit.
4. Statutory Due Dates and Frequency Table
| Compliance | Frequency | Due date |
|---|---|---|
| EPF ECR upload and payment | Monthly | 15th of the following month |
| ESIC contribution filing and payment | Monthly | 15th of the following month |
| Registration of new employees on ESIC | Event | Within 10 days of joining |
| Professional tax deduction and payment | Monthly or as per State | As prescribed by the State (for example, end of the month or the 15th of the next month) |
| Maharashtra PTEC (entity) | Annual | 30 June |
| Gratuity nomination (Form F) | Event | Within 30 days of completing one year of service |
| Gratuity payment | Event | Within 30 days from the date it becomes payable |
| Notice of opening (gratuity) | One time | Within 30 days of the law becoming applicable |
| Actuarial valuation of gratuity | Annual | At each balance sheet date |
5. Interest, Late Fees and Penal Consequences
| Default | Provision (earlier Act reference) | Consequence |
|---|---|---|
| Late payment of PF dues: interest | EPF Act, Section 7Q | Simple interest at 12% per annum |
| Late payment of PF dues: damages | EPF Act, Section 14B; EPF Scheme, Paragraph 32A | Damages on arrears; the rates were rationalised in June 2024 to a uniform 1% per month of default (12% per annum), replacing the earlier graded scale that went up to 25% per annum |
| Employee share deducted but not deposited | EPF Act, Section 14(1A) and criminal breach of trust under the Bharatiya Nyaya Sanhita | Imprisonment and fine; prosecution is common in such cases |
| Late employee contribution: income tax | Income-tax Act, 1961, Section 36(1)(va) read with Section 2(24)(x) | Employee contribution deposited after the due date under the EPF or ESI law is income of the employer and the deduction is permanently lost (Checkmate Services Pvt. Ltd. v. CIT, Supreme Court, 12 October 2022) |
| Late payment of ESI contribution: interest | ESI Act, Section 39(5) | Simple interest at 12% per annum |
| Late payment of ESI contribution: damages | ESI (General) Regulations, Regulation 82 | Graded damages: 5% per annum for delay below 2 months, 10% for 2 to 4 months, 15% for 4 to 6 months, 25% for 6 months and above |
| ESI employee share deducted but not paid | ESI Act, Section 85 | Imprisonment of 1 to 3 years and fine of Rs. 10,000 |
| Delayed gratuity payment | Payment of Gratuity Act, Section 7(3A) | Simple interest at the rate notified by the Central Government for long-term deposits |
| Avoiding gratuity payment by false statement | Payment of Gratuity Act, Section 9 | Imprisonment up to 6 months or fine up to Rs. 10,000, or both; for non-payment of gratuity under an order, imprisonment from 6 months to 2 years with fine |
| PT default | State PT Acts | Interest (for example 1.25% per month in Maharashtra) and penalties as prescribed by the State |
The Code on Social Security restates these consequences with revised penalties, and introduces compounding for many first offences that are punishable only with fine. Repeat offences attract enhanced punishment.
6. Practical Audit Pitfalls and Best Practices
- Test salary structures against the 50% rule. If allowances excluded from wages exceed half of total pay, PF and gratuity costs rise. Model the impact and communicate changes to employees.
- Do not split basic pay artificially. Following the Vivekananda Vidyamandir judgment, universally paid allowances are part of basic wages for PF.
- Pay employee contributions before the 15th. One day's delay makes the employee share permanently non-deductible for income tax.
- Reconcile ECR and ESIC data with payroll every month. Mismatched employee counts are a common inspection trigger.
- Cover contract workers. Principal employers are liable for PF and ESI of contractors' employees if the contractor defaults. Obtain monthly challans from contractors and verify them on the portals.
- Seed Aadhaar and KYC early. Unseeded UANs delay claims and transfers and generate employee grievances.
- Track gratuity eligibility dates including the one-year rule for fixed-term employees under the Code.
- Watch State notifications on PT slab changes and on the State rules under the Labour Codes.
7. Statutory References and Official Sources
- Code on Social Security, 2020: Sections 2(88) (wages), Chapter III (EPF), Chapter IV (ESIC), Chapter V (gratuity, including Section 53), and the savings and repeal provisions; Ministry of Labour and Employment notification bringing the Code into force from 21 November 2025.
- Code on Wages, 2019: Section 2(y).
- Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (reference): Sections 1, 6, 7Q, 14, 14B; EPF Scheme, 1952 (including Paragraph 32A); Employees' Pension Scheme, 1995; EDLI Scheme, 1976.
- Employees' State Insurance Act, 1948 (reference): Sections 2(9), 39, 85; ESI (General) Regulations, 1950, Regulation 82.
- Payment of Gratuity Act, 1972 (reference): Sections 1(3), 2A, 4, 4A, 7, 9; Payment of Gratuity (Central) Rules, 1972 (Forms A, F, L); Notification S.O. 1420(E) dated 29 March 2018 (Rs. 20 lakh ceiling).
- Constitution of India, Article 276; Gujarat State Tax on Professions, Traders, Callings and Employments Act, 1976; Maharashtra State Tax on Professions, Trades, Callings and Employments Act, 1975; Karnataka Tax on Professions, Trades, Callings and Employments Act, 1976.
- Regional Provident Fund Commissioner (II) West Bengal v. Vivekananda Vidyamandir and others, Supreme Court, 28 February 2019; Checkmate Services Pvt. Ltd. v. Commissioner of Income Tax, Supreme Court, 12 October 2022.
- Official portals: epfindia.gov.in and unifiedportal-emp.epfindia.gov.in; esic.gov.in; labour.gov.in; shramsuvidha.gov.in; State commercial tax portals (for example commercialtax.gujarat.gov.in and mahagst.gov.in).