EPF & ESI Meaning & Basics

Employee Provident Fund (EPF)


EPF is a retirement benefit scheme that’s available to all salaried employees. The EPF is created by the Employees Provident Fund Organization (EPFO) of India, a statutory body of the Indian Government under the Labour and Employment Ministry.

A provident fund is a fund that is created, through contributions, to provide financial support to individuals above a certain age, such as post retirement age. The Employee Provident Fund is just such a fund. Contributions are made on a monthly basis, by both employees and employers, thereby encouraging employees to save a portion of their salary each month. Investments made by a vast number of employees across India are pooled together and invested by a trust.


In essence, it states that an organization having 10 or more employees should register with the EPFO.

Benefits for the employees

The EPF is a tax free investment instrument for the salaried class. Interest earned on it is tax free, and returns are also not taxed. You also get a deduction under Section 80C for contributions made towards your EPF.

Where does your monthly EPF contribution go into?

Currently, the following three schemes are in operation under the EPF Act of 1952, and it is into these trusts that your monthly contributions go. These are as follows:

a) Employees’ Provident Fund Scheme (1952)

b) Employees’ Deposit Linked Insurance Scheme (1976)

c) Employees’ Pension Scheme (1995)

Note: EPF, EPS and EDLIS are calculated on the basis of your Basic + Dearness Allowance (DA), 

Breakup of the contribution of the employee and employer

Yes, it is. An employee’s contribution goes directly into the EPF, while the employer’s contribution goes into the EPF, EPS and EDLIS. Here is how it is broken up:

  • Employee: 12% into EPF. This comes out of the employees’ salary.

  • Employer: 3.67% into EPF, 8.33% into EPS. Total of 12%

Note: Apart from above 12%, employer has to incur 0.5% towards EDLIS, 0.5% for EPF Administrative Charges,

So Total of 13% employer has to contribute as part of his share.

It’s important to note that if your basic pay is above Rs. 6,500 per month, your employer can only contribute 8.33% of 6,500 (i.e. Rs. 541) to your EPS and the balance goes into your EPF account.

The above contributions are borne by the employer. As you can see, you as an employee do not contribute to the life insurance premium charges (EDLIS). This is borne by your employer. Also, the administrative charges for both the EPF are borne by the employer. Employee contribution goes solely towards your EPF and your Pension.

Note: Employer will deduct from the employee his share of contribution and pay to the govt along with employer contribution.

Wage Limit:

Mandatory: For EPF purpose every employee earning a salary (Basic + DA) up to Rs.15000/- has to contribute for scheme.

Voluntary: Persons earning above 15,000 can also contribute to EPF but no obligation on part of employer to contribute equally.

Ex: Ram earned salary of 18,000/-, (Basic-8,000, DA-6,000, HRA-4,000/-)

Since Basic + DA  = 14,000 is less than 15,000/-, EPF applicable for the employee.

Due Date for Return Filing and Remittance:

Employer needs to file return for every month by 15th of the next month along with the payment of employer and employee contribution.

Important Definitions:

Basic Wages:

Means all emoluments which are earned by an employee in accordance with the terms of the contract

But does not include

  • Cash value of any food concessions

  • DA (paid to an employee in relation to rise in cost of living)

  • HRA

  • Over time allowance

  • Bonus

  • Commission or other allowances

  • Any presents made by employer


  • In relation to factory owner or occupier, legal representative or agent of the owner or occupier or manager

  • In relation to any establishment person or the authority who has the ultimate control over the affairs of the establishment.


Who is employed for wages for any kind of work ,in or in connection with the work of establishment gets his wages directly or indirectly (including apprentice other than apprentice covered under apprenticeship Act).

Note: whether a person is an employee or not depends upon the master servant relation.

Ex: Partner is not an employee of the firm

ESIC (Employee State Insurance Corporation)


Employees' State Insurance (abbreviated as ESI) is a self-financing social security and health insurance scheme for Indian workers. This fund is managed by the Employees' State Insurance Corporation (ESIC) according to rules and regulations stipulated there in the ESI Act 1948.


The act was initially intended for factory workers but later became applicable to all establishments having 10 or more workers.

Wage Limit

For all employees earning gross salary of Rs.21,000 or less per month as wages.

Note: Here Salary means Gross Salary (Basic + DA as per EPF).

Note: If employee earns more than Rs.21,000/- he is not eligible to contribute to ESI scheme (Voluntary as per EPF)

Contribution by employer and employee

Employee: 1.75% of the employees’ salary.

Employer: 475% of the employees’ salary.

The employer contributes 4.75 percent and employee contributes 1.75 percent, total share 6.5% percent.

Note: Employer will deduct from the employee his share of contribution and pay to the govt along with employer contribution.

Benefits of Employee’s State Insurance Corporation

This fund is managed by the ESI Corporation (ESIC) according to rules and regulations stipulated there in the ESI Act 1948, which oversees the provision of medical and cash benefits to the employees and their family. ESI scheme is a type of social security scheme for employees in the organised sector.

Security Benefits:

  1. Medical Benefit

  2. Sickness Benefit

  3. Maternity Benefit

  4. Funeral Expenses

  5. Confinement Expenses

  6. Dependants' Benefit

Important Definitions


All remuneration paid or payable in cash to an employee, and it does not include:-

  • Any contribution paid by the employer to any pension fund or provident fund or under ESI Act,

  • Any traveling allowance or the value of any traveling concession,

  • Any sum paid to the person employed to defray the special expenses entitled to him by the nature of his employment or

  • Any gratuity payable on discharge.

Due Date for Return Filing and Remittance:

Employer needs to file return for every month by 15th of the next month along with the payment.

107 views1 comment

Recent Posts

See All

Startup Culture - Impacting on the Indian economy

The startup culture has taken the business world by storm. Not only are these young companies with big dreamers openly welcoming “skilled” individuals more than “qualified” but are also playing a vita

Meaning and Accounting Treatment for Chit Fund.

Meaning of Chit Fund: Chit Funds are finance saving schemes in India. A Chit Funds are good for saving money. Chit industry is more famous because it runs without any security being taken and runs mos