Employer Contributions in India 2026: PF, ESI, Gratuity, Bonus, PT and LWF Explained

Employer contributions in India in 2026 are provident fund at 12% of PF wages up to ₹25,000 a month, EDLI and admin charges of 0.5% each, ESI at 3.25% for staff on wages up to ₹21,000, a gratuity provision of about 4.81% of wages and statutory bonus for lower earners. You also deduct and remit professional tax and labour welfare fund, state by state.

Most guides still get the basics wrong. They quote the ₹15,000 PF ceiling, which ended on 17 September 2026. They price gratuity on a 30% basic, as if the Labour Codes had not redefined wages on 21 November 2025. Some still cite the Payment of Wages Act and Form 16.

This guide fixes that. You get every contribution with rupee arithmetic, the full employer cost at four salary levels, a state table for professional tax and LWF, the deadlines and a model EOR invoice.

It comes from Remunance, the best EOR in India for payroll. Our founding team has run payroll and hiring in India for 22+ years, first as Remunance Systems, later acquired by ADP.

What Employer Contributions Do You Pay In India In 2026?

You pay five contributions from your own pocket: PF with its pension, insurance and admin pieces, ESI, gratuity, statutory bonus and the employer share of labour welfare fund. Professional tax is different. The employee bears it, and you deduct and deposit it.

The table below sets out each employer contribution to PF, ESI and gratuity, plus the smaller state levies. The employer contribution glossary entry explains how these sit inside an offer.

Which Contributions Are Costs And Which Are Deductions You Only Remit?

Ask whose money it is. Employer PF, EPS, EDLI, admin charges, employer ESI, gratuity, bonus and the employer LWF share sit on top of salary and form part of cost to company (CTC).

The employee’s 12% PF, 0.75% ESI, professional tax and employee LWF come out of gross pay. You still deposit them. And if you deduct and fail to deposit, the penalty is yours, not the employee’s.

Take a ₹40,000 salary in Pune. You add ₹4,158 a month on top of gross. The employee loses ₹2,400 to PF and ₹200 to professional tax, so take-home is ₹37,400 before income tax. Both sides of that ledger are your filing problem.

What Triggers Each Contribution?

Two things trigger them: the size of your establishment and the wages of each employee. An established EOR already clears these headcount thresholds, so for EOR hires the wage tests are what matter.

• Provident fund: Establishments with 20 or more employees are covered. Every employee on PF wages up to ₹25,000 must join; above that, a first-time member can be kept out.
• ESI: Establishments with 10 or more employees are covered, and the Labour Codes, in force from 21 November 2025, extend ESIC across India, voluntary below 10 employees.
• Gratuity: Establishments with 10 or more employees are covered, for every employee who completes the qualifying service.
• Statutory bonus: Establishments with 20 or more employees, for employees on wages up to ₹21,000 who worked at least 30 days in the year.
• Professional tax and LWF: State law decides. LWF thresholds run from five employees in Maharashtra, Tamil Nadu and Delhi to twenty in Telangana.

How Does The ₹25,000 PF Wage Ceiling Change Your Employer PF Contribution?

It raises the maximum employer PF bill from ₹1,950 to ₹3,250 a month per employee, an extra ₹15,600 a year. That is a 67% jump. The Union Cabinet approved it on 16 September 2026, and the new ₹25,000 ceiling took effect on 17 September 2026.

It is the first change since September 2014. Employees on PF wages between ₹15,000 and ₹25,000 now fall under mandatory coverage, so anyone you kept outside provident fund (EPF) must be enrolled. The ceiling sits inside the EPF Scheme, 2026, notified on 29 June 2026 under the Code on Social Security.

That makes your employer PF contribution in 2026 a different number from the one in most budgets written before September.

The newly covered band is where budgets break. Suppose an analyst on PF wages of ₹22,000 joined in 2025 and stayed outside PF. Before 17 September you paid nothing. Now you pay 13% of ₹22,000, which is ₹2,860 a month, and the analyst’s take-home drops by ₹2,640.

If CTC is fixed, someone absorbs that. Either gross pay shrinks inside the same CTC, or you hold gross steady and your cost rises. Decide which before the next payroll run. Put it in writing.

How Is The Employer’s 12% Split Between EPF, EPS, EDLI And Admin Charges?

The employer’s 12% splits into 8.33% for the pension scheme and 3.67% for the employee’s PF account. Then EDLI and admin charges add 0.5% each. So the true employer rate is 13% of PF wages. Not 12%.

The Labour Ministry notified the 12% PF, 8.33% EPS and 0.5% EDLI rates on 1 July 2026. Admin charges stay at 0.5% of wages, with a minimum charge of ₹500 a month.

The pension share caps at ₹2,083, which is 8.33% of ₹25,000, and that is why the EPF share reads ₹917 at the ceiling: ₹3,000 minus ₹2,083. The Employees’ Pension Scheme (EPS) and the EDLI scheme entries explain what each piece buys the employee.

What Did PF Cost At The Old ₹15,000 Ceiling?

At the old ceiling the employer paid ₹1,950 a month at most. At ₹25,000 it pays ₹3,250.

Let’s say you have 20 engineers in Bengaluru, all on PF wages above ₹25,000 and all restricted to the ceiling. Your PF bill rises by ₹26,000 a month, or ₹3.12 lakh a year, with no change in salary. Each engineer also takes home ₹1,200 less.

You can still pay PF on full wages for senior staff through a joint option with the employee. Employer PF then runs at 12% of actual wages, with the pension share still capped at ₹2,083 and the rest going into the employee’s PF account.

How Should You Handle September 2026, The Split Month?

September 2026 is a split month: wages for 1 to 16 September fall under the old ceiling and wages from 17 September under the new one. Advisers still differ on how to apportion them, and the savings clause in S.O. 5109(E) leaves room for doubt, so keep your working on file.

The date matters more than the method right now. The EPFO extended the September 2026 ECR and payment to 31 October 2026. Our guide to the EPF Scheme 2026 and the ₹25,000 ceiling walks through the split-month calculation line by line.

How Does The 50% Wage Rule Change The Base For PF And Gratuity?

It stops you shrinking PF and gratuity with a low basic. If excluded allowances such as HRA and conveyance exceed half of total pay, the excess is added back to wages, and PF, gratuity and bonus are computed on the higher figure.

The 50% wage rule came in with the Code on Wages and the Code on Social Security on 21 November 2025. For low-basic structures, it raised employer costs ten months before the PF ceiling moved.

What Counts As Wages Under The Labour Codes?

Wages means basic pay, dearness allowance and retaining allowance. HRA, conveyance, overtime, commission and gratuity are excluded, but only up to half of total pay.

Run the test in three steps:

1. Add up total remuneration for the month.
2. Add up the excluded items within it.
3. If the excluded items exceed 50% of the total, add the excess to basic plus DA. The result is wages for PF, gratuity and bonus.

What Happens To A Salary Built On A 30% Basic?

It costs you more. Keeping the old structure does not avoid it.

Take a ₹40,000 salary with basic at ₹12,000. The excluded allowances are ₹28,000, which is 70% of pay. Half of pay is ₹20,000, so ₹8,000 is added back and wages become ₹20,000.

Same salary, ₹1,425 more a month in employer cost, about ₹17,100 a year. The employee’s take-home falls by ₹960. Nothing else changed.

Suppose a ₹1.5 lakh salary on the same 30% basic. PF does not move if you restrict it to ₹25,000. Gratuity does.

Wages rise from ₹45,000 to ₹75,000 and the monthly provision from ₹2,163 to ₹3,606, which is ₹17,308 more a year for one person before any raise.

The fix is not complicated. Move enough of the allowances into basic to bring basic plus DA to half of total pay, keep HRA and other excluded items inside the other half, and the add-back disappears. Our guide to building a compliant salary structure in India shows how to rebalance a CTC so this never surprises you.

Do it at the next appraisal, not the next inspection.

When Does ESI Apply And What Does It Cost The Employer?

ESI applies to employees on wages up to ₹21,000 a month, or ₹25,000 for persons with disability, and costs you 3.25% of their wages. The employee adds 0.75%. Those rates date from 1 July 2019, when the combined rate fell from 6.5% to 4%.

On a ₹20,000 salary that is ₹650 a month from you and ₹150 from the employee. In return, Employees’ State Insurance (ESI) gives the employee and family medical care and cash benefits from ESIC.

One concession matters for entry-level roles. Employees on a daily average wage up to ₹176 pay no share of their own, while you still pay your 3.25%.

ESI is good value for the employer. For 3.25% of pay, ESIC carries medical care, sickness benefit, maternity benefit and employment injury cover for that employee. Without ESI, each of those becomes your direct cost or your insurance premium.

Should ESI Run On Gross Pay Or Code Wages?

This is the open question of 2026. Many payrolls still use gross pay, the base the ESI Act used for decades. But an ESIC Big Employer Cell communication dated 10 December 2025 tells employers to use the Code’s wage definition from 21 November 2025.

The difference is not academic. On a ₹40,000 salary with a 50% basic, gross pay puts the employee outside ESI, while Code wages of ₹20,000 bring the same person inside at ₹650 a month from you.

Our worked examples use gross pay. Check the method your payroll applies before you budget, and expect a formal ESIC circular to settle it.

What Happens When Pay Crosses ₹21,000?

Coverage continues to the end of the current contribution period. The two periods run April to September and October to March, so a raise in May keeps the employee in ESI, with contributions running, until 30 September.

How Much Gratuity Should You Provide For Every Month?

Provide about 4.81% of monthly wages. Gratuity is 15 days’ wages for each completed year of service, calculated as 15/26 of a month’s wages, and 15/26 spread over 12 months is 4.81%.

Gratuity builds every month, even though cash leaves only at exit. Hence the provision. Skip it, and a five-year engineer’s resignation lands as one large, unbudgeted bill.

When Does Gratuity Become Payable?

After five years of continuous service for permanent staff, and after one year for fixed-term employees under the Code on Social Security. That one-year rule means a 12-month contract now carries a real gratuity cost.

The total payout is capped at ₹20 lakh, the ceiling in force since 29 March 2018. You must pay it within 30 days of it becoming payable.

Let’s say you hire a fixed-term analyst for 12 months on ₹40,000, with wages of ₹20,000. At the end of the contract you owe ₹20,000 × 15 ÷ 26 = ₹11,538 in gratuity. Under the old rules you owed nothing. Price it into every fixed-term offer.

How Do You Calculate The Monthly Gratuity Provision?

Multiply monthly wages by 15/26 for the yearly accrual, then divide by 12. Take a ₹75,000 salary with wages of ₹37,500:

1. Yearly accrual: ₹37,500 × 15 ÷ 26 = ₹21,635.
2. Monthly provision: ₹21,635 ÷ 12 = ₹1,803.
3. Payout after five years at the same wages: ₹21,635 × 5 = ₹1,08,173.

The payout uses last drawn wages, so every raise lifts the whole balance, not just the latest year. Your auditor’s actuarial valuation will refine the figure. For budgeting, 4.81% is the right number.

Who Is Entitled To Statutory Bonus And How Much Does It Cost?

Employees on wages up to ₹21,000 a month who worked at least 30 days in the year are entitled to a bonus of 8.33% to 20%. The Labour Ministry notified that ₹21,000 limit under Section 26(1) of the Code on Wages in September 2026.

Here is the catch. Eligibility runs on wages, not gross pay. A ₹40,000 salary with a 50% basic has wages of ₹20,000, so that employee qualifies. Check your mid-level roles.

Statutory bonus applies in establishments with 20 or more employees. You must pay it within eight months of the accounting year end, which is 30 November 2026 for a year that ended on 31 March 2026.

How Is Statutory Bonus Calculated?

Calculate it on ₹7,000 a month or the applicable minimum wage, whichever is higher, even when actual wages are higher. At the 8.33% minimum, that is ₹7,000 × 12 × 8.33% = ₹6,997 a year, or ₹583 a month.

At the 20% maximum, the same base gives ₹16,800 a year, or ₹1,400 a month. Where the state minimum wage for the role exceeds ₹7,000, use that figure instead, which pushes the cost up.

The rate above 8.33% depends on your allocable surplus for the year, so budget the minimum each month and true up once the accounts close.

Across a team, it adds up. Ten support staff on ₹20,000 cost you ₹69,970 a year in minimum bonus. At the 20% maximum, the same ten cost ₹1.68 lakh.

What Do Professional Tax And Labour Welfare Fund Cost In Each State?

Professional tax costs the employee up to ₹2,500 a year and costs you only the administration, while labour welfare fund costs you between ₹4.50 and ₹150 a year per employee, depending on the state.

LWF amounts are per cycle, so Maharashtra’s employer share is ₹150 a year. Rates are as last notified by each state board. Check the board’s portal before every filing, because several states revised LWF in 2024.

Location changes the totals only at the margin. A ₹75,000 engineer pays ₹2,500 a year in professional tax in both Pune and Bengaluru, while your LWF share is ₹150 in Pune and ₹100 in Bengaluru. In Delhi the same engineer pays no professional tax, and your LWF share is ₹4.50 a year.

What changes by state is the compliance work. Every state means another registration, another portal and another calendar.

Is Professional Tax An Employer Cost?

No. Professional tax is the employee’s tax, capped at ₹2,500 a year, and you act as collector. But you register, apply the right slab, deposit on time and file returns, and a missed deposit is your liability.

Slabs change more often than payroll teams notice. Karnataka raised its February deduction to ₹300 from 1 April 2025. West Bengal’s schedule runs from nil up to ₹10,000 to ₹200 a month above ₹40,000.

How Does Labour Welfare Fund Work?

Labour welfare fund is a small flat contribution to a state welfare board, paid by both sides. The employer pays two to ten times the employee share, depending on the state.

The amounts are tiny. The risk is missing them entirely, because LWF sits outside the PF and ESI systems and runs on half-yearly or yearly cycles. Maharashtra moved to a flat ₹25 and ₹75 per half-year in 2024, which removed its old wage slabs.

Most states exclude staff in managerial or supervisory roles, though the wage test differs from state to state.

What Other Statutory Costs Should You Budget For?

Two more: maternity benefit for women outside ESI, and employees’ compensation for workplace injury where ESI does not apply. Neither shows up as a monthly percentage, which is exactly why they catch employers out.

What Does Maternity Benefit Cost An Employer?

For a woman on wages above the ESI limit, you pay full average wages for up to 26 weeks of maternity leave for each of her first two children. For ESI-covered employees, ESIC pays the benefit instead of you.

She qualifies after 80 days of work in the 12 months before the expected delivery. From the third child, leave drops to 12 weeks.

Suppose a ₹75,000 engineer takes 26 weeks. That is about six months of pay, roughly ₹4.5 lakh, with no output in that period. If you hire cover while she is away, that cost comes on top.

Add a ₹3,500 medical bonus if you do not provide free pre-natal and post-natal care, and a creche once an establishment reaches 50 employees. Our guide to maternity leave in India covers the rules in full.

None of this belongs in a monthly percentage. But it belongs in your annual budget for any team with women above the ESI limit.

Who Pays Employees’ Compensation When ESI Does Not Apply?

You do. Under the Code on Social Security, the employer is liable for injury or death arising out of employment, and ESI-covered establishments use the ESI route instead.

The formula is set by law. Death compensation is 50% of monthly wages multiplied by an age-based factor, with a floor of ₹1.2 lakh. Permanent total disablement is 60%, with a floor of ₹1.4 lakh, as the Assam labour commissioner’s compensation schedule sets out.

For office staff the risk is low. Not zero. You can insure it with an employees’ compensation policy. The policy is optional; the liability is not.

What Is The Full Employer Cost Of An Employee In India At Four Salary Levels?

Statutory costs add 15.1% on top of a ₹20,000 monthly salary, 10.4% on ₹40,000, 6.8% on ₹75,000 and 4.6% on ₹1.5 lakh. The share falls as pay rises, because PF stops at the ₹25,000 ceiling and ESI and bonus drop away once pay passes their ₹21,000 limits.

Here is the employer cost of an employee in India at each level, month by month.

Take the ₹75,000 engineer. ₹3,250 PF plus ₹1,803 gratuity plus ₹13 LWF is ₹5,066 a month. Over a year that is ₹60,785 on ₹9 lakh of salary.

Annual figures use exact values, so they differ from twelve times the monthly table by a few rupees. To run your own roles, salaries and cities, use our EOR cost calculator for India.

Look at the ₹40,000 column. It costs 10.4%, well above the 6.5% that PF alone suggests. Bonus and an uncapped PF base do that. Above about ₹42,000, bonus falls away; above ₹50,000, PF hits the ceiling, and gratuity becomes the only line that keeps growing with pay.

What Are The Assumptions Behind These Numbers?

Every figure rests on six choices. Change one and the totals move.

• Location: Pune, Maharashtra, for professional tax and LWF.
• Structure: Basic plus DA at 50% of gross, so no add-back under the 50% rule.
• PF: Restricted to the ₹25,000 ceiling, with no PF on higher actual wages.
• ESI: Charged on gross pay. The Code-wage reading would add ₹650 a month at ₹40,000.
• Bonus: The 8.33% minimum on the ₹7,000 floor.
• Left out: Employee deductions, health cover, EOR or payroll fees, maternity and compensation costs.

The employee separately pays 12% PF of ₹1,200 to ₹3,000, ESI of ₹150 at ₹20,000, and Maharashtra professional tax of ₹200 a month and ₹300 in February.

How Do You Turn A CTC Offer Into Gross Pay And Employer Cost?

Work backwards. CTC minus employer contributions equals gross salary. That is the whole cost to company calculation in India, and it matters because Indian offers quote annual CTC, not gross.

Say a candidate accepts ₹12 lakh CTC with a 50% basic, PF at the ceiling and gratuity inside CTC. Employer PF takes ₹39,000, gratuity ₹27,250 and LWF ₹150, a total of ₹66,400, so gross salary is ₹11,33,600 a year, or about ₹94,467 a month.

Check it in reverse. Monthly wages are ₹47,233, so the yearly gratuity accrual is ₹47,233 × 15 ÷ 26 = ₹27,250, and the sum returns exactly ₹12 lakh. Then add health cover and the EOR fee outside CTC to get your full cost.

One warning for foreign hiring managers. A candidate who compares two offers compares CTC, while your finance team compares total cost. Show both in the approval note.

When Are Employer Contributions Due?

PF and ESI are due by the 15th of the following month, and TDS by the 7th. Professional tax, labour welfare fund, bonus and gratuity run on state or event-based timelines.

Here is the 2026 calendar for statutory contributions in India.

TDS on salary is the only monthly deadline before the 15th, and our explainer on how the payroll calendar in India works maps all these dates onto a monthly cycle.

Which Returns Fall Due Each Quarter And Each Year?

The quarterly salary TDS statement is now Form 138, due on 31 July, 31 October, 31 January and 31 May. The first annual tax certificate on Form 130, which replaces Form 16, is due by 15 June 2027.

Late PF and ESI deposits attract interest and penalties. So treat the 15th as a hard date, not a target.

Exits have their own clock. Final wages are due within two working days under the Code on Wages, while gratuity runs on a 30-day clock. A clean full and final settlement pays both, plus leave encashment, on those timelines.

What Mistakes Do Foreign Employers Make With Employer Contributions?

The expensive ones are structural: a low basic, a missing state levy and an unprovisioned gratuity. Each looks harmless for a year, then lands as arrears.

• Low basic structures: Copying a 30% basic from an old offer template. Since 21 November 2025 the excess allowances count as wages anyway, so you owe the higher PF and gratuity regardless, plus arrears for the months you underpaid.
• Missing LWF: LWF never appears in PF or ESI software, so it gets forgotten. The amounts are small. The non-compliance record is not.
• Gratuity not provisioned: Treating gratuity as a cost at exit. Five years later, a single resignation on ₹75,000 creates a payout above ₹1 lakh with nothing set aside.
• Bonus missed on mid-level pay: Because eligibility is tested on wages, gross salaries up to about ₹42,000 on a 50% basic can qualify. It is easy to assume bonus stops at ₹21,000 gross. It does not.
• Stale PF ceiling: Still restricting PF to ₹15,000 after 17 September 2026, which underpays ₹1,300 a month for every employee at the cap.
• Unchecked ESI method: Running ESI on gross pay without a view on ESIC’s Code-wage direction. If ESIC enforces it, the arrears go back to 21 November 2025.
• The ₹15,000 to ₹25,000 band left outside PF: Employees who were legitimately outside PF before 17 September 2026 must now be enrolled. Check every joiner in that band.
• Wrong professional tax slab: Missing Maharashtra’s ₹300 February deduction, or applying the men’s slab to women earning up to ₹25,000. Small numbers, repeated across a payroll, become a notice.

None of these is exotic. Every one shows up in a basic payroll audit.

Which Costs Are Optional But Expected In India?

Group health cover, term life and personal accident insurance are optional for staff outside ESI. Skilled candidates still expect them. So label them optional in your budget, decide them before you make offers, and remember they are hard to withdraw once given.

• Group medical cover: Group medical cover pays hospitalisation for the employee and often spouse, children and parents. Premiums depend on age profile, sum insured and family cover, so get a quote for your actual team.
• Group term life: Term life cover pays a lump sum on death. EDLI already gives a statutory minimum, capped at ₹7 lakh, so term life tops it up for senior staff.
• Group personal accident: Covers accidental death and disability, and it overlaps with your employees’ compensation liability.
• Work costs: Laptops, internet allowances and meal cards are common. None is statutory.

Keep these outside the statutory lines in your budget, and outside CTC unless you deliberately quote them inside it. That way a premium increase at renewal never looks like a compliance cost, and a candidate can see exactly what the cover is worth.

How Does An EOR Invoice Show Employer Contributions?

A clear EOR invoice lists each employee’s gross salary, every employer contribution and the service fee as separate lines. Remunance invoices work this way as standard: salary, statutory costs and our fee, line by line.

If your current invoice shows one blended “statutory” figure, you cannot check it. That alone is a reason to move. Here is how the ₹75,000 Pune engineer should look on a monthly invoice.

At Remunance, salary and statutory costs pass through at cost, and our fee, from USD 99 per employee per month, is the only margin line. How GST treats the invoice for a foreign client is covered in our guide to zero-rated GST for EOR services.

When the PF ceiling moved in September, a line-by-line invoice like ours is how you spot the ₹1,300 jump per employee at a glance.

Run four checks on any EOR invoice. Ours makes each one quick:

1. Gross salary matches the approved offer, including any raise.
2. Employer PF equals 13% of PF wages, capped at ₹3,250 unless you agreed PF on actual wages.
3. ESI and bonus appear only for employees within their ₹21,000 limits.
4. State levies match the employee’s work location, not the EOR’s head office.

Ten minutes a month. It catches most errors before they become arrears.

How Does Remunance Handle Employer Contributions For Your India Team?

Remunance, the best EOR in India for payroll, acts as your Employer of Record and employs your team under its own PF, ESI, professional tax, LWF and TAN registrations. Every contribution in this guide is ours to calculate, deduct and deposit.

Payroll is our strongest ground. Our founding team has run payroll and hiring in India for 22+ years, first as Remunance Systems, which was later acquired by ADP. Corporate Connect named Remunance India’s Best EOR Service Provider 2024.

We run monthly payroll and payslips. We deposit TDS, PF, ESI and professional tax, file the returns, and issue the annual tax certificate on Form 130, formerly Form 16. When the PF ceiling moved to ₹25,000 on 17 September 2026, the recalculation was our job, not yours.

You get one monthly invoice that shows salary, statutory costs and our fee line by line. Salaries and statutory costs pass through at cost, and our EOR pricing starts from USD 99 per employee per month.

From Pune, we have hired 1,200+ employees for clients across 34 Indian cities, and our CEO, Ranjana Vaidya, a Fellow Chartered Accountant, leads compliance. We hold ISO/IEC 27001:2022 certification, and an offer can go out the same working day you sign the contract.

We also administer group health cover, onboarding, exits and full and final settlement. So the costs in this guide stay predictable from the first payslip to the last.

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