The hire that quietly switched on a law nobody was watching
A growing startup goes on a hiring sprint. Somewhere in the rush — offer letters, laptops, onboarding — the headcount crosses a number, and a payroll law switches itself on in the background. No form arrives, no alarm sounds. Months later a notice does arrive, and it is backdated: the contributions that should have been deposited from the month the threshold was crossed, plus interest, plus damages that can rival the contributions themselves. The founder's honest answer — "we didn't know we had to register yet" — changes nothing. Two numbers decide when your payroll stops being just salary and starts being statutory: 20 for provident fund and 10 for employee state insurance. Here is what EPF and ESIC are, when they become compulsory, what you actually pay, how to register, and why registering late is so much more expensive than registering on time.
What EPF and ESIC are — and the two numbers that switch them on
EPF is the Employees' Provident Fund, run by the EPFO under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 — a retirement-savings fund that also carries a pension (EPS) and a free life-insurance cover (EDLI). It becomes compulsory once you employ 20 or more people. ESIC is the Employees' State Insurance scheme, run by the ESI Corporation under the Employees' State Insurance Act, 1948 — medical care, sickness, maternity and disability cover for lower-wage employees and their families. It becomes compulsory at 10 or more employees (a few states notify the threshold at 20). The trap is that these thresholds count everyone on the rolls in the way each Act defines an employee, including many contract and casual workers — so companies cross the line earlier than they think. And you can register voluntarily below the threshold, which many startups do because employees increasingly expect PF from day one.
Who is covered, and the wage ceilings that decide it
Once your establishment is covered, whether a given employee must be enrolled turns on their wages. For EPF, the statutory wage ceiling is ₹15,000 a month (basic plus dearness allowance): coverage is mandatory for anyone earning up to that, and contribution above it is voluntary, by agreement between employer and employee. For ESIC, the wage ceiling is ₹21,000 a month gross (₹25,000 for a person with a disability): employees earning up to that must be covered, and once someone is in for a contribution period they stay in until it ends even if a mid-period raise takes them above the line. This is why the two schemes usually cover overlapping but different slices of your team — junior staff sit inside both, while a well-paid engineer may be inside EPF (on the capped amount) but outside ESIC.
What you actually pay each month
The numbers matter because the employer carries most of the cost. Under EPF, the employee contributes 12% of wages and the employer contributes 12% — but the employer's share is split: 8.33% goes to the pension fund (EPS), capped at 8.33% of ₹15,000 (₹1,250), and the balance 3.67% to the provident fund, with small additional EDLI and administration charges on top. Under ESIC, the split is very different: the employee pays 0.75% and the employer pays 3.25% of gross wages, a total of 4%. Both are deposited monthly. Every EPF member gets a Universal Account Number (UAN) that follows them across jobs, and every ESIC member an insurance number — which is why getting the enrolment right from the first month, rather than backfilling later, matters to the employee as much as to you.
How registration actually works
The good news is that both registrations are largely a single online exercise. The Shram Suvidha Portal offers a common registration that generates your EPF and ESIC codes together, drawing on the company's PAN, incorporation details, address, bank account and the details of employees and directors; the ongoing work then happens on the EPFO Unified Portal and the ESIC portal respectively. You are expected to register within about 15 days of the Act becoming applicable to you — that is, of crossing the threshold — not whenever you get around to it. After that it is a monthly rhythm: the EPF Electronic Challan cum Return (ECR) is generated, filed and paid, and the ESIC contribution deposited, by the 15th of the following month. Miss the day and interest starts the next.
The sticky-threshold trap and the real cost of registering late
Two features make delay dangerous. First, coverage is sticky: once an establishment is covered, it stays covered even if the headcount later falls below 20 or 10 — you cannot quietly drop out by shrinking. Second, late deposit is expensive in a way that compounds. Under EPF, a late or missed contribution attracts interest at 12% a year under Section 7Q and damages under Section 14B that are graded by how late you are and can run to a further 25% a year. ESIC similarly charges interest and damages on delayed contributions and can prosecute for default. Because these run from the month you should have registered — not the month the notice lands — a company that "waited to be sure" can face a backdated bill covering a year or more of contributions, interest and damages together. Registering on the month you cross the threshold is not caution; it is the only version of this that is cheap.
Where this sits in setting up your business
EPF and ESIC are the employee-facing half of the registrations a growing business collects, and they sit next to the ones you have probably already met. In Maharashtra they pair naturally with professional tax (PTEC/PTRC), the state's own payroll deduction, and with the Shop & Establishment (Gumasta) registration that recognises you as an employer in the first place. They come after you have chosen and registered your entity — whether through the SPICe+ incorporation route or another — and they belong on the same running list as your Udyam registration. For the whole sequence of what to register and when as you build, the starting-a-business guide is the map this fits into.
How we handle it at RDA, Baner
At RDA Advisory, Baner, we set up EPF and ESIC the month you need them and then run them so the 15th never catches you out. We watch the headcount so you register on time rather than after a notice, complete the Shram Suvidha registration to generate both codes, enrol your team correctly against the ₹15,000 and ₹21,000 ceilings, and then handle the monthly ECR and ESIC contributions, UAN generation and reconciliations as part of payroll. If you have already crossed a threshold and not registered, we work out the real backdated exposure — contributions, interest and damages — and the cleanest way to regularise it. Office No. 102, Snehraj Apartment, Baner, Pune 411045 · call +91 77570 45059.
Crossing 10 or 20 employees? Get EPF and ESIC set up before the notice does
Hiring, and not sure whether provident fund or ESI has kicked in yet? RDA confirms exactly when each applies to you, completes the registration on time, and runs the monthly filings so a growing team never turns into a backdated penalty. Book a consult at rdatax.in or call +91 77570 45059, or see our payroll & compliance service. RDA Advisory, Baner, Pune.
Verification note: The Employees' Provident Fund is governed by the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (administered by the EPFO) and applies to establishments employing 20 or more persons; employee and employer each contribute 12% of wages (basic plus dearness allowance), the employer's share split as 8.33% to the Employees' Pension Scheme, capped at 8.33% of the ₹15,000 wage ceiling, and 3.67% to provident fund, with additional EDLI and administrative charges. The Employees' State Insurance scheme is governed by the Employees' State Insurance Act, 1948 (administered by the ESIC) and applies to establishments employing 10 or more persons (20 in some state notifications) in respect of employees earning up to ₹21,000 a month (₹25,000 for persons with disability); the employee contributes 0.75% and the employer 3.25% of wages. Registration is generally required within about 15 days of applicability, and monthly contributions/returns are due by the 15th of the following month; late payment attracts interest (Section 7Q for EPF, and under the ESI Act) and damages (Section 14B for EPF). The government has been considering revising the EPF wage ceiling (₹15,000) and the ESIC wage ceiling (₹21,000) upward; these thresholds, ceilings, rates and due dates are periodically amended, so confirm the current figures for your establishment with your CA or advisor before relying on them. This is general information, not legal or professional advice.
