Employer social-insurance costs in India
Reviewed by Mellow Editorial Team, HR & payroll content team
Employer social-insurance costs in India are primarily driven by two statutory contributions: the Employees' Provident Fund (EPF) and the Employees' State Insurance (ESI) scheme. Together, these form the core of what you owe on top of an employee's gross salary.
EPF: what employers contribute
Under EPF, both the employer and the employee contribute 12% of the employee's basic wages (including dearness allowance and retaining allowance, where applicable). The employee's 12% is deducted from their salary. Your 12% as the employer is an additional cost on top of what you pay the employee.
The employer's 12% does not go entirely into the employee's provident fund account. A portion is redirected to the Employees' Pension Scheme (EPS). The balance goes into the EPF account proper. The split is determined by the government and has remained consistent for years, though you should verify the current allocation with EPFO if you are setting up payroll for the first time.
You register with the Employees' Provident Fund Organisation (EPFO), obtain a PF code, and remit contributions by the 15th of the following month. Each employee gets a Universal Account Number (UAN), which they retain across employers. You file monthly electronic challan-cum-return (ECR) through the EPFO unified portal.
Penalties for late deposit are significant. Interest accrues on delayed payments, and damages can be levied on top of that. Staying current is straightforward if payroll runs on a fixed cycle.
ESI: the wage threshold matters
The Employees' State Insurance scheme covers employees whose gross wages fall below a statutory wage threshold. Once an employee's wages cross that threshold, they are no longer covered under ESI. Because the exact threshold is revised periodically by the government, confirm the current figure with the ESIC (Employees' State Insurance Corporation) before onboarding new hires or reviewing your payroll annually.
For covered employees, you as the employer contribute a percentage of gross wages, and the employee contributes a smaller percentage. The employer's share is the larger portion of the two. ESI provides covered employees with medical, maternity, disability and other benefits, so the contribution funds a meaningful set of protections.
You register your establishment with ESIC, obtain an employer code, and remit contributions by the 15th of the following month, mirroring the EPF timeline. Contributions are filed through the ESIC portal. Employees receive an ESI card, which they use to access treatment at ESIC hospitals and dispensaries.
If your business operates in a state or sector where ESI infrastructure is limited, the government has provisions for alternative arrangements. Check with ESIC regional offices for your specific location.
Gratuity: a deferred but real cost
Gratuity is not a monthly contribution, but it is a statutory obligation that belongs in any honest accounting of your social-insurance costs. An employee who completes five years of continuous service is entitled to gratuity on separation — whether through resignation, retirement or otherwise.
The Payment of Gratuity Act governs this. The formula ties the payout to last drawn salary and years of service. Some employers fund gratuity through a group gratuity scheme with a life insurer, which smooths the cash-flow impact. Others provision for it internally. Either way, the liability accrues from the employee's first day and becomes payable once the five-year threshold is crossed.
Labour Codes and what changes from 2026
India's four consolidated Labour Codes — covering wages, industrial relations, social security, and occupational safety — are now in force from 2025. The Social Security Code, in particular, consolidates the earlier EPF and ESI Acts along with several other welfare statutes.
One of the more consequential changes in the Codes is the redefinition of "wages" for the purpose of calculating statutory contributions. The Codes set a floor: allowances cannot make up more than 50% of total remuneration, meaning basic wages must be at least 50% of CTC. For many employers who historically kept basic wages low to reduce EPF liability, this increases their EPF contribution base and, consequently, their total employer cost.
If you have not already reviewed your salary structures against this definition, do so now. The recalculation can meaningfully change your monthly outgo per employee.
Keeping the numbers straight
A practical approach is to model your total employer cost for each hire before making an offer. For a salaried employee covered by both EPF and ESI, your actual cost is the gross salary plus your EPF contribution plus your ESI contribution plus any gratuity provisioning you choose to recognise. Running payroll correctly across these schemes — with accurate challan filing, UAN mapping and Form 16 issuance for income tax purposes — requires either a capable in-house payroll process or a reliable external one. For context on how multi-country employers handle this, see how Mellow runs payroll across six countries.
The compliance calendar is consistent: EPF and ESI by the 15th of each month, quarterly TDS returns on Form 24Q, and annual Form 16 issuance. Missing any of these creates liability that compounds quickly.
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