What is Provident Fund (PF)?

Provident Fund (PF) is a retirement savings scheme that allows employees to save a portion of their salary for financial security post-retirement. The scheme ensures long-term savings by deducting a part of the employee’s salary and matching it with a contribution from the employer.

The accumulated funds are invested in financial instruments such as stocks and bonds to generate returns. Upon retirement or termination of employment, the employee receives the total savings along with the accumulated interest.

Applicability of Provident Fund

The government has set specific guidelines for businesses regarding PF applicability in India. Key considerations include:

• Employee Strength: The PF scheme applies to establishments with 20 or more employees. Businesses with fewer employees can voluntarily opt for the scheme.
• Salary Threshold: Employees earning a basic salary of up to Rs. 15,000 per month must contribute to EPF, while those earning above this threshold can contribute voluntarily.
• Exemptions: Employees covered under alternative retirement benefit schemes like the National Pension Scheme (NPS) may be exempted. Additionally, industries such as cinema, newspaper establishments, and educational institutions may qualify for exemptions under certain conditions.
• Contribution Rates: Employers and employees must each contribute 12% of the employee’s basic salary to the EPF. Some industries may have higher contribution rates.
• Registration & Compliance: Employers must register their establishment for PF within 30 days of hiring their first employee. Regular filing of returns and proper maintenance of records is mandatory.

What is Employee’s State Insurance (ESI)?

Employee’s State Insurance (ESI) is a social security and health insurance scheme managed by the Employees’ State Insurance Corporation (ESIC). It provides financial and medical benefits to employees earning below a specified salary threshold, ensuring healthcare security for them and their families.

Applicability of ESI

Key points for business owners regarding ESI compliance:

• Employee Strength: Applicable to establishments with 10 or more employees (or 20 in non-power-using sectors). Voluntary registration is possible for smaller businesses.
• Salary Threshold: Employees earning up to Rs. 21,000 per month must contribute to ESI, while those above this limit can opt-in voluntarily.
• Exemptions: Some industries, such as educational institutions, may be exempted. Employees covered under other social security schemes like EPF are also exempt.
• Contribution Rates: Employers contribute 3.25% and employees contribute 0.75% of gross salary.
• Registration & Compliance: Employers must register for ESI within 15 days of hiring their first employee and adhere to compliance requirements.

Both PF and ESI are essential for employee welfare, ensuring financial stability and access to healthcare.