Is It Mandatory for Small Companies to Implement PF and ESI? Seeking Guidance on Criteria and Calculations

Dear HRs, I am working in a small manufacturing company where we don't have any PF or ESI, and the management is looking to implement these. Is it mandatory to implement PF or ESI in an organization? If so, what are the criteria? On what parameters will an employee come under PF or ESI, and how do we calculate them?

Please help me in this regard.

Thank you.

ESI and PF Applicability

ESI and PF are applicable to factories that have more than ten employees. Please check the website of PF and ESI for more details.

Thank you.

Yes, it is mandatory for the company where (in the case of ESI) 10 or more workers (who are drawing Rs. 15,000/- or less) are working, and the management is getting production with the aid of power. In cases where no production is taken and/or trading activities and/or commercial activities are going on, these types of units are covered at 20 employees.

In the case of Provident Fund coverage on the establishment, the employee strength must be 20 or more.

I hope that the above will satisfy your query. If any other clarification is required, you are most welcome.

Dear All,

Mr. Mukesh pointed out correctly. I am trying to elaborate on it.

Recent Amendment in ESI

The recent amendment in ESI specifies that even without the aid of power for production units, 10 persons are enough for coverage.

PF Coverage Criteria

As far as PF is concerned, many wrongly assume that only the number of persons drawing less than 6500 are taken into account for the headcount for coverage. However, the coverage criteria are 20 persons, irrespective of their salary.

For example, in a company where 20 persons are working, and out of them, 6 persons are drawing more than 6500 as their basic wages, this unit is still coverable. However, the mandatory coverage will only be applicable to 14 persons.

For coverage forms, etc., you can download them from the respective websites.

Regards,
S. Sethupathy
Excellent HR Services, Erode

Yes, it is necessary to deduct PF & ESI. It is beneficial because this amount is non-taxable. For employees earning below ₹6,000, PF deduction is required, while for those earning above ₹6,000 (i.e., ₹6,001), there is a choice to deduct or not. The PF deduction percentage is 12%, and now it's up to the company how much employer contribution they want.