Understanding PF, Gratuity, and ESI Calculations in India: What Employees and Employers Need to Know

How are PF, Gratuity, and ESI calculated in India?

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In India, Provident Fund (PF), Gratuity, and Employee State Insurance (ESI) are important components of employee benefits and social security.

Provident Fund (PF):
- The PF contribution is calculated as a percentage of an employee's basic salary and dearness allowance. The current rate is typically 12% of the basic salary.
- Both the employer and the employee contribute to the PF account, with the employer's contribution being tax-deductible.

Gratuity:
- Gratuity is a lump sum amount paid by an employer to an employee as a token of appreciation for the services rendered. It is governed by the Payment of Gratuity Act.
- The gratuity amount is calculated based on the employee's last drawn salary and the number of years of service completed with the organization.

Employee State Insurance (ESI):
- ESI is a self-financing social security and health insurance scheme for Indian workers. It provides medical and cash benefits to employees and their families.
- The ESI contribution is calculated as a percentage of the employee's gross salary, with the employer and employee both contributing to the scheme.

Understanding the calculations of PF, Gratuity, and ESI is essential for both employers and employees to ensure compliance with the relevant laws and regulations governing these benefits.

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PF Calculation:

- There are two contributions in PF: Employer Contribution & Employee Contribution.
- Employee Contribution is 12% & Employer contribution is 13.61%.
- The total contribution is 25.61% & the account-wise distribution is as follows:
- Account No. 1: Employee 12% & Employer 3.67%.
- Account No. 2: Employer 1.10%.
- Account No. 10: Employer 8.33%.
- Account No. 21: Employer 0.5%
- Account No. 22: Employer 0.01%.

ESIC Calculation:

- Employer 4.75% & Employee 1.75%.

Gratuity Calculation:

Gratuity Eligibility:

1. Any person employed on wages/salary.
2. At the time of retirement or resignation or on superannuation, an employee should have rendered continuous service of not less than five years.
3. Payable without completion of five years only in cases of death and disablement.

Formula Used:

Gratuity Calculation In India = [(Basic Pay + D.A) x 15 days x No. of years of service] / 26

Where,

D.A = Dearness Allowance.

With Regards,

Vineet Deshmukh

I want to know further: what are the eligibility criteria for 1. PF, 2. ESI?

Regards,
Smita.

According to the Employees' Provident Fund & Miscellaneous Act 192, for eligibility for Provident Fund, the following conditions are required:

1) Any establishment employing 20 or more persons.

2) Power to apply the Act to an establishment that has a common provident fund with another establishment. Where immediately before this Act becomes applicable to an establishment, there is in existence a provident fund that is common to the employees employed in that establishment and employees in any other establishment, the Central Government may, by notification in the Official Gazette, direct that the provisions of this Act shall also apply to such other establishment.

3) Power to add to Schedule I:
- (1) The Central Government may, by notification in the Official Gazette, add to Schedule I any other industry in respect of the employees whereof it is of the opinion that a provident fund scheme should be framed under this Act, and thereupon the industry so added shall be deemed to be an industry specified in Schedule I for the purposes of this Act.
- (2) All notifications under sub-section (1) shall be laid before Parliament, as soon as may be, after they are issued.

According to the Employees State Insurance Act 1948, the eligibility criteria are as follows:
- An establishment employing 10 or more persons (Establishment uses power for its production).
- An establishment employing 20 or more persons (Establishment doesn't use power for its production).

With Regards,
Vineet Deshmukh