Is PF and ESI Mandatory for Small Companies with Only 20 Employees?

Hi, I have read many posts on citeHR, but one thing is still bothering me. I have only 20 employees in my organization.

Scenario One:
Basic = 5000, HRA = 2500, Other Allowances = 500, Total Net take-home is 8000 - 200 (professional tax) = 7800. So, is PF mandatory for this scenario? Is ESI mandatory for this scenario? (Please remember the employee strength is only 20.)

Scenario Two:
Basic = 6500, HRA = 3250, Other Allowances = 100, Total Net take-home is 9850 - 200 (professional tax) = 9650. So, is PF mandatory for this scenario? Is ESI mandatory for this scenario? (Please remember the employee strength is only 20.)

Scenario Three:
Basic = 6600, HRA = 3300, Other Allowances = 600, Total Net take-home is 10500 - 200 (professional tax) = 10300. So, is PF mandatory for this scenario? Is ESI mandatory for this scenario? (Please remember the employee strength is only 20.)

Thanks in advance.

Fundamental Aspects of PF & ESI Registrations

There is one fundamental aspect in PF & ESI registrations as below.

Registration Applicability - Employer:

- ESI eligibility will come only at a strength of twenty employees whose salary is less than 15,000 PM, irrespective of the total headcount of the company.
- PF is mandatory when the company reaches a headcount of 20 employees, irrespective of the employee's salary. Companies can opt for PF voluntarily even with less than 20 employee strength.

Option/Eligibility for Employees:

- ESI: It's compulsory for employees who earn less than 15,000 PM (applicable only if they are working with a company as specified above for ESI eligibility).
- PF: Compulsory for employees whose basic is less than 6,500 PM, but optional for employees whose basic is ≥ 6,500 PM, irrespective of their total monthly salary.

Here are the answers for your specific scenarios:

1. Scenario 1: Yes, both PF & ESI are compulsory.

2. Scenario 2: YES, both PF & ESI are compulsory. Employees are free to opt-out/opt-in for PF if their basic is more than 6,500. However, they should definitely take up the ESI.

3. Scenario 3: Same as scenario 2.

I would like to make a small correction in the PT specified in the scenarios:

1. Salary > 15,000 then PT deduction is Rs. 200.
2. Salary > 10,000 but < 15,000 then PT deduction is Rs. 150.
3. Salary < 10,000 - PT will not be applicable at all.

Hope the above explanation will give you the required insights for your query.

The answer to all your scenarios is yes for both PF and ESI. However, you can exclude employees from PF who are drawing a Basic plus DA component of more than Rs. 6500/- per month if they were not a member of PF before joining you and they provide you with written confirmation that they do not wish to contribute towards PF.

I would like to make a small correction in the A.P. PT specified in the scenarios:

1. Salary above ₹15,001 to ₹20,000, then PT deduction is ₹150 PM.
2. Salary below ₹15,000, the PT is NIL.
3. Salary above ₹20,001, then PT deduction is ₹200 PM.

Registration Applicability For ESI - Employer:

- 10 or more with the aid of power.
- 20 or more without the aid of power.

I hope this helps clarify the specified deductions and registration requirements. Let me know if you need any further information or assistance.

Thank you.

Aisha Sulthana,

A big thanks for clearing the very basics. So I can draw the below conclusions for my understanding.

ESI Eligibility:

Condition 1: Minimum and mandatory headcount = 20 (even if more than 20 also doesn't matter but must be at least 20)

Condition 2: Take-home salary < 15000

So, if Condition 1 & Condition 2 are met, then ESI is a MUST & MANDATORY!

I would like to split your lines on PF.

Aisha K: PF is mandatory when the company reaches a headcount of 20 employees, irrespective of the employee's salary. But companies can opt for PF voluntarily even with less than 20 employees.

Govardhan: PF is mandatory when the company reaches a headcount of 20 employees, >>>>> Till here it is clear that (Condition 1: Minimum and mandatory headcount = 20 (even if more than 20 also doesn't matter but must be at least 20)) >>>>> Yes, however, I agree that if the employer is interested, PF can be opted for even with less than 20 employees (But from my perspective, I don't want to take the headache of PF - at least until I reach a headcount of 20. So, I don't bother about this!!! But I'm glad that you pointed this out as well).

Govardhan: irrespective of the employee's salary >>>>> Are you referring to registration only here from an employer's perspective? Because later you are saying that if the basic is < 6500, then PF is mandatory. (but highlighted in red says that irrespective of the employee's salary)....

OK. Let me give you a scenario based on your lines:

Employee strength = 20

Employee by the name x, basic is 6499 (<6500) >>>>> So, the conclusion based on your lines is >>>>> PF is mandatory

Employee strength = 20

Employee by the name y, basic is 6500 (not < 6500) >>>>> So, the conclusion based on your lines is >>>>> PF is mandatory (case 1 for identification)

But again you mentioned that if the basic is > 6500 >>>>> So, it is optional for an employee to opt or not. (case 2 for identification)

So, Case 1 and Case 2 are conflicting!!!

Please clarify!

And one more thing, headcount = 20, all employees are getting basic more than 6500 (for example, all employees' basic is 6600) and somehow I convinced them to opt-out of PF for which all employees agree. So, in this scenario, is there no need from the employer's end to contribute to PF and EPS?

Regards,

Govardhan.

Updated PT Rules

Salary and wage earners: Such persons whose monthly salaries or wages:

(a) Exceed rupees 5,000 but do not exceed rupees 10,000 - ₹175 per month.

(b) Exceed rupees 10,000 - ₹2,500 per annum, to be paid in the following manner:

- ₹200 per month except for the month of February;
- ₹300 for the month of February.