Payroll and PF Compliance in India: Complete 2026 Guide

Payroll and PF compliance in India requires employers to correctly compute salaries, deduct and deposit Provident Fund (EPF), Employee State Insurance (ESI) where applicable, and Professional Tax (PT), then file the corresponding monthly and periodic returns — all within fixed deadlines that don’t shift with your internal payroll cycle. EPF contributions are due by the 15th of the following month, and even a short delay attracts damages and interest that compound over time. Getting payroll compliance right from the first hire is significantly easier than untangling accumulated gaps later once headcount and history both grow.

EPF Compliance Essentials

The Employees’ Provident Fund applies to establishments with 20 or more employees (and can apply voluntarily below that), covering employees earning up to the statutory wage ceiling as mandatory, with higher earners covered on a voluntary basis in many cases. Both employer and employee contribute a percentage of eligible wages (basic + dearness allowance) each month, deposited by the 15th of the following month along with the Electronic Challan cum Return (ECR) filing on the EPFO portal.

ESI Compliance Essentials

Employee State Insurance applies to establishments employing 10 or more persons (in some states, 20) where covered employees earn wages up to the ESI wage ceiling. It provides medical, sickness, maternity, and disability benefits funded through a small employee contribution and a larger employer contribution of gross wages, both deposited monthly by the 15th, alongside half-yearly return filing on the ESIC portal.

Professional Tax (PT)

Professional tax is a state-level levy on salaried employees and professionals, with slabs, deduction schedules, and filing frequency varying by state — some states deduct monthly on a slab basis, others charge a flat annual amount. Employers must register for PT in every state where they have employees, since a single national registration doesn’t exist for this tax, unlike EPF and ESI which are centrally administered.

Monthly Payroll Compliance Calendar

Compliance	Typical Due Date
EPF contribution deposit + ECR filing	15th of the following month
ESI contribution deposit	15th of the following month
Professional Tax deposit	Varies by state (often monthly, by a fixed date)
TDS on salary deposit	7th of the following month
ESI half-yearly return	Twice a year, per ESIC notified dates

Common Mistakes to Avoid

• Missing the 15th deadline for EPF/ESI, which attracts both damages and interest that compound the longer the delay continues
• Incorrectly classifying employees as contractors to avoid PF/ESI obligations — a practice that carries significant retrospective liability risk if challenged
• Not registering for Professional Tax in every state where employees are based
• Miscalculating the wage components (basic + DA) used for EPF contribution, understating the contribution base
• Delaying ESI half-yearly returns, which can affect employees’ ability to access ESI benefits

Gratuity and Bonus: Related Payroll Obligations

Beyond EPF, ESI, and PT, employers with 10 or more employees must also account for gratuity liability under the Payment of Gratuity Act, payable to employees who complete five or more years of continuous service, typically funded through an actuarially-valued gratuity trust or provision in the books. Establishments covered under the Payment of Bonus Act must pay a statutory minimum bonus to eligible employees annually, calculated on salary and company profitability, with payment due within eight months of the financial year’s close. Both obligations are easy to overlook in early-stage payroll setups but create real financial and compliance exposure as headcount and tenure grow.

Startups scaling headcount quickly should start provisioning for gratuity liability in their books well before the first employee actually crosses five years of service, since an unfunded gratuity obligation that surfaces suddenly can materially distort financials in the year it is first recognised, drawing unwelcome investor or auditor attention during precisely the periods when clean numbers matter most.

How ComplianceKaro Helps

Our payroll processing service manages salary computation, EPF/ESI/PT deductions and deposits, and all statutory return filings, integrated with our accounting and bookkeeping service. Book a free consultation to set up compliant payroll for your team.

FAQ

Is EPF registration mandatory for all businesses in India?

EPF registration is mandatory once an establishment has 20 or more employees, and voluntary registration is available for smaller establishments that choose to opt in.

What is the penalty for late EPF deposit?

Late EPF deposits attract damages calculated as a percentage per month of delay (which increases with the length of delay) plus interest, both computed separately on the delayed contribution amount.

Do all states have the same Professional Tax rates?

No, Professional Tax slabs, deduction frequency, and even applicability differ by state, and employers must register and comply separately in each state where they have employees.

Keep payroll compliant every month. Book a free consultation and let ComplianceKaro manage your payroll and PF/ESI/PT compliance.