Payroll
PF & ESI explained for employers (without the jargon)
What PF and ESI are, who they apply to, and how to stop dreading them each month.
Key takeaways
- ▸ PF is retirement saving; both employee and employer contribute.
- ▸ ESI gives medical/cash benefits to lower-wage employees, up to a wage limit.
- ▸ PT (Professional Tax) varies by state — on top of PF/ESI.
- ▸ Payroll software applies the rates and produces filings, so you just approve.
If you've just hired your first few employees, PF and ESI can feel like alphabet soup. Here's the plain version, and how to stop it eating a night every month.
Provident Fund (PF)
PF is a retirement saving: a slice of an employee's wages (commonly 12% of basic) goes into their PF account, and you, the employer, contribute too. It's managed by EPFO and generally becomes mandatory once you cross a threshold number of employees. The deposit and return have monthly deadlines.
ESI
ESI (Employees' State Insurance) provides medical and cash benefits to lower-wage employees. Both you and the employee contribute a small percentage of wages, up to a wage limit. Above that limit, ESI usually doesn't apply to that employee.
Don't forget PT and TDS
On top of PF and ESI, Professional Tax (PT) is a state levy that varies by state and salary slab. And TDS on salary applies once an employee's income crosses the taxable threshold. That's four different rules, four different logics — which is exactly why doing it by hand is error-prone.
Why it's stressful by hand
- Rates and wage limits must be applied correctly, every month.
- PT differs by state on top of PF/ESI/TDS.
- Deposits and returns have their own deadlines and penalties.
- One spreadsheet error multiplies across every payslip.
The calmer way
Payroll software calculates PF, ESI, PT and TDS for you from each employee's salary, generates payslips, and produces the statutory reports ready to file. In MGH Books you review and approve — you don't memorise rates. That's the difference between a late night and a few minutes.