Payroll accuracy isn’t just financing cleanliness; it’s statutory compliance, employee trust, and audit readiness. HR professionals in India must confidently compute core components like Provident Fund (PF), Employee State Insurance (ESI), Gratuity, and Bonus, and understand employer-side breakups such as EPF admin charges and EDLI. This knowledge guide distils the exact formulas, current rates, and coverage rules so you can run payroll that is clean, compliant, and consistent across audits, inspections, and employee queries.
Provident fund (PF): complete breakdown including admin charges and EDLI
Core formula and wage base
- Employee PF contribution (12%): (Basic Salary + Dearness Allowance) × 12%
- Employer PF contribution (12%) total is split between EPF and Pension (EPS):
- EPS: 8.33% (subject to statutory rules)
- EPF: Balance of employer’s share after allocating 8.33% to EPS
- Certain establishments may contribute at 10% instead of 12% under notified conditions.
EDLI contribution and admin charges
- EDLI contribution (employer): 0.50% of applicable PF wages (subject to the notified wage ceiling)
- EPF admin charges (employer): 0.50% (minimum ₹500 per month)
- EDLI admin charges: 0% (discontinued w.e.f. 01-04-2017)
- Contribution rounding to the nearest rupee applies to employee share, pension contribution, and EDLI contribution.
Tip: In practice, many employers cap PF wages at the statutory ceiling for EDLI and EPS while allowing higher EPF contributions contractually. Document your policy in the HR manual with employee consent.
Employee state insurance (ESI)
- Employee contribution: 0.75% of gross wages.
- Employer contribution: 3.25% of gross wages.
- Coverage threshold: Employees with monthly wages up to ₹21,000
- ESI applies to eligible establishments and notified areas; verify regional coverage before enrolment.
Gratuity
- Formula:
Gratuity = (Last Drawn Basic + DA) × 15 × (Years of Service) ÷ 26 - Eligibility: Completion of 5 years of continuous service (except for death/disablement cases).
- The divisor 26 represents working days in a month for calculation consistency.
Bonus
- Formula: Bonus = (Basic + DA) × Bonus % for eligible employees.
- Statutory range: 8.33% to 20% of annual wages, subject to set-off and set-on provisions.
- Eligibility: Employees earning up to ₹21,000/month who have worked at least 30 days in the accounting year.
PF employer breakup quick reference
| Component | Employer rate | Notes |
| EPS (Pension) | 8.33% | Part of employer PF share |
| EPF (Provident Fund) | Balance of 12% | After allocating 8.33% to EPS |
| EDLI | 0.50% | On applicable PF wages |
| EPF admin charges | 0.50% | Minimum ₹500/month |
| EDLI admin charges | 0% | Discontinued w.e.f. 01-04-2017 |
Sources: Present rates of contribution and admin accounts published by EPFO and reproduced in official circulars.
Practical compliance notes for HR
- Document wage bases: State clearly whether PF is on full Basic + DA or restricted to statutory ceilings for EDLI/EPS.
- Apply rounding: Round employee share, pension, and EDLI contributions to the nearest rupee; track minimum admin charge obligations.
- Audit trail: Keep monthly challans, ECR files, and policy memos aligned to these rates for smooth inspections.
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Disclaimer – This blog post is a general guide. It should not be considered legal advice. Consult a legal professional for more details.