Short answer: no, PF isn’t mandatory for every employee — but it is mandatory for a large number of employees.
If your company has 20 or more employees, it generally comes under the EPF rules. For employees whose basic salary plus dearness allowance is ₹15,000 a month or less, PF coverage is generally mandatory. For employees earning above ₹15,000, PF can be voluntary in certain cases, depending on whether they are new to EPF or already covered.
If your company has fewer than 20 employees, EPF registration is generally not mandatory under the usual coverage threshold, although an employer can opt for voluntary coverage.
That’s the basic rule. The confusing part is everything around it. What happens when an employee joins with a salary above ₹15,000? What if their salary increases after they start contributing? Who counts as an employee for the 20-person threshold? And how much does the employer actually have to contribute?
There are also a few exceptions and situations where the usual ₹15,000 rule doesn’t tell the whole story.
This guide breaks it all down in simple terms who needs to be covered, who doesn’t, how much the employee and employer contribute, and what has changed in 2026.
The Two Thresholds That Determine Everything
Threshold 1 Company size: 20 employees
PF registration is mandatory once a company crosses 20 employees on any day during the year. Not on a fixed census date on any day. If you have 19 employees in January and hire one more in March, you’re covered from March. Registration has to happen within one month of crossing the threshold.
One thing that catches people off guard: once you cross 20 and register, you cannot deregister even if the headcount drops below 20 again. The obligation stays.
Who counts towards the 20? Everyone, permanent employees, temporary staff, contract workers deployed at your premises, part-timers. The headcount is not limited to full-time salaried employees on the company’s direct rolls.
Threshold 2 Salary: ₹15,000/month
Within a registered company, PF enrollment is mandatory for employees earning ₹15,000 or less per month in basic salary plus dearness allowance. This is the wage ceiling under the EPF Scheme, 2026 (which replaced the 1952 scheme effective 29 June 2026 same rule, updated framework).
Above ₹15,000? The employee is classified as an ‘excluded employee’ and PF is not mandatory for them they can opt in voluntarily, jointly with the employer, but neither side is obligated. If they’re already enrolled from a previous job via their UAN, they continue as an existing member, but a fresh joiner above the ceiling doesn’t have to be enrolled.
Important: the ₹15,000 ceiling applies to basic salary + DA only not gross salary, not CTC. An employee earning ₹40,000 gross but only ₹12,000 in basic+DA is still mandatory PF-eligible.
What Each Side Actually Pays
The contribution rate is 12% from the employee and 12% from the employer but the employer’s 12% doesn’t go to one place:
| Contribution | Rate | Monthly Amount (₹15K basic) | Where It Goes |
|---|---|---|---|
| Employee contribution | 12% of basic + DA | ₹1,800 | EPF account (full amount) |
| Employer EPS (pension) | 8.33% of basic, capped at ₹1,250/mo | ₹1,250 | Employee Pension Scheme |
| Employer EPF | 3.67% of basic (balance after EPS) | ₹550 | EPF account |
| Employer Admin charge | 0.50% of basic | ₹75 | EPFO administration |
| Employer EDLI | 0.50% of basic | ₹75 | Life insurance cover |
| Total employer cost | ~13.5% of basic | ₹1,950 | Combined statutory obligation |
One thing many payroll sheets get wrong: the admin charge (0.50%) and EDLI (0.50%) are separate from the employer’s 12% contribution they’re additional. So the true employer cost is around 13.5% of basic, not 12%.
The EPS (pension) contribution is capped at ₹1,250/month regardless of actual basic salary. Even if basic is ₹50,000, EPS gets ₹1,250. The remaining employer 12% after EPS goes into the EPF account.
The 2026 Update What Changed
The EPF Scheme, 2026 published in the Gazette of India (G.S.R. 525(E)) on 29 June 2026 replaced the old 1952 scheme. The core rules are the same, but two things are now more clearly stated:
- Contributions above ₹15,000 are explicitly voluntary. Previously, once an employee above the ceiling was enrolled (often by default), many employers continued contributing on the full salary. Now, both employer and employee can formally opt to limit contributions to the ₹15,000 ceiling even if the employee earns more. This has to be a joint written opt-in one party can’t decide alone.
- Digital-first compliance. Monthly ECR (Electronic Challan cum Return) filing, UAN-linked Aadhaar verification, and e-Passbook access are now the baseline not optional. Paper-based processes are being phased out.
The interest rate on EPF balances for FY 2025-26 is 8.25% unchanged for the third consecutive year, recommended by the EPFO Central Board of Trustees in March 2026.
Who Is Exempt Categories That Don’t Qualify
Not everyone in a registered company has to be enrolled. The categories of exempt employees:
- Earning above ₹15,000/month in basic+DA excluded by default unless they choose to opt in with employer agreement
- Apprentices under the Apprentices Act, 1961 not employees under EPF law, don’t count in the 20-employee headcount either
- International workers from SSA countries if India has a Social Security Agreement with their home country and they’re on a detachment certificate, they may be exempt from Indian EPF contributions
- Employees of exempted establishments some large companies run their own PF trusts approved by EPFO instead of contributing to the central fund. Their employees are covered by the trust, not EPFO directly
What doesn’t exempt an employee: being on a short-term contract, being in probation, or working part-time. If the person is drawing wages from the company and earning ≤ ₹15,000 in basic+DA, they’re PF-eligible regardless of their employment type.
Voluntary PF When Either Side Can Choose
Three voluntary scenarios:
- Company below 20 employees. Not required to register but can choose to. Once voluntarily registered, all the same rules apply as for mandatory registrations. Can’t exit later.
- Employee above ₹15,000 ceiling. Can opt in through a joint declaration with the employer (Form 11). Once enrolled, contributions can only be stopped on exit from the company not mid-employment.
- Employee already enrolled from previous employer. If an employee has an active UAN from a previous job (even if they now earn above ₹15,000), they continue as a member. Existing members don’t become excluded employees just because their salary crosses the ceiling.
Penalties for Non-Compliance
Missing PF contributions isn’t a minor slip. Under the Code on Social Security:
- Interest on late deposits: 12% per annum from the due date (15th of the following month)
- Damages for default: between 5% and 25% of the arrear amount depending on how long the default runs
- Criminal prosecution: imprisonment up to 3 years (1 year minimum if contributions were deducted from employee salary but not deposited)
- Blacklisting from government contracts: non-compliant employers can be barred from public procurement
The employee-deduction-not-deposited scenario is treated most seriously the money was taken from the employee’s salary and not sent to EPFO. Courts treat this as criminal misappropriation, not just a compliance gap.
Common Mistakes Employers Make
Counting only permanent employees towards the 20-person threshold. Temporary, contractual, and part-time staff all count. A company with 14 permanent and 8 contract workers has 22 employees for PF purposes. That company is required to register.
Calculating PF on gross salary instead of basic+DA. If someone earns ₹35,000 gross with ₹12,000 basic, PF is calculated on ₹12,000 not ₹35,000. Many older payroll sheets get this wrong, especially when HRA and special allowances are lumped together.
Not enrolling a new hire because ‘they’re on probation.’ Probation has no PF exemption. If the employee meets the salary and company-size criteria, they’re eligible from day one.
Missing the 20-employee trigger. The 30-day registration window after crossing 20 employees is tight. Companies that delay often only realise they needed to register when a labour inspection happens by which time months of back contributions are owed, plus interest and damages.
For employers managing PF alongside the rest of payroll: Waggex’s payroll module calculates PF automatically per employee based on their basic+DA structure, generates the monthly ECR file for EPFO, and alerts before the 15th deposit deadline through Reminder Management. For the complete statutory compliance picture: Payroll Compliance in India: Complete Guide.