Managing employee benefits isn’t just a policy requirement – it’s a core part of running a compliant, employee-first organization.
Yet for many HR professionals and business owners, understanding statutory schemes like EPF, ESI, and Gratuity can feel overwhelming. From evolving thresholds to eligibility rules and filing nuances, staying compliant is both essential and complex.
To help decode these critical frameworks, greytHR consulted CA Ruchika Bhagat, MD of Brooks Consulting Pvt. Ltd. This article summarizes what employers need to know – in clear, practical terms – with a focus on applicability and compliance-readiness.
Provident Fund (EPF)
What is EPF?
The Employees' Provident Fund (EPF) is a retirement savings scheme mandated by the Indian government for salaried employees. It's administered by the Employees' Provident Fund Organisation (EPFO).
Who is eligible for EPF?
Organizations with 20 or more employees must register for EPF. Employees earning a basic salary plus dearness allowance (DA) up to ₹15,000 per month are also covered. If an organization has less than 20 employees, they can opt for voluntary registration.
What are the benefits of EPF?
EPF is a retirement savings scheme that provides financial security to employees post-retirement. The employer and employee contribute 12% of the employee’s basic salary and DA towards EPF. This amount is further divided into various sub-schemes like the Employee Pension Scheme (EPS) and the Employee Deposit Linked Insurance Scheme (EDLI), providing additional benefits like pension and insurance.
What happens to the EPF balance when an employee leaves?
If an employee joins a new organization registered under EPF, the individual can transfer the existing EPF balance to a new account. If the new organization is not registered under EPF, the employee can withdraw the EPF balance. Partial withdrawals are also permitted for specific purposes like education, marriage, or property purchase.
Employees’ State Insurance (ESI)
What is ESI?
The Employees' State Insurance (ESI) is a self-financed social security and health insurance scheme for Indian employees. It's managed by the Employees' State Insurance Corporation (ESIC) according to the Employees' State Insurance Act, 1948. It provides medical, maternity, and disability benefits to employees earning wages up to a certain threshold.
Who is eligible for ESI?
Organizations with 10 or more employees (20 in some states) must register for ESI. Employees earning up to ₹21,000 per month are covered under this scheme.
How does ESI compare to EPF in terms of employee benefits?
Unlike EPF, a retirement savings scheme, ESI is a healthcare insurance scheme. It provides medical coverage to employees and their families in case of sickness, maternity, or temporary or permanent disability.
Will ESIC coverage and contributions stop if an employee’s salary exceeds ₹21,000 during the year?
Even if an employee’s salary exceeds ₹21,000 during the year, their ESIC coverage and contributions will continue until the end of the contribution period (September 30 or March 31).
Can ESI contributions be withdrawn?
ESI contributions cannot be withdrawn like EPF contributions. Instead, employees can avail themselves of medical benefits and reimbursements for medical expenses as per the scheme’s provisions.
Gratuity
What is Gratuity?
Gratuity is a lump-sum payment that an employer makes to an employee as a token of appreciation for their services rendered to the company over a significant period. It's a retirement benefit mandated by law in many countries, including India, under the Payment of Gratuity Act, 1972
When is an organization liable to pay gratuity to an employee?
Organizations with 10 or more employees are liable to pay gratuity to employees who have rendered continuous service for at least five years. Gratuity is payable upon retirement, resignation, death, or disability.
What is the maximum gratuity payable to an employee?
The maximum gratuity payable is currently capped at ₹20 lakhs. The actual amount is calculated based on the employee’s last drawn salary and years of service.
Is the gratuity received by an employee taxable?
Gratuity received by government employees is fully exempt from tax. For non-government employees, a portion of the gratuity calculated based on a prescribed formula is exempt, while the remaining amount is taxable.
Were there any recent amendments made to the Payment of Gratuity Act?
Yes, recent amendments include changes to the definition of wages for gratuity calculation and the eligibility criteria for fixed-term employees.
Compliance for SMEs
What cost-effective compliance strategies can small and medium enterprises implement?
SMEs can leverage technology and automation tools to streamline compliance processes and reduce costs. They can also opt for gratuity plans offered by insurance companies to manage gratuity payments effectively. Engaging labor law consultants and maintaining clear communication with employees can further minimize compliance risks.
Use of Technology
How can technology simplify EPF, ESI, and gratuity compliance for employers?
Technology can automate various compliance tasks, such as generating pay slips, filing returns, and managing employee records. This not only saves time and reduces manual errors but also improves transparency and data security. HR software and platforms like greytHR offer integrated solutions to manage EPF, ESI, and gratuity compliance efficiently.
Concluding Note
By understanding the key aspects of EPF, ESI, and gratuity, both employers and employees can ensure better compliance and effectively avail themselves of the benefits. Embracing technology and staying updated with the latest regulations can further simplify the compliance process and contribute to a smoother employee experience.
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