EPF (Employees' Provident Fund)

EPF (Employees' Provident Fund) is a mandatory retirement savings scheme governed by the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, administered by the Employees' Provident Fund Organisation (EPFO). Once a company crosses 20 employees, registration is mandatory and monthly contributions must be made for all eligible employees. It is one of the most commonly deferred compliance obligations in early-stage startups — and one of the costlier ones to regularise retroactively.

Who it applies to

• All companies and covered establishments with 20 or more employees
• Employees earning a basic salary up to ₹15,000/month must be enrolled; those above ₹15,000 may enrol or opt out if they are first-time EPF members
• Contract workers and third-party payroll employees engaged at the establishment count toward the 20-employee threshold

A startup that grows from 15 to 22 employees must register with the EPFO within 30 days of crossing 20. The obligation dates from the day of crossing the threshold — not from the registration date.

Contribution structure

Total employer cost above salary: approximately 13.15% of basic+DA.

EPS cap: The EPS contribution (8.33%) is capped at a pensionable salary of ₹15,000/month — maximum EPS contribution is ₹1,250/month regardless of actual salary. The EPF portion itself has no salary cap.

Compliance calendar

What most founders miss

The 20-employee count includes contract workers on premises. Startups that use staffing agencies often assume only direct payroll employees count. Contract workers engaged at the establishment — not at the agency's premises — count toward the threshold. A startup with 14 direct employees and 8 on-site contractors has crossed 20 and must register.

Non-registration after crossing the threshold triggers retrospective liability. EPFO can demand contributions for all employees from the date the threshold was crossed, with interest at 12% per annum on unpaid amounts plus damages of up to 25% of arrears. A six-month delay on a modest payroll can produce a significant retroactive liability.

ESOP exercise does not increase the EPF contribution base. EPF contributions are calculated on regular monthly salary (basic+DA). An ESOP exercise creates a one-time perquisite income on which TDS applies under Section 192, but this perquisite is not included in the EPF computation base — it does not increase the contribution that month.

Voluntary registration below 20 employees can be a hiring advantage. Candidates moving from larger companies expect EPF to continue. A startup that registers voluntarily before the mandatory threshold uses the benefit as a hiring signal when competing for experienced talent. The cost is manageable at low headcount, and it avoids the rushed retroactive registration that happens when crossing 20 employees mid-growth phase.

See also

• TDS (Tax Deducted at Source) — EPF contributions and TDS on salary are both monthly payroll obligations, typically managed together
• ESOP — ESOP exercise generates a taxable perquisite but does not affect the EPF contribution base
• GST Registration — alongside EPF and TDS, GST registration is one of the three core compliance registrations a growing startup must maintain