Which law applies now
The Employees' Provident Funds and Miscellaneous Provisions Act 1952 and the Employees' State Insurance Act 1948 were subsumed into the Code on Social Security 2020, which came into force on 21 November 2025 with the other three labour codes. Provident fund sits in Chapter III of the Code and ESI in Chapter IV. Three changes since then matter for anyone who uses contractors:
- New EPF schemes. The Employees' Provident Funds Scheme 2026 (G.S.R. 525(E)), the Employees' Pension Scheme 2026 and the EDLI Scheme 2026 were notified on 29 June 2026 and replaced the 1952, 1995 and 1976 schemes. They carry the principal employer and contractor duties described below.
- PF wage ceiling of ₹25,000. S.O. 5109(E) dated 17 September 2026 notified ₹25,000 a month as the wage ceiling for Chapter III, with effect from that date. It replaced the ₹15,000 ceiling. Contract workers earning between ₹15,000 and ₹25,000 are now within mandatory PF.
- One definition of wages. Wages are basic pay, dearness allowance and retaining allowance. If the excluded items (HRA, conveyance, overtime, commission and the like) exceed 50% of total pay, the excess is added back. Contractors who pay a low basic to keep PF down now have to recompute.
Coverage thresholds in the First Schedule of the Code: PF applies to an establishment with 20 or more employees; ESI to an establishment with 10 or more persons (other than a seasonal factory), and to notified hazardous occupations even with one employee.
Principal employer or contractor: who pays
A contract worker is the contractor's employee. The contractor deducts the employee's share, adds its own share and pays both. The principal employer, the business for whose work the contractor supplies people, is the backstop.
Provident fund
- Contractor registered with EPFO in its own name: it files the monthly electronic return (ECR) and pays under its own establishment code.
- Contractor not registered independently: under the EPF Scheme 2026 the principal employer is responsible for paying contributions for those contract employees, and recovers the cost from the contractor.
- Reporting: the principal employer declares all its contractors in Form X. Each contractor tells the principal, electronically in Form XI within 10 days of the close of each month, the name, UAN, wages and contributions of every contract employee. The principal files a monthly abstract in Form XII within 20 days of the close of the month. Where the EPFO portal is used for this information, the forms are treated as furnished.
Even where the contractor has its own code, a principal whose contractor defaults is exposed to a demand. That is why the principal checks the contractor's challans before releasing the bill.
ESIC
The ESI rule carried into the Code is the same as before: the principal employer is liable to pay contributions for employees engaged through an immediate employer (the contractor), and can recover them from the immediate employer, usually by deduction from its bills. Contractors normally hold their own ESIC code and pay directly; the principal keeps the evidence.
Contribution rates and ceilings
| Item | Employee | Employer | Wage limit |
|---|---|---|---|
| EPF (provident fund) | 12% of wages | 12% of wages, of which 8.33% goes to EPS and the rest (3.67% at full rate) to EPF | Mandatory up to ₹25,000 a month from 17 September 2026 |
| EPS (pension) | Nil | 8.33% of wages up to the ceiling: at most ₹2,083 a month | ₹25,000 |
| EDLI (insurance) | Nil | 0.5% of wages up to the ceiling (EDLI Scheme 2026, para 5(1)) | ₹25,000 |
| EPF administrative charges | Nil | 0.5% of wages (EPFO wage-ceiling FAQ, September 2026) | On mandatory and voluntary contributions |
| ESIC | 0.75% of wages (nil for average daily wage up to ₹176) | 3.25% of wages | Coverage up to ₹21,000 a month (₹25,000 for persons with disability) |
The Code itself sets the PF contribution at 10% of wages unless the Central Government notifies another rate; the EPF Scheme 2026 keeps 12%, with 10% for notified classes of establishments. EDLI and administrative charge rates are set by notification; the figures above are the rates applied under the earlier schemes, so confirm the current notification on the EPFO site. PF returns and payment are due within 15 days of the close of the month; ESIC contributions within 15 days of the last day of the month.
Worked example
Round illustrative numbers. ABC Infra Private Limited engages XYZ Manpower Services, which deploys 40 workers at its site. Each worker's wages under the Code (basic plus DA) are ₹20,000 a month, which is within both the PF ceiling of ₹25,000 and the ESIC ceiling of ₹21,000.
| Head | Per worker (₹) | 40 workers (₹) |
|---|---|---|
| Employee PF, 12% | 2,400 | 96,000 |
| Employer EPS, 8.33% | 1,666 | 66,640 |
| Employer EPF, balance of 12% | 734 | 29,360 |
| EDLI, 0.5% | 100 | 4,000 |
| Administrative charges, 0.5% | 100 | 4,000 |
| Employee ESIC, 0.75% | 150 | 6,000 |
| Employer ESIC, 3.25% | 650 | 26,000 |
| Total remitted for the month | 5,800 | 2,32,000 |
Of the ₹2,32,000, ₹1,02,000 is deducted from the workers' pay and ₹1,30,000 is the contractor's own cost. If XYZ Manpower does not pay, this is the amount ABC Infra may be asked for, plus interest and damages. A worker at ₹24,000 would attract PF on ₹24,000 but no ESIC, because ₹24,000 is above the ESIC ceiling. The PF and ESIC contribution calculator works this out for any wage.
Checking the contractor's challans and ECR
Before releasing a running bill, the principal's payroll or accounts team usually checks:
- Codes on file. The contractor's EPFO establishment code and ESIC code, recorded in the vendor master. If the contractor has no code, its workers must be reported under the principal's code.
- Headcount match. The number of members in the ECR and the ESIC monthly contribution list against the attendance register or gate records for the same month.
- UAN and IP numbers. Every worker at site appears with a UAN and an ESIC insurance number; new joiners are added in the month they join.
- Wages used. The wage in the ECR is not below the minimum wage and follows the Code's 50% rule; a uniform ₹15,000 for everyone after September 2026 is a warning sign.
- Payment proof. The paid challan (TRRN for PF) and the ESIC challan, with the payment date within the 15-day due date.
- Form XI. Received within 10 days of month end; the principal's Form XII filed within 20 days.
Where a contractor is short, most contracts let the principal withhold the shortfall from the bill and pay it directly. Write that clause into the work order; the RA bill deductions calculator shows how statutory recoveries sit with TDS, retention and advances.
Monthly checklist for the principal employer
- Contractor list in Form X kept current; new contractors added before they start work.
- By the 10th: Form XI received from every contractor.
- By the 15th: own ECR and ESIC paid; contractors' challans collected.
- By the 20th: Form XII abstract filed.
- Before paying each contractor bill: headcount, UAN, wages and challan checks done, shortfalls withheld.
- Quarterly: sample a few workers' UAN passbooks to confirm credits actually reached them.
K-HR keeps each employee's UAN, PF membership, ESIC IP number and dispensary, with the PF ECR and ESIC due dates on its compliance calendar; K-Finance payroll works out PF and ESI. Contract worker records for a contractor's own staff are the contractor's to keep, so ask for the data rather than re-keying it. For the licence and registration side of contract labour, see contract labour registration and licence.
This guide states what the Code and the schemes say. Confirm coverage questions, damages and any EPFO or ESIC notice with your adviser and the official portals.
Common questions
Is the principal employer liable for PF of contractor's workers?
Yes, as a backstop. Under the EPF Scheme 2026 the principal employer pays contributions for contract employees where the contractor is not registered independently, and it remains exposed if a registered contractor defaults. It can recover what it pays from the contractor, usually by deduction from the contractor's bills.
What is the PF wage ceiling from September 2026?
₹25,000 a month. The Ministry of Labour and Employment notified it under clause (89) of section 2 of the Code on Social Security by S.O. 5109(E) dated 17 September 2026, effective from that date. It replaced the ₹15,000 ceiling.
Has the ESIC wage ceiling changed?
No change had been notified as on the date of this guide. ESIC covers employees earning up to ₹21,000 a month (₹25,000 for persons with disability), with contributions of 0.75% by the employee and 3.25% by the employer.
What should a principal employer collect from a contractor each month?
The contractor's Form XI details (name, UAN, wages and contributions of each contract employee) within 10 days of month end, the ECR and the paid challan for PF, the ESIC contribution challan, and a worker list that matches the attendance at site. The principal files its own Form XII abstract within 20 days.
Does a worker earning ₹24,000 a month need ESIC?
No, ESIC coverage stops at ₹21,000 a month of wages. The same worker is now within the mandatory PF ceiling of ₹25,000, so PF applies but ESIC does not; check the wage figure under the Code's definition, which adds back excluded allowances above 50% of pay.
Sources
- Ministry of Labour and Employment, S.O. 5109(E) dated 17 September 2026: ₹25,000 wage ceiling for Chapter III of the Code on Social Security (Gazette of India)
- Ministry of Labour and Employment, Compliance Handbook for Employers under the Four Labour Codes (applicability, s.16 contribution, ESI)
- Code on Social Security, 2020 (Ministry of Labour and Employment)
- EPFO: Employees' Provident Fund Organisation (EPF Scheme 2026, G.S.R. 525(E) dated 29 June 2026; ECR and challans)
- ESIC: contribution rates and due date
- ESIC: coverage and wage ceiling
- EPFO: FAQs on the revised wage ceiling (EPF, EPS and EDLI at ₹25,000; EDLI and administrative charges 0.5%)
- Employees' Deposit Linked Insurance Scheme 2026, G.S.R. 526(E), para 5(1) (Gazette of India)