New Labour Codes, PF and ESI for Small Employers 2026: EPF Ceiling Rs 25,000

Employment Law | RegisCorp Team

Checked on 23 October 2026. If you employ even a handful of people, two things changed this year that touch your payroll. The first is the set of four labour codes that came into force on 21 November 2025, which redefined "wages" and, with it, what you pay into provident fund, gratuity and other statutory benefits. The second is more recent: the monthly wage ceiling for mandatory provident fund coverage was reported raised from Rs 15,000 to Rs 25,000 with effect from 17 September 2026, and that brings more of your staff into PF. This post explains both in plain language, shows what they do to a payroll with worked examples, lists the dates that are close (the next PF return is due on 15 November and the old ESI rules end on 20 November), and is honest about what we could not confirm. Several of the details come from commercial summaries that disagree with each other. State governments are also still finishing their rules.

RegisCorp Consultancy LLP is a digital-first legal and compliance firm in Kota, Rajasthan, working with businesses across India. We write these guides so you can check the rules before you pay anyone, including us.

Key takeaways

• The four labour codes took effect on 21 November 2025. They replaced 29 central labour laws. The Industrial Relations Code and the Occupational Safety, Health and Working Conditions Code are fully implemented, and the Code on Wages and the Code on Social Security are substantially implemented, according to a June 2026 review by Trilegal.
• "Wages" now has one definition, with a 50% rule. Allowances like HRA and conveyance are excluded from wages, but if the excluded items add up to more than 50% of total pay, the excess is added back. Basic pay need not be exactly 50%.
• The wage definition feeds into PF, gratuity and other benefits. A bigger wage base means bigger contributions and bigger payouts. One 2026 guide shows gratuity accrual rising by about 170% in an example, though it labels its reading of special allowances as an interpretation.
• The EPF wage ceiling is reported at Rs 25,000 from 17 September 2026. KPMG's alert of 28 September 2026 cites gazette notification S.O. 5109(E). An earlier report of 10 June 2026 had said the ceiling was retained at Rs 15,000 under a 29 May notification. The later notification supersedes it, according to one source.
• More employees come into PF. Staff with PF wages from Rs 15,001 to Rs 25,000 must now be enrolled, and the employer does it. The contribution rates (12% each side) did not change.
• PF registration is generally required at 20 or more employees. Smaller employers can register voluntarily, according to HRTailor.
• The next PF return is due on 15 November 2026 for October. For September, the return was due 15 October. One source cites an EPFO circular of 13 October extending the September deadline to 31 October. We could not confirm it.
• ESI keeps its Rs 21,000 ceiling for now. The ESI Act, 1948 was repealed on 21 November 2025, but its rules were saved for one year, until 20 November 2026. Replacement rules were reported as unnotified.
• Gratuity for fixed-term employees. Several sources say eligibility starts after one year of service. The Trilegal review did not state a one-year period, so treat this as likely but unconfirmed in the statute text.
• State rules are still pending. Employers are expected to follow existing state formats and rules where they do not conflict with the codes.

The key numbers and dates in one place

Every figure comes from commercial or law-firm summaries. We did not read the Gazette, the codes or the central rules.

The four codes in plain language

India had around 29 central labour laws. Four codes now sit in their place:

1. The Code on Wages, 2019. Minimum wages, payment of wages on time, bonus, equal remuneration, and the definition of wages.
2. The Industrial Relations Code, 2020. Trade unions, standing orders, layoffs and retrenchment, strikes, dispute resolution.
3. The Code on Social Security, 2020. Provident fund, pension, ESI, gratuity, maternity benefit, and social security for gig and platform workers.
4. The Occupational Safety, Health and Working Conditions Code, 2020. Working hours, leave, factories, contract labour, health and safety.

The Trilegal review says the Industrial Relations and Safety codes are implemented in full, the Wage and Social Security codes are substantially implemented with some procedures still pending, and central rules have been notified. State governments had not yet notified the corresponding rules at the time of the review. That is the practical uncertainty: the central law is in force, but the forms, registers and inspections that depend on state rules vary.

Until state rules are published, the Trilegal review says employers are generally expected to continue under the existing state formats and rules where they do not conflict with the codes.

What to do if your state has not issued rules

• Keep following your state's current registers, notices and forms.
• Apply the central definitions of wages, gratuity eligibility and social security coverage from the codes.
• Keep a dated note of what you decided and why. If an inspector asks, you can show you followed the law as you understood it.
• Ask a labour-law adviser in your state for the current position. This is a fast-moving area.

The wage definition and the 50% rule

This is the change that moves the most money.

Under the Code on Wages, "wages" means basic pay, dearness allowance and retaining allowance, plus other components, but it excludes a list of items. The sources we read name HRA, conveyance, the employer's PF contribution, bonus and overtime among the excluded items. One guide says there are eleven.

The rule that matters is the 50% test. If the total of the excluded items is more than 50% of total remuneration, the excess is added back to wages. The Trilegal review adds two clarifications: wages are not capped at 50%, and basic pay does not have to be exactly 50%. If the included components are already above 50%, wages can be higher. Remuneration in kind counts toward wages only up to 15% of total wages.

The purpose is to stop employers from cutting the PF and gratuity base by moving pay into allowances.

A worked example: the 50% rule

Priya's monthly remuneration is Rs 40,000, split as follows.

The excluded items are Rs 28,000, which is 70% of total pay. The permitted maximum is 50%, which is Rs 20,000. The excess is Rs 8,000. Wages for statutory purposes are therefore Rs 12,000 + Rs 8,000 = Rs 20,000, which is exactly 50% of total remuneration.

If the employer had paid Rs 20,000 as basic pay and Rs 20,000 as HRA, wages would be Rs 20,000 with no add-back, because excluded items are exactly 50%. In both cases, the statutory wage is Rs 20,000. The old structure, which used basic pay of Rs 12,000 as the PF base, is no longer safe.

This example uses the exclusions as the sources describe them. Whether a specific allowance is excluded depends on the list in the Code, which we did not read.

What a generic special allowance does

Kredily's August 2026 guide reads the definition as treating a generic "special allowance" as part of wages, because it is not on the excluded list. It calls this its own interpretation and says there is no case law yet. If that reading is right, a structure with a small basic and a large special allowance gives a high wage base. Ask your adviser how to classify each of your allowances.

What the wage definition does to PF

Provident fund is calculated on wages up to the ceiling. With the ceiling at Rs 25,000, a monthly wage of Rs 20,000 means:

The 13% estimate for the employer comes from HRTailor and CorpLawUpdates, which say it includes EDLI at 0.5% and administration at 0.5%. They also disagree with each other on some small figures, so check your ECR challan, which shows the exact amount payable.

Under the old structure, with a PF base of basic pay Rs 12,000, the same employee would have had Rs 1,440 deducted and the employer would have paid Rs 1,440. The difference is Rs 960 each side, a month, per person. In a payroll of 20 people with similar salary structures, that is Rs 19,200 a month, or Rs 2.3 lakh a year, in extra employer cost alone, before the ceiling change.

PF wage ceiling: from Rs 15,000 to Rs 25,000

KPMG's alert of 28 September 2026 says the monthly wage ceiling for mandatory EPFO coverage rose from Rs 15,000 to Rs 25,000, effective 17 September 2026, by gazette notification S.O. 5109(E) of the Ministry of Labour and Employment. CorpLawUpdates says the Union Cabinet approved it on 16 September 2026. Several payroll guides repeat the date.

An earlier article dated 10 June 2026 said the ceiling had been retained at Rs 15,000 under a notification of 29 May 2026 as part of recognition in the Social Security Code. CorpLawUpdates says S.O. 5109(E) supersedes the earlier notification S.O. 2702(E). That fits the order of events, and we treat Rs 25,000 as the current figure. Because the stakes are high, check your own EPFO portal and the notification before you change payroll.

Who is newly covered

According to HRTailor and CorpLawUpdates:

• Employees whose PF wages are between Rs 15,001 and Rs 25,000, who were previously outside mandatory PF, must be enrolled from 17 September 2026.
• Employees already in EPF but not in EPS, with wages in that range, must be added to EPS.
• The employer enrols them. The employee does not apply.
• Employees at or below Rs 15,000 see no change.
• Employees above Rs 25,000 are not mandatorily covered, but can be enrolled voluntarily, and existing members can continue.

The 20-employee threshold for EPF registration is mentioned by HRTailor ("generally required at 20 or more employees, voluntary below"). CorpLawUpdates does not mention it. If you have fewer than 20 staff and are not registered, the change does not directly apply to you today.

Transition for existing non-members

CorpLawUpdates says the transitional rules for existing non-members are left to forthcoming amendments to the EPF, EPS and EDLI schemes and that Gazette codification is still under way. That means there may be an official method for catching up months from 17 September that we have not seen. Talk to your provident fund consultant before you back-deduct.

How September and October returns work

HRTailor suggests that for September 2026 you split the month: 1 to 16 September at the old cap and 17 to 30 September at the new cap, in one return due 15 October. For October, the first full month at Rs 25,000, the return is due 15 November 2026. CorpLawUpdates mentions a circular dated 13 October extending the September deadline to 31 October, but it appears in a part of the page that is inconsistent with its own header. Treat it as unconfirmed, and check the EPFO portal for the date and the method before you file.

A worked example: a 25-person Kota institute

A coaching institute in Kota has 25 employees and is already registered with EPFO. Before 17 September 2026, six of them earned PF wages between Rs 15,001 and Rs 25,000 and were not covered, because they had joined above the old ceiling. The rest were covered or earned less.

Take the six staff at PF wages of Rs 20,000 each.

The employer's added cost is about Rs 1.87 lakh a year. Each of the six sees take-home fall by Rs 2,400 a month. HRTailor's example for six affected staff on a different salary scale reports about Rs 5,850 a month in extra employer cost, so scale to your own numbers.

Steps for this institute:

1. List every employee, their PF wages (basic, dearness allowance and the allowances that count as wages under the 50% rule) and whether they are currently in EPF and EPS.
2. Identify those between Rs 15,001 and Rs 25,000 who are not yet covered.
3. Tell them in writing: what changes, what is deducted, and when. Do not cut other pay components to offset the deduction. CorpLawUpdates mentions a Ministry advisory against this, but gives no source for it, so we do not rely on it. It is still unwise.
4. Generate or confirm their UAN numbers and enrol them.
5. File the September ECR with the split, and the October ECR at the new ceiling, after checking the portal's current instruction.
6. Update the payroll software.
7. Keep a note of the decision and of what the portal said at the time.

If the institute had fewer than 20 staff and was not registered, none of this would have been compulsory for it today. It would still affect hiring budgets, because candidates in this wage band will expect to be told whether PF applies.

Gratuity under the codes

Gratuity is a lump sum paid when an employee leaves after enough service. The formula the sources give has not changed: 15 days' wages for each completed year of service, calculated as monthly wages x 15 / 26 x years. A part-year above six months counts as a full year, according to Kredily.

Two things changed.

The wage base. Gratuity uses "wages" as defined in the Code on Wages. If that definition is wider than basic pay plus dearness allowance, gratuity goes up. Kredily's example, on a monthly pay of Rs 50,000, shows the base moving from Rs 15,000 to Rs 40,900 and annual accrual rising from Rs 8,654 to Rs 23,596, an increase of about 173%. The page notes that its reading of special allowance is its own interpretation. Kredily also says Ministry FAQs point to the last-drawn wages under the new definition for the whole service, with no split between before and after the codes. The page calls the FAQ guidance and not law.

Fixed-term employees. Littler and Kredily say fixed-term employees become eligible for gratuity after one year of service, where the earlier law required five years of continuous service. The payment is pro rata. The Trilegal review of June 2026 says fixed-term employees get gratuity pro rata, proportionate to their tenure, but does not state a one-year qualifying period. A cited news headline is the only place Trilegal's document used the "1 year" wording. Kredily notes that whether back-to-back contracts add up to one year is unresolved.

The cap on gratuity is set by the Central Government. Kredily's working figure is Rs 20 lakh, taken from a notification under the old law, and it found no new notification under the code.

A worked example: gratuity under two wage bases

Rahul has worked five years. His monthly remuneration is Rs 40,000: basic Rs 12,000, HRA Rs 20,000 and conveyance Rs 8,000, the same structure as in the 50% example.

The difference is Rs 23,077 for one employee after five years. Across 25 people with similar pay and tenure the liability difference is about Rs 5.8 lakh. The rule does not mean the cash goes out today, but it is a liability a business should plan for and, if material, mention to its accountant.

If Rahul were a fixed-term employee who completed one year, the pro-rata gratuity on Rs 20,000 would be about Rs 11,538, subject to confirmation of the one-year rule.

ESI: still Rs 21,000, with a clock ticking

factoHR's article of 15 October 2026 summarises the position:

• The ESI Act, 1948 was repealed on 21 November 2025 and its contents folded into Chapter IV of the Code on Social Security, 2020.
• Section 164(2)(b) saves existing ESI rules, schemes and regulations for one year, so long as they do not conflict with the code. That period ends on 20 November 2026.
• Until then, the existing rates and ceilings apply: employer 3.25%, employee 0.75%, on gross wages, with a ceiling of Rs 21,000 a month (Rs 25,000 for employees with disabilities).
• Factories with 10 or more employees are covered. Shops and commercial establishments with 10 or more employees are covered in most states, and 20 in Maharashtra and Chandigarh, according to the article.
• The 50% wage rule applies to ESI wages too.
• Replacement rules were described as unnotified. Proposals to raise the ceiling to Rs 25,000 or Rs 30,000 were under consideration, with no notification. The article advises employers to keep using Rs 21,000.
• The article says Day-1 ESIC registration was introduced under the Social Security (Central) Rules, 2026, but also gives a 15-day registration window. It contradicts itself, so we cannot tell you which applies.
• Employees earning Rs 176 a day or less are exempt from the employee's share, but the employer still pays.

What this means in practice

For a business with 12 employees in a state where the threshold is 10, ESI applies to employees whose gross wages are Rs 21,000 or less. For someone with gross wages of Rs 20,000, the monthly contribution is 0.75% x Rs 20,000 = Rs 150 from the employee and 3.25% x Rs 20,000 = Rs 650 from the employer, a total of Rs 800.

The risk is not in this month. It is that the saving period ends on 20 November, and there may be new rules in the weeks after. Check the ESIC portal in the last week of November.

Other changes that small employers should know

The sources are summaries and none of them covers small employers in detail. These are the points that were consistent across at least two of them.

• Grievance redressal committee. Establishments with 20 or more workers need one under the Industrial Relations Code (Trilegal).
• Retrenchment. The threshold for government permission for layoffs, retrenchment and closure rises from 100 to 300 workers (Littler, Trilegal). A retrenched worker's employer pays 15 days' wages into a reskilling fund.
• Overtime requires worker consent (Trilegal).
• Leave. Carry-forward is limited to 30 days with annual encashment permitted (Trilegal). Whether encashment covers all accumulated leave or only leave above the limit is flagged as uncertain.
• Final settlement. Trilegal gives two days for end-of-service payments. We could not confirm this, so check the Code on Wages.
• Night shifts. Women may work night shifts with consent and safety measures (Littler).
• Health check-ups. The Safety Code requires medical examinations for certain workers or industries. The details depend on state rules (Trilegal, Littler).
• New establishments must register before employing any employee (Trilegal).
• Penalties. The codes decriminalise some offences and use money penalties for first-time or minor non-compliance (Littler). We found no schedule of amounts.
• Inspections. Inspectors are described as inspector-cum-facilitators who guide as well as enforce.
• Gig and platform workers. Social security schemes are expected and had not been introduced as of the Trilegal review.

Your calendar for the next 60 days

If you also run an LLP or a company, our posts on LLP compliance and ROC compliance list the matching dates.

A decision guide for a small employer

1. Count your people. Fewer than 10 employees: ESI may not apply. Fewer than 20: PF registration is generally voluntary. Over those numbers, register.
2. Check your wage structure. Take your pay slips and compute total remuneration, excluded components, and the 50% add-back.
3. Recalculate PF and gratuity on that base. Decide whether you need to restructure pay for new hires.
4. Check PF coverage for the Rs 15,001 to Rs 25,000 band.
5. Watch the state rules. Subscribe to your state labour department's notifications, or ask your adviser to.
6. Document your decisions and keep a record of what the portal said on the day.
7. Do not cut take-home pay to hide the cost without advice. It can cause disputes and, in some cases, legal exposure.

Mistakes that cost money

• Ignoring the PF ceiling change. Employees in the Rs 15,001 to Rs 25,000 band must now be covered. Late enrolment means interest and damages on arrears under the old law, and we have not seen the new rules on this.
• Keeping the old salary structure. A tiny basic and a large HRA is exactly what the 50% rule targets.
• Underestimating gratuity. Accounting for it only at exit is a trap.
• Forgetting the ESI saving period ends on 20 November.
• Mixing up the wage definitions. Different guides use basic plus DA, wages under the code, PF wages and gross wages. Know which one each calculation uses.
• Using a stale calculator. Many online PF tools still use Rs 15,000.
• Filing the September return as a plain month. The split at 17 September matters.
• Waiting for state rules before acting. The central law is in force. Existing state rules apply to the extent they do not conflict.
• Treating a news headline as law. Several details above come from commercial blogs. Read the notification.

Frequently asked questions

When did the new labour codes come into force?

On 21 November 2025. They replaced 29 central labour laws with four codes: Wages, Industrial Relations, Social Security, and Occupational Safety, Health and Working Conditions.

What is the 50% wage rule?

If the components excluded from "wages" (such as HRA, conveyance, employer PF contribution, bonus and overtime) add up to more than 50% of total remuneration, the excess is added back to wages. The rule limits how far employers can cut the base for PF, gratuity and other benefits by moving pay into allowances.

Does basic pay have to be 50% of salary?

No, according to the Trilegal review. Wages are not capped at 50%, and basic pay need not be exactly 50%. If the included components are already above 50% of pay, wages can be higher.

What is the EPF wage ceiling now?

Rs 25,000 a month from 17 September 2026, according to KPMG's alert of 28 September 2026, which cites gazette notification S.O. 5109(E). Earlier it was Rs 15,000.

Do I have to enrol employees earning Rs 20,000 in PF now?

If your establishment is covered by PF, employees with PF wages from Rs 15,001 to Rs 25,000 who were previously outside the ceiling must be enrolled, and the employer enrols them, according to two 2026 guides. Check the transition rules for existing non-members before you back-deduct.

Does PF apply to my business if I have fewer than 20 employees?

HRTailor says registration is generally required at 20 or more employees and voluntary below that. We did not verify this against the statute.

What are the PF contribution rates?

12% from the employee and 12% from the employer, with the employer's share split into pension (8.33%) and provident fund (3.67%), plus EDLI and admin charges. The rates did not change with the ceiling.

When is the October PF return due?

15 November 2026, according to HRTailor. The September return was due 15 October, and one source mentions an EPFO circular extending it to 31 October. We could not confirm it.

What is the ESI wage ceiling?

Rs 21,000 a month, or Rs 25,000 for employees with disabilities, according to factoHR. Proposals to raise it had not been notified as of 15 October 2026.

What happens to ESI on 20 November 2026?

The saving period for the old ESI rules ends on 20 November 2026, according to factoHR. Replacement rules were described as unnotified. Check the ESIC portal before that date.

Are fixed-term employees entitled to gratuity?

Several sources say yes, pro rata, after one year of service. The Trilegal review confirms the pro-rata entitlement but does not state the one-year period. Whether successive contracts add up is unresolved.

How is gratuity calculated?

15 days' wages for each completed year of service, meaning monthly wages x 15 / 26 x years. A part-year above six months counts as a full year. The wages used follow the new definition.

Is there a cap on gratuity?

The Central Government sets it. Kredily uses Rs 20 lakh from an earlier notification and found no new one.

Do state governments have to publish their own rules?

Yes. As of the June 2026 review, States had not notified corresponding rules. Employers are generally expected to follow existing state formats where they do not conflict with the codes.

Do the codes apply to a small business with five employees?

Some provisions apply by establishment size, such as the grievance committee at 20 workers, PF at 20 and ESI at 10. Other parts, such as the wage definition and payment-of-wages rules, apply more widely. Ask your adviser which apply to you.

Can I cut other pay to offset the new PF cost?

Doing so can cause disputes and may reduce the wage base the codes are meant to protect. CorpLawUpdates mentions a Ministry advisory against it, without a source. Take advice first.

What are the penalties?

The codes decriminalise some offences and use monetary penalties for first-time or minor non-compliance, according to Littler. We found no schedule of amounts.

Are there changes for women working night shifts?

Women may work night shifts with their consent and mandatory safety measures, according to Littler. The details depend on state rules.

Do gig workers get benefits?

The Code on Social Security provides for it, but the Trilegal review said the schemes were still expected and not yet introduced.

What to do next

1. Collect your last three months of pay slips and compute total remuneration, excluded items and the 50% add-back for each salary structure.
2. Recalculate PF wages and check which employees now fall in the Rs 15,001 to Rs 25,000 band.
3. Enrol them if your establishment is covered, and prepare the October return for 15 November.
4. Update payroll software to Rs 25,000, and confirm the September split with your consultant.
5. Estimate your gratuity liability on the new wage base and share it with your accountant.
6. Check ESI applicability by headcount and state, and diarise 20 November.
7. Ask your state labour department or adviser about pending state rules.
8. Keep a dated note of each decision.

If you want help with payroll structure, PF and ESI registration, gratuity provisioning or notices, contact RegisCorp.

This post is general information, not legal advice. Rules change, so check your facts with a qualified professional before you act.

Sources and what we could not verify

Sources used

• KPMG, Flash Alert 2026-249: the EPF wage ceiling of Rs 25,000 from 17 September 2026 and the notification reference. Dated 28 September 2026.
• CorpLawUpdates, Cabinet approves higher EPFO wage ceiling: approval, notification, EPS cap and contribution example. Published 16 September 2026. The page's own dates are inconsistent.
• HRTailor, EPF ceiling Rs 25,000 SME guide: the 20-employee threshold, September split and ECR dates. Published 17 September 2026, modified 21 October 2026.
• Indian Pay Calculator, EPF wage ceiling stays Rs 15,000: the earlier report of a 29 May 2026 notification. Dated 10 June 2026. Superseded by the later notification, as we read it.
• Trilegal and CHRO, labour codes six-month review: commencement, wage definition, state rules, thresholds. June 2026.
• Littler, India's labor law overhaul: snapshot of key changes: effective date, wage rule, fixed-term gratuity and thresholds. Dated 25 November 2025.
• Kredily, new labour codes and gratuity: gratuity formula, wage base and fixed-term rules. Updated 15 August 2026.
• factoHR, ESI Act, 1948: applicability and the 2026 transition deadline: ESI ceiling, rates and saving period. Published 15 October 2026.

All are secondary, commercial or law-firm summaries. We did not open the Gazette, the four codes, the Central Rules or the notifications.

What we could not verify

• The text of the four codes, the Social Security (Central) Rules, 2026 and the EPFO notification S.O. 5109(E).
• The list of components excluded from "wages" and how a generic special allowance is treated. The Kredily reading is its own interpretation.
• The transition rules for existing non-members and any back-payment method for 17 September onward.
• Whether an EPFO circular extended the September 2026 return to 31 October.
• The 20-employee threshold for PF registration, which appears in one source and not another.
• The exact PF administration and EDLI rates, which we describe as about 1% in total.
• The one-year eligibility period for fixed-term gratuity, which two sources state and the Trilegal review does not.
• The gratuity cap under the Code on Social Security.
• Whether the ESI saving period ends on 20 November 2026 without further extension, and what replaces it. Whether Day-1 registration or a 15-day window applies.
• The state rules for your state, including registers, forms and health check-ups.
• The schedule of monetary penalties under the codes.
• The final settlement timeline (two days) and leave rules, which come from one source.
• Any notification or circular published after 20 October 2026.