The three statutory compliances every employer faces
Once you hire your first employee in India, three separate compliance regimes apply: Professional Tax (PT) from day one, Employees' State Insurance (ESI) from employee 10, and Provident Fund (PF) from employee 20. Each is governed by a different Act, regulated by a different authority, and filed on a different cycle. At numbrs we process 20,000+ payslips a month across the BCL Group client base, and the founders who get this wrong almost always get it wrong in the same places.
Professional Tax (PT) — applies from employee 1
Professional tax is a state-level tax on income from professions, trades, and employment. The employer deducts it from salary and remits it to the state government. Not all states levy PT — Delhi, Haryana, and UP do not. Karnataka, Maharashtra, West Bengal, Tamil Nadu, Telangana, Gujarat, and Madhya Pradesh do.
For Karnataka (where most Bangalore-based founders register), the rate is ₹200 per month per employee earning over ₹15,000. Payment is due by the 20th of the following month, and the annual return is filed by 31st March. Late payment attracts 1.25 percent per month interest plus penalty up to 50 percent of tax.
The most common mistake: founders register for GST and TDS but forget to register for PT for the first 12 months, accumulating interest on a tiny base every month.
Employees' State Insurance (ESI) — applies at employee 10
ESI is governed by the Employees' State Insurance Act, 1948. It applies when a company has 10 or more employees (in most states; 20 in Maharashtra and Chandigarh) and is mandatory for any employee earning ₹21,000 or less per month.
- Employee contribution: 0.75% of gross wages
- Employer contribution: 3.25% of gross wages
- Monthly challan due: 15th of next month
- Half-yearly return: 11th May (Oct–Mar) and 11th November (Apr–Sept)
What ESI gives covered employees in return is significant: medical care for the employee and family at ESI hospitals, sickness benefit, maternity benefit, disablement benefit, and dependents' benefit. Founders sometimes view ESI as pure compliance overhead; the better framing is that it is a cost-effective health benefit for blue and grey-collar staff.
Provident Fund (PF) — applies at employee 20
PF is governed by the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. It applies once a company has 20 or more employees and covers any employee earning up to ₹15,000 in basic wages (employees above the threshold can opt in voluntarily).
- Employee contribution: 12% of basic + DA
- Employer contribution: 12% of basic + DA, of which 8.33% goes to EPS (pension) and the rest to EPF
- Monthly ECR (Electronic Challan-cum-Return): by 15th of next month
- Annual return Form 3A/6A: by 30th April
Late PF deposit attracts 12 percent per annum interest until paid, plus damages of 5–25 percent depending on the delay. PF is one of the costliest compliances to miss — even a one-month delay on a 25-employee payroll can attract ₹15,000+ in interest and damages.
A practical timeline for hiring
- Employee 1: register for PT in your state. Set up payroll software (we include Zoho Payroll / equivalent free in every numbrs plan).
- Employee 10: register for ESI under esic.gov.in. Start monthly contributions from the 10th hire onwards.
- Employee 20: register for PF under EPFO unified portal. Allocate PF UAN to every employee. Start monthly ECR.
Common mistakes we clean up
Misclassifying "consultants" to dodge PF
Calling employees "consultants" and paying them via Form 16A does not exempt the company from PF if the relationship is genuinely employment (regular hours, exclusivity, supervision). EPFO has investigated and back-charged this pattern repeatedly. The fix is structural: either run them as employees, or run them as genuine consultants with project-based scope and multiple clients.
Underreporting basic wages
Some founders structure CTC with a low basic and a high HRA / allowances to minimise PF and gratuity exposure. The Supreme Court ruling in RPFC vs Vivekananda Vidya Mandir (2019) clarified that allowances that are universally and ordinarily paid form part of basic wages for PF computation. Aggressive splits are now openly challenged by EPFO.
Forgetting full-and-final settlement compliance
When an employee leaves, you have to issue Form 16, refund any unclaimed reimbursements, settle leave encashment, and file the exit in PF and ESI portals. Missing the PF exit filing leads to the employee being unable to withdraw or transfer their PF balance.
How numbrs handles this for you
Every numbrs plan tier maps to a payroll headcount: Essential covers up to 9 employees, Grow up to 19, Advanced up to 30. We handle monthly payroll processing, payslip distribution, all three statutory compliances, full-and-final settlement, and Form 16 issuance. The compliance calendar runs in the background; you don't need to remember the deadlines. See plans or talk to our team.