PF, ESI & Labour Law Limits for Employers in 2026: Wage Ceilings, Headcount Thresholds & the New Labour Codes
PF, ESI and labour law limits for employers in 2026: wage ceilings, headcount thresholds, gratuity, the four Labour Codes and Telangana levies.
A start-up in Nanakramguda hires its eighteenth employee and assumes PF applies only from twenty. A Jeedimetla unit with an engineer earning ₹22,000 learns that the provident fund ceiling has just risen, but the ESI ceiling has not, so the same person is inside one scheme and outside the other. Labour compliance in India is a set of headcount and wage thresholds that interact, and since the four Labour Codes took effect on 21 November 2025, several of them are being re-read.
Limits at a glance
| Law | Applies when | Key limit | Contribution or benefit |
|---|---|---|---|
| Employees’ Provident Fund | Establishments with 20 or more employees; voluntary below that verify | Wage ceiling ₹25,000 from 17 Sept 2026 verify | 12% employer, 12% employee |
| ESI | 10 or more employees in notified areas verify | Wages up to ₹21,000 a month (₹25,000 for disabled employees) | 3.25% employer, 0.75% employee |
| Gratuity | 10 or more employees | Five years of service; one year for fixed-term employees under the Codes verify | 15 days’ wages per completed year; tax-free limit ₹20 lakh verify |
| Bonus | 20 or more employees | Eligible if wages are within the statutory ceiling verify | 8.33% to 20% of wages, within the ceiling |
| Professional tax (Telangana) | Salaried employees | Slab-based; maximum ₹2,500 a year verify | Deducted by employer |
| Maternity benefit | Establishments covered by the Code | 26 weeks for first two children | Creche where 50 or more employees verify |
| POSH Act | 10 or more employees | Internal Committee required | Annual report to the District Officer |
Provident fund: what changed on 17 September 2026
The Government raised the ceiling for mandatory PF coverage from ₹15,000 to ₹25,000 a month, unchanged since September 2014, under the Code on Social Security, 2020, covering EPF, the Employees’ Pension Scheme and EDLI. Employees earning between ₹15,000 and ₹25,000 now come within mandatory coverage. At the ceiling each side pays ₹3,000. Higher contributions already made by existing arrangements are not changed by the notification itself verify. September 2026 contributions raise a practical question: whether to apply the new ceiling for the whole month, split the month at 17 September, or use a blended figure. No EPFO circular on the method was reported at the time of the last update verify. Our note on the PF ceiling increase tracks it.
ESI: the ceiling that has not moved
Employees whose wages do not exceed ₹21,000 a month are covered, and the ceiling is ₹25,000 for persons with disabilities. Reports in mid-2026 indicate that a revision to the ₹25,000 to ₹30,000 range has been discussed, but no notification had been issued verify. Employees earning up to ₹176 a day are exempt from the employee share. An employer with an employee between ₹21,000 and ₹25,000 must therefore run PF but not ESI, and must watch for a revision.
The four Labour Codes
| Code | What changes for employers | Practical point |
|---|---|---|
| Code on Wages | Wages must include basic pay and allowances; allowances above 50% of total remuneration are added back | Salary structures that kept basic at 30 to 40% increase PF, gratuity and bonus cost verify |
| Code on Social Security | Single law for PF, ESI, gratuity, maternity; fixed-term employees get gratuity after one year | Update offer letters and payroll verify |
| Industrial Relations Code | Standing orders and prior permission for layoffs or closures at a higher headcount threshold, reported as 300 workers verify | Check State rules before relying on thresholds |
| Occupational Safety, Health and Working Conditions Code | Overtime beyond eight hours a day or 48 hours a week at double rate; revised factory and contract-labour thresholds verify | Review shift and leave policy |
Several thresholds are still subject to rules being finalised by the Centre and States. Treat the table as a checklist of what to verify, not a final position.
Other statutes and Telangana levies
Beyond the Codes, an employer in Telangana also meets the Telangana Shops and Establishments Act, professional tax, and the Labour Welfare Fund where applicable. Contract labour used through a manpower agency brings principal-employer liability for wages and PF if the contractor defaults. Manpower-supply invoices carry GST, and income-tax deduction at source applies to contract payments verify; see our TDS guide for start-ups.
Due dates and consequences of default
- PF and ESI: contributions are due by the 15th of the following month; returns follow monthly verify.
- Interest and damages: delayed PF attracts interest and damages that can reach a substantial percentage of the arrears; ESI carries interest at a prescribed rate verify.
- Prosecution: a failure to deposit employees’ share is treated seriously, and the employer’s share cannot be waived by agreement.
- Recovery: arrears can be recovered as land revenue.
Hyderabad context
IT and services companies in Hitech City, Gachibowli and Nanakramguda have many employees in the ₹15,000 to ₹25,000 band, particularly support and operations staff, and are the most exposed to the PF change. Pharma and manufacturing units in Jeedimetla and Patancheru add contract labour and factory-law thresholds. For start-ups, headcount crossing 10 or 20 is the moment to register, not the moment to plan.
Why work with ComplianceKart
Payroll compliance mixes statute, tax and contract law, and a wrong salary structure creates a liability that surfaces during an inspection. ComplianceKart is a boutique practice bringing CAs, CSs and advocates under one roof, like a multi-speciality hospital where the specialists consult before the procedure. We map thresholds to your headcount and wages, and handle registrations and notices. We do not guarantee outcomes in inspections or disputes.
Frequently asked questions
What is the PF wage ceiling in 2026?
₹25,000 a month from 17 September 2026, up from ₹15,000, per the notification reported under the Code on Social Security, 2020 verify.
What is the ESI wage limit?
₹21,000 a month, or ₹25,000 for persons with disability. No revision had been notified as at mid-2026 verify.
Is PF compulsory for a company with fewer than 20 employees?
Not under the established threshold of 20 employees, but an employer can opt in voluntarily, and the Codes should be checked for any change in threshold.
When did the four Labour Codes come into force?
They were notified as enforceable from 21 November 2025, with the wage definition and prospective gratuity calculation applying from that date.
Do fixed-term employees get gratuity?
Under the Code on Social Security, fixed-term employees become eligible after one year of service. Check the final rules for the pro-rata method.
How does the 50% wages rule affect PF?
Allowances above 50% of total remuneration are added to wages, which can raise the PF base for employees whose basic pay is low in the salary structure.
Is your payroll compliant after the Labour Codes?
Share headcount, salary structure and State. We will map the thresholds that apply.
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Disclaimer. This article is general information on Indian law as at 20 October 2026 and is not advice on any specific case. Items marked verify should be checked against the current official text before reliance. Contact: team@compliancekart.com · 9959536391 · compliancekart.com.
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