Is EPF Mandatory in India? Yes - Here's How It Works

Yes, EPF is mandatory in India for most employers once they reach 20 employees, and for employees earning ₹15,000 (about $176) or less in basic pay plus dearness allowance. Whether provident fund (PF) applies to your India team comes down to two things: your headcount and each worker's salary at the time you hire them. PF is India's main statutory retirement scheme, roughly the equivalent of a 401(k) in the United States.

This guide covers exactly when EPF is compulsory, the contribution rates, the special rules for foreign workers, and what happens if you skip it, all current as of July 2026. If you are hiring in India without a local entity, an India EOR can run this whole process for you.

Is PF mandatory in India?

Yes. PF is mandatory when two conditions are both met: the establishment employs 20 or more people, and the individual earns ₹15,000 (about $176) or less in basic wages plus dearness allowance at the time of joining. If you cross either line, coverage can still apply on a voluntary basis, and for many employees it becomes permanent once they enroll.

The two-condition test in plain terms:

• Employer condition: You have 20 or more employees on payroll, counted across the whole establishment, not per office or department.
• Employee condition: The worker's basic salary plus dearness allowance is ₹15,000 (about $176) or less, measured on the day they join.

As of July 2026, EPF is governed by the Code on Social Security, 2020, which came into force on November 21, 2025 and subsumes the older Employees' Provident Funds and Miscellaneous Provisions Act, 1952. The operating rules now sit in the EPF Scheme, 2026, which replaced the EPF Scheme, 1952 effective June 29, 2026. The framework and enforcement are new, but the core contribution logic (who pays, how much, and the ₹15,000 ceiling) is materially unchanged. You can see how this fits the wider reforms in our guide to the new Labour Codes in India. When you engage Wisemonk as your India employer of record, we complete PF registration and run the monthly filings under this current framework on your behalf, so you are not tracking Code notifications yourself.

When is EPF mandatory for employers?

EPF is mandatory for an employer the moment the establishment reaches 20 or more employees. At that point you must register with the Employees' Provident Fund Organisation (EPFO), obtain an establishment code, and begin monthly contributions. Registration is a legal duty, not an option, and the headcount includes all salaried staff on payroll, not only full-time hires.

A meaningful change under the Code on Social Security, 2020 is coverage breadth. The old 1952 Act applied EPF to industries named in a government schedule. The Code removed that industry-schedule restriction, so PF now applies to establishments across all industries once they cross the 20-employee threshold, whether you run a manufacturing unit, an IT services firm, or a services back office. Once you hit 20 employees, you have a defined window to register with the regional provident fund commissioner in your jurisdiction and start deducting and depositing PF.

If you would rather not manage EPFO registration and monthly deposits in-house, our employer of record service and managed payroll options handle the full compliance cycle. You can also see how PF fits the wider picture in our guide to payroll in India.

When is EPF mandatory for employees?

For an employee, EPF is mandatory when their basic wages plus dearness allowance are ₹15,000 (about $176) or less per month, assessed at the time of joining. This ceiling is measured once, on the joining date. So if you hire someone at ₹14,000 basic, they must be enrolled, and their contributions typically continue even after later increments push them above ₹15,000.

Employees who join above the ₹15,000 ceiling are not compulsorily covered. Coverage for them is voluntary and needs mutual agreement. This is where the "is PF deduction mandatory for everyone" question gets its real answer: it depends on the joining salary, not on job title or seniority.

One point to watch: the ₹15,000 wage ceiling was reaffirmed by a gazette notification (S.O. 2702(E)) dated May 29, 2026 and remains ₹15,000 as of July 2026. A proposal to raise the ceiling to ₹25,000 (about $294) has been deferred and is not enacted, so treat ₹15,000 as the operative number until an official notification says otherwise.

Can an employee opt out of PF?

An employee can opt out of PF only if they earn above the ₹15,000 (about $176) basic-plus-DA ceiling at the time of joining and have no existing active PF account. Such a worker is treated as an "excluded employee" and declares their status using Form 11 at onboarding. Once someone is enrolled and holds an active account, opting out later is not generally permitted.

Two situations allow non-coverage:

• Above-ceiling new joiners: A first-time or fresh joiner earning above ₹15,000 basic plus DA, with no live PF account elsewhere, can decline enrollment via Form 11. If they already hold an active Universal Account Number (UAN), coverage usually continues.
• Voluntary enrollment anyway: Many above-ceiling employees choose to stay in for the tax treatment and returns, and both sides then contribute the standard 12%. Some employers offer this as a benefit, especially to senior and relocating hires.

Digital access to PF is improving too. The EPFO's "EPFO 3.0" upgrade (faster claims, a higher auto-settlement limit raised to ₹5 lakh, and UPI and ATM-based withdrawals) is rolling out in phases and is not fully live nationally as of July 2026. The EPF Scheme, 2026 also consolidated partial-withdrawal reasons into broad heads covering illness, education or marriage, and housing.

Is PF mandatory for foreign or international workers in India?

Yes, and the rules are stricter than for local staff. An "International Worker" employed by a covered Indian establishment is compulsorily covered by EPF with no ₹15,000 wage ceiling. That means the employer and employee contribute on the worker's full monthly pay, not on a capped figure, so contributions are usually far higher than for a comparable domestic employee.

The one exception is a Social Security Agreement (SSA), also called a totalization agreement. India has SSAs with a number of countries. A worker from an SSA country who holds a valid Certificate of Coverage from their home social-security system can be exempted from Indian PF, or have contributions coordinated, so they are not paying into two systems at once. Without a Certificate of Coverage, full PF applies on total salary.

This is one of the most common and expensive surprises for global companies relocating staff to India. If you are moving employees in, our note on how to pay employees in India and our employee cost calculator help you model the true cost, including uncapped PF.

What are the EPF contribution rates?

The headline rate is 12% from each side. The employee contributes 12% of basic wages plus dearness allowance, which goes entirely to their EPF account. The employer also contributes 12%, but that share is split: 8.33% goes to the Employees' Pension Scheme (EPS) and 3.67% to EPF. The EPS portion is capped at the ₹15,000 wage ceiling, so it maxes out at ₹1,250 (about $15) per month.

Two employer-side charges sit on top of the 12%: the Employees' Deposit Linked Insurance (EDLI) contribution and EPFO administrative charges. Factor these into your salary structuring upfront, because they raise the real employer cost above a flat 24%.

The EPF balance earns interest at a rate the government reviews each year. For FY 2025-26 the rate is 8.25%, the third consecutive year at that level, recommended by the EPFO Central Board of Trustees on March 2, 2026. For a fuller view of statutory costs alongside EPF, see employee benefits in India, the cost of an EOR in India, and our salary calculator. Note that PF is separate from Employees' State Insurance (ESI) and from gratuity, which follow their own thresholds. We track these figures against official notifications in our India hiring research.

What happens if an employer doesn't deduct or deposit PF?

Failing to deduct or deposit PF is a punishable default, not a minor slip. A defaulting employer owes the unpaid contribution in full, plus interest and damages, and can face prosecution. Beyond the direct cost, PF defaults create problems with government contracts and with employee visa and exit processes.

PF must be deposited by the 15th of the following month. As of July 2026, a defaulting employer owes simple interest at 12% per year on the delayed amount under the Code on Social Security, 2020, plus damages under Section 128 that can reach up to 100% of the arrears. (Under the earlier EPF Act framework, damages ran on a graded scale of up to 25% per year.) A separate VISHWAS 2026 scheme lets eligible employers settle legacy damages disputes at reduced rates. The practical takeaway: PF is a monthly, time-bound duty, and the cost of getting it wrong compounds quickly. You can check our India hiring FAQs for related compliance questions, or see how an employer of record in India removes the deadline risk entirely.